Yet more developments for Beepi, the used car marketplace that had raised $150 million but then went bust: The company has completely shut down and has been sold off in parts to repay creditors. The development comes after a deal to sell itself to Fair.com, a stealth startup from car industry vets, was cancelled; and then a second deal to sell itself to Bay Area-based used car dealer group DGDG fell through, TechCrunch has confirmed with people close to the company.
With no more cash for operations, Beepi instead went through an Assignment for the Benefit of Creditors (ABC process), with advisory firm Sherwood Partners as the Assignee, the firm confirmed to TechCrunch. The Wall Street Journal first reported the assignment of Sherwood Partners to sell off the assets yesterday.
The development wasn’t a complete surprise. After we initially reported in December that Beepi, out of money, would be sold to Fair.com, we’d been trying to hunt down the latest on the situation, when we noticed that the sale announcement was marked as “cancelled” on Crunchbase in January (now mysteriously turned back again to “pending“); and we started to receive emails from people saying that the site had completely shut down and was not processing any sales, or refunds for sales.
However, the only reply we received to our questions to Beepi, Fair and investors came from Beepi’s Owen Savir, who co-founded the company with Alejandro Resnik. He emailed on January 19 that he and the company were “just setting up for the next steps.”
(January 19 appears to also be the last day that Beepi’s Twitter account tweeted anything other than responses to customers contacting it with problems. The Beepi site, similar to Savir’s wording in his email, also notes: “Stay tuned for our next steps.”)
And now we have found out more details.
According to our sources close to the company, the deal to sell Beepi to Fair.com was cancelled by the startup over disagreements on the conditions of the sale.
Then Beepi received a second offer from DGDG, a chain of car dealerships across the Bay Area. But as DGDG was going through its sales process, Beepi ran out of money and had to shut down, and DGDG walked away, too. There were also informal discussions with Carmax, one source tells us.
Fair.com and DGDG had similar financial offers: investors would have received about 35 percent in the new company, and the buyer would have invested around $20 million into restructuring the business.
Good idea, bad execution
Beepi is a textbook case of a startup with a good idea — a marketplace for people to sell and buy used cars, which would be vetted, processed and delivered to the new owner by Beepi, bypassing the costly overhead and commission structure of car dealerships. And there was some solid execution — strong customer service was a big selling point. But ultimately the company was run badly.
It had been valued as high as $560 million in previous rounds of funding, after raising money from 35 investors, including Yuri Milner, Comerica, Redpoint, Foundation Capital, Sherpa Capital and Fabrice Grinda.
But Beepi, a source tells us, was run with the wrong priorities. One ex-employee said Beepi was burning through around $7 million a month when it had its peak of 300 employees (before laying off 200 in December as part of its bid to sell to Fair.com).
A large part of burn was going to “grossly high salaries” and overtime. But, as one claimed, there were also many expenses that pointed to a company that was not economizing, spending money on things like a $10,000 sofa for the executives’ private conference room, and covering phone and car expenses for the founders’ significant others. “There was a definite abuse of funds,” an ex-employee said.
The co-founders, he added, were also very hands-on executives, but possibly to a fault, micro-managing decisions and also “very mercurial and hard to predict.”
And this is before considering some of the administrative problems at the company: one ongoing issue was getting titles and plates sent to new car owners in a timely manner. More than once, people would get pulled over and ticketed for having expired temporary registrations.
Riding on the hype of transportation startups and marketplaces, Beepi may have raised too much, too soon. “They were running the business to raise money, and then to get someone else to take it on,” was how one person described it.
One investor in the startup said that the founders were too aggressive in pushing for higher valuations. Indeed, co-founder Resnik, the CEO, told the WSJ in 2015 that it was looking to raise a “monster round” of $300 million at a $2 billion valuation to fuel its national expansion.
“Entrepreneurs should not always be raising at too high a price because it sets you up for a failure,” the investor said.
And failure, unfortunately, is exactly where it all ended.
When the market became tighter for late-stage growth rounds in the autumn period (the value was literally halved from $12 billion in 2015 to $6 billion in 2016), Beepi stalled. Employees were told in a speech towards the end of 2016 that there was another $90 million in funding from a Chinese investor that fell through (this is further to a $70 million round from August 2015, from another Chinese investor, car company SAIC). But one of our sources says the term sheets for this were never there to begin with, and questions whether that round was ever really a possibility at all.
Turning back to today, we may still see some form of Beepi emerge somewhere.
From what we understand, “Fair.com came back into the picture” after the initial sale to Fair.com, and then DGDG, fell through, said a source. It was looking to buy code, pricing algorithms, the brand and to hire about 23 Beepi employees.
Martin Pichinson, a co-president at Sherwood, would not provide any comment about how the sale has proceeded and who has acquired the assets.
In any case, a source told us that all of the assets have effectively been sold off to someone, including the company’s brand. (This, however, has been disputed.) It’s not clear if this will settle all of the startup’s debts: one source said that at the end of January, Beepi was still coming up about $6 million short on what it owed to its creditors.
Update: After this article was published, we received the following statement from the two founders. We have followed up with a further request for more elaboration, especially regarding what they dispute. (We have been trying to get more detail and to talk to Beepi for weeks to tell its side of the story).
“Regardless of the many inaccuracies in this report, this is a sad time for Beepi and everyone involved.We set out on an ambitious mission to build a massive company and radically transform a decades-old industry, and stopped well short of the goal line. We take full responsibility for that, and for letting our investors and our incredible, passionate and dedicated team members down.
Still, we take enormous pride in what we’ve built together, in pushing a stale industry forward to the benefit of consumers, and in the thousands and thousands of smiles we put on the faces of our buyers and sellers. The Beepi spirit lives on.Down, but not out.”