Long Regulatory Disruption of "Gig Economy" Disruption

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P.S. What Happened to Unicorn Homejoy LLC? 

Busted Tech? (Long Regulatory Disruption of Disruption). There are, what, 183929 Uber-for-X style companies today offering everything from weed delivery to in-home massages...? Most of these companies - Uber and Lyft included - are built on the 1099-economy where "gig" workers are framed as contractors rather than employees. Given that these companies are struggling to be profitable to begin with, it's especially helpful for these companies to avoid outlays for overtime pay, health insurance, worker's compensation, and other W-2 employee-related expenses. Except now, for the first time, a challenge to this model is seeing its day in court as a GrubHub Inc. ($GRUB) employee is suing for reimbursement of wages. Uber and Lyft have both settled prior (similar) suits out-of-court. Instacart, Caviar and Postmates have also been sued. A similar lawsuit, in part, forced Homejoy LLC into an assignment for the benefit of creditors in August 2015 and Chapter 11 in late-2015.* Which is to say that many companies - of GrubHub's status and otherwise - will be watching this fight closely as it has potentially existential ramifications for the gig economy going forward. Sometimes moving fast and breaking things runs into a regulatory roadblock.

* We thought it made sense to dive a bit deeper into what ultimately happened to Homejoy LLC, which, for the uninitiated, was at one time a Y-Combinator darling valued over $1b (after approximately $64mm of funding). Why? Because more often than not companies are celebrated on the way up and quickly forgotten after they come crashing down. It should be noted what happened to the company, its employees, and its assets after the crash. Here is what we know from the bankruptcy filing and otherwise:

  • Per Re/Code, Google hired "around 20 members of Homejoy's product and engineering team." Notably, Google Ventures was one of the largest creditors of Homejoy's bankruptcy estate - to the tune of approximately $18mm. 
  • Per the company's court filing, the Google hire occurred in July 2015 and the purchase price had to be several million dollars because it subsumed not just the tech team, but enough "consideration" to payoff the company's secured credit facility from Silicon Valley Bank, fund the wind-down AND leave money in the bankruptcy estate for a liquidating trust. See below. 
Company's Bankruptcy Disclosure Statement, filed 9/15/16. 

Company's Bankruptcy Disclosure Statement, filed 9/15/16. 

  • The company sold its customer list, service provider list, trademarks and domain names to entity called ABAP Holdings Inc. Some may recall that this transfer wasn't without its own controversy. The total purchase price was $100k.
  • The company sold its remaining office equipment for $20k.
  • The company seemingly tried to sell its source code but apparently was unable to find a buyer as the bankruptcy docket reflects no motion filed with the Bankruptcy Court seeking approval of said sale.  
  • The company would have managed the wind-down without a chapter 11 filing were it not for the "gig economy" lawsuits. It is unclear whether payments were ever made to the plaintiffs out of the liquidating trust or, if so, for how much. 

Clearly this wasn't the ending that Google Ventures, First Round Capital, Andreessen Horowitz and others wanted. 

9/17/17 Update. Apparently that gig economy lawsuit with massively disruptive potential didn't get off to a hot start for the plaintiff.

Meatheads Everywhere Lament: Vitamin World Going Bankrupt

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We admit it. There were a few folks on the team who used to do the whole vitamin thing. We were pumping iron, man-scaping, and trying everything and anything to "get shredded" like Brad Pitt in Fight Club. Now we just drink Soylent and Juicero. 

No, we're not serious. About the Soylent part. And, CLEARLY, the Juicero part. 

Anywho, the vitamin/nutrition space has gotten hammered and...hold on to your butts...another retailer is filing for bankruptcy. Enter Vitamin World which, per this Reuters report, may file bankruptcy as soon as this month to effectuate the closure of some of its 345 stores. Apparently, they've spent the better part of the last several months trying to negotiate themselves out of some onerous leases (query: who is their real estate advisor? Update: RCS Real Estate Advisors) and haven't been successful enough to thwart a bankruptcy filing. What's interesting about this is that Portrait Innovations filed for chapter 11 earlier this week for the same reason. Apparently landlords are convinced they can get better rent elsewhere. Maybe they think Square ($S) will be opening up more brick-and-mortar. But we digress. 

Square Store - NYC. For Realz. 

Square Store - NYC. For Realz. 

Look, "the Amazon effect" is real and Vitamin World probably won't be the last vitamin/nutrition business to wear the dreaded Scarlet BK. Seriously, look at these 1-year charts: blood red everywhere...

Source: Yahoo! Finance

Source: Yahoo! Finance

Source: Yahoo! Finance

Source: Yahoo! Finance

This won't be the last distressed situation you hear about in the vitamin space. 

Correction: it was brought to our attention that the original piece gave the impression that all the stores are closing. We have edited the above to indicate that the plan is to effectuate some closures. 

