Mobile OS Maker Jolla To Cut Half Its Staff, Restructure Its Debt After Funding Stalls

Finnish alternative mobile OS startup Jolla is facing the situation startups dread the most: running out of financing to keep the business going in the way they’d like. Today the Sailfish OS maker said it is being forced to adjust its operations after failing to close a €10 million ($10.6M) Series C round within the required timeframe to keep up with its outgoings.

Negotiations with the unnamed single investor for its Series C have been postponed, according to chairman and co-founder Antii Saaarnio. He tells TechCrunch he hopes the financing negotiations will start up again in December.

“We were negotiating for three months for financing round, and of course we are a startup which is dependent on the external financing. In the final moments this financing round was postponed, still with one month — and this caused us to be forced to make this action.”

Around half of Jolla’s staff will be laid off as the startup tightens its belt to make do in the interim — although it’s describing these as “temporary” job cuts, clearly hoping to be able to rehire once or if funding starts flowing again. It’s also filed for a debt restructuring program in Finland to ensure it can still keep operating during the funding gap.

“We are of course hoping that these are temporary actions… And we are committed to continue the company but really this depends on the external investors as well, how are we able to continue operations,” Saaarnio adds.

If it can’t close the Series C is that the end of the road for its bid to make an alternative mobile OS business stick in a marketplace massively dominated by Google’s Android on the volume front, and Apple’s iOS at the high end?

No, argues Saarnio, saying Jolla could still keep “carrying the Sailfish OS asset even for a very, very long time”. Jolla last raised a $12.4 million Series B round in December 2014 — when it reported its total funding as $42 million.

However he concedes it would be unable to retain the talent and fund the expensive development work needed to ensure its Sailfish OS is competitive against more well-resourced mobile OS rivals. So would likely need to look at alternative models vs the OS licensing business it has been pushing most recently.

“In order to keep fighting we need to close the December financing for sure. It’s very important for the company,” he says. “The Sailfish OS requires quite a big investment and human resources… And that’s something we have difficulties to continue if we don’t have additional financing, it’s difficult to continue developing the operating system with these resources that we have at the moment.

“The company will continue and the Sailfish OS will continue but the actual development so that this becomes competitive asset and alternative requires additional financing.”

This summer Jolla announced it was focusing its immediate efforts on its software business — and on a licensing model for Sailfish — instead of trying to build both hardware and software itself, as it had been up to that point.

It seems likely the Jolla hardware business is now very much shelved, despite the intention it expressed in July to create a separate company to continue building devices. Crowdfunder backers of the Jolla tablet who haven’t yet received their slate should also expect more shipping delays. “This will have an impact [on shipping of the slate] but not a huge impact if we succeed with the December financing,” adds Saarnio.

On the software front, Jolla announced its first Sailfish OS licensing deal in July, with Indian OEM Intex saying it would be releasing Sailfish devices later this year.

“We’ve got the operating system into commercial shape and we have the first major licensing deals with Indian players but at the same time it has been a heavy R&D project and the investment consuming quite a lot of money and that’s why it was so critical to get the financing at this moment,” notes Saarnio.

So why the delay closing the round? He says it “hasn’t been easy” for Jolla to find investors — given the huge dominance of Google in the mobile space. And clearly it’s also proving an uphill task for Jolla to persuade its one strategic investor that an Android alternative has any legs at this point.

Our agenda is a scary agenda to many even major players in the industry. Google and Android is so strong…

“We have had to search for investors. It’s a very specific investment, and it’s typical it needs to have a strategic angle and at this point we only had one strategic investor, we didn’t have several who we were negotiating with. And that led to a situation… where we were not able to close early enough,” he says. “Our agenda is a scary agenda to many even major players in the industry. Google and Android is so strong, so many, many strong players have difficulties to believe on the other competing agendas.

“But at the same time I feel that… the alternative OS agenda is coming there, but it’s coming very slowly. While our investments have been very heavy already early on, so now the challenge for us is that we need to wait until the world catches us up with this vision that alternative OSes are actually needed to create an alternative to Android.”

“I believe that after one year that would be much more, bigger interest towards us, but at the moment this interest is just emerging. Companies are just realizing that they really need an alternative. And we have interesting discussions with multiple companies but it’s still no concrete actions from the strategic investors in the industry.”

Jolla’s ambitious vision of an alternative OS clearly needs big partners to buy in. “And that’s something that has been missing so far, at least,” Saarnio adds.

He says Jolla is now considering alternative approaches that might offer the best chance of keeping Sailfish afloat — above and beyond the direct licensing model targeting BRICS countries which it has been pushing most recently.

“So far we have been carrying this OS agenda alone, and we have been also been protective let’s say not to allow anybody to fragment the agenda but I think at this moment we have to also be negotiating with other industry players who want to utilize Sailfish OS code base and develop their own OS agenda based on that. I think that’s something we need to be humble on. And there are several of that kind of discussions ongoing, even with major industry players that seems to be interested to do this.

“And then also there also several privacy and security device companies that want to be developing operating system or their platform based on our operating system. And those are the things that we need to be continuing. So far we’ve been mostly thinking to license the operating system for existing device vendors but probably not we have to change the direction and offer also service work for major players to tailor the operating system for them, based on the Sailfish OS. There seems to be a demand for that… Each of the big players want to have their own operating system, that seems to be the trend.”

Another Jolla co-founder, Marc Dillon, left the startup this September — a surprising loss, given how committed Dillon had been to the Sailfish project and how visibly engaged he had been within Jolla, almost from the start. Speaking to TechCrunch earlier this month about its prospects, he said: “It’s been a very tough fight. But I believe that it’s still possible for there to be a third major player in mobile and we have not seen who it is yet.”