Millennials LOVE SUVS, Apparently

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This makes zero sense. The no-possession simple-life "experiences" generation is suddenly jumping on the consumption bandwagon and using SUVs as their foray into spending? What. The. $*#&. Did they just wake up and suddenly realize there's a kid in the room next to them and that - given the post-1980 definition - they are in their late 30s? No wonder there's talk about Generation X being the Jon Snow of the United States. 

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Smoke Em if You Got Em, Connecticut

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Unsustainable Pension Obligations + Mass Exodus (Aetna OUT, General Electric OUT) + Massive Municipal debt + Busted Hedge Funds and Corresponding Loss of Tax Revenue + Increased Taxes = a total sh*tshow of a situation in Connecticut. Meanwhile, Hartford hangs on by a thread. Now, the budget-less state seeks to impose new sales taxes and cigarette taxes to close the gap. Nothing like a tax on those who can least afford it. Also, short Altria and Philip Morris. 

No Surprises: Seadrill Headed Towards Bankruptcy

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In the least surprising offshore oil and gas news of the year so far, Seadrill Ltd. announced that it is likely going to file for bankruptcy on September 12. This filing - and that date, for that matter - have been telegraphed previously which makes this statement all the more puzzling:

Source: Reuters

Source: Reuters

We nailed the 9/12 date in our last newsletter. See:

Source: PETITION Newsletter 7/30/17

Source: PETITION Newsletter 7/30/17

As for the newness? Really dude? Is this guy even paying attention to the debtload on that company and the offshore industry, generally? Stock was down 31% on the news (granted to $0.18/share). Suckers. 

Return of American Apparel

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Dov Charney is making a comeback. And now so is American Apparel, which intends to launch its new website on August 14. For those who need a reminder, American Apparel filed for bankruptcy back in November - for a second time in a year - and sold its IP to Gilden Activewear SRL, a Canadian company, for over $80mm. It looks like the new era is set to begin.

Associate Work/Life Balance

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Sometime soon...somewhere...some depraved management committee will commence a meeting under the guise of "work/life balance" and decide that it would be a game changer to inject RFID microchips into associates' arms. They'll try and sell it as an easier way for you to pay for your gourmet cafeteria/Aramark burger but, in reality, it'll be a step towards making sure they can bill every last hour out of you. Do you think we're kidding? Well, it's starting. Apparently the authors of this article think - judging from the illustration - that you'll be like Magneto if you elect to have the implant. Spoiler alert: you won't be. To quote Rihanna, modern day sage, "Werk, werk, werk, werk, werk." 

Notable (Sears Canada, Joyus, Community Health Systems & More)

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Busted Tech. Joyus, an online shopping platform that relied heavily on video, shuttered this past week announcing in a leaked memo that it would undertake an assignment for the benefit of creditors. The company had no venture debt but did raise nearly $70mm from Accel Partners, a Time Warner venture arm and investors affiliated with a Walmart ($WMT) venture affiliate.

Healthcare. Community Health Systems ($CYH) announced its preliminary Q2 financial and operating results and they weren't very pretty. Net operating revenues were down nearly $400mm relative to the same quarter last year. Categorical losses, however, were generally lesser than the year before. The stock - and that of spun-off Quorum Health Corporation ($QHC) took a dive after the report. Meanwhile, smaller ($1-10mm) healthcare providers continue to file for bankruptcy.

Noble Group. With $3b of debt and various other issues, lots of folks are souring on the name.

Och-Ziff. We've heard of camp counselor bonuses from satisfied parents but this $280mm package takes things to a whole new level. Also, long luck. 

Pure Unsupported Fantasy. Otherwise known as Sycamore Partners' claim that Dollar Tree Stores submarined the Family Dollar merger. So Dollar Tree says, anyway.

Sears Canada. And we thought we were aggressive with some of our commentary:nice headline. Meanwhile, it appears that Eddie Lampert and Bruce Berkowitz couldn't figure out a way to get along in the sandbox, calling off their joint effort to bail out the embattled Canadian retailer. Now ESL Partners LP may sell some of its stake to take a tax loss. Berkowitz's Fairholme Capital Management LLC increased its holdings not too long ago.

Shopping Holidays. Get ready because it is undoubtedly coming. Fresh on the heels of Amazon Prime Day, other retailers are getting jiggy with it (looking at you Walmart and JD.com) and intend to start their own shopping holidays. Looks like the big retailers want to make Labor Day even more pointless.

Supervalu is Super F*&ked.

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The company approved a 1-for-7 reverse stock split to fortify its NYSE listing ($SVU) and give suckers...we mean, investors, the impression that the company is in better shape than it actually is. In its Q1 earnings report, the company highlighted a boost to its wholesale business (to be served, in part, by an acquisition made out of the Central Grocers bankruptcy); it also attempted to assuage any concerns arising out of the potential lost Marsh Supermarkets volume (even as it kept 15 stores of business with the new owner). The company is launching meal kits (how effed is Blue Apron?) and grab-and-go meals.