e-cigarettes
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As Juul announces mass layoffs, a new lawsuit alleges it shipped a million contaminated pods
A lawsuit filed a by former Juul executive alleges that the company knew a batch of contaminated e-liquid had been used in about one million pods shipped to retailers earlier this year, but did not inform customers. The lawsuit, first reported by BuzzFeed, was brought by Siddharth Breja, former senior vice president of global finance at Juul from May 2018 to March 2019, who alleges he was fired after complaining about the contaminated pods.
News of the lawsuit comes the same day as Juul’s announcement it will lay off about 500 people, or 10% to 15% of its workforce, and the departure of four executives, including chief financial officer Tim Danaher. Juul is currently under scrutiny by the Food and Drug Administration, which claims the startup made misleading statements about its product and targeting of teens.
In the lawsuit, Breja claims that during a meeting on March 12, he learned a contaminated batch of mint e-liquid was used to make 250,000 refill kits, or a total of one million pods, that had already been shipped to retailers.
Breja alleges that when he complained about Juul’s refusal to issue a product recall or health and safety notice, Danaher said doing so would cost the company billions of dollars in lost sales, hurting its then-$38 billion valuation. About a week later, Breja says the company fired him, telling him that it was because he had misrepresented himself as former chief financial officer at Uber. In the lawsuit, Breja says the claim was “preposterous,” and that he had accurately represented his former position as a chief financial officer of a division at Uber.
In the lawsuit, Breja also claims that Juul wanted to sell pods that were almost a year old and when he asked the company to include an expiration or best by date, or a date of manufacture on the packaging, he was told by former CEO Kevin Burns that “half our customers are drunk and vaping like mo-fos, who the fuck is going to notice the quality of our pods?”
In an email, a Juul spokesperson said “Mr. Breja’s claims are baseless. He was terminated in March 2019 because he failed to demonstrate the leadership qualities needed in his role. The allegations concerning safety issues with Juul products are equally meritless, and we already investigated the underlying manufacturing issue and determined the product met all applicable specifications. The company will vigorously defend this lawsuit.”
TechCrunch has contacted for comment the law firm representing Breja. In a statement to BuzzFeed, Breja’s attorney Harmeet Dhillon said “Mr. Breja became aware of very concerning actions at the company, and he performed his duty to shareholders and to the board by reporting these issues internally. In exchange for doing that, he was inappropriately terminated. This is very concerning, particularly since some of the issues he raised concerned matters of public safety.”
Burns was replaced in September by K.C. Crosthwaite, a former executive at Juul’s largest shareholder Altria . A replacement for Danaher has not been announced yet.
Updated with statement from Juul.
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FDA chief summons Altria and JUUL to Washington to discuss teen vaping
The head of the U.S. Food and Drug Administration is calling Altria and Juul to meet in Washington to discuss their tie-up and how it impacts the companies’ plans to combat teen vaping. Earlier this year, Altria href=”https://techcrunch.com/2018/12/20/juul-labs-gets-12-8-billion-investment-from-marlboro-maker-altria-group/”>invested $12.8 billion investment in Juul.
“After Altria’s acquisition of a 35 percent ownership interest in JUUL Labs, Inc., your newly announced plans with JUUL contradict the commitments you made to the FDA,” Commissioner Scott Gottlieb wrote in a strongly worded letter addressed to Altria chairman and chief executive, Howard A. Willard III.
“When we meet, Altria should be prepared to explain how this acquisition affects the full range of representations you made to the FDA and the public regarding your plans to stop marketing e-cigarettes and to address the crisis of youth use of e-cigarettes,” Gottlieb wrote.
The commissioner sent a similarly worded message to Juul’s chief executive, Kevin Burns.
As part of that deal, Juul is getting access to Altria’s retail shelf space; the company is sending out direct communications pitching Juul to adult smokers through cigarette pack inserts and mailings to the company’s database of customers; and the two will combine the power of their respective sales and distribution backend which reaches roughly 230,000 retailers across America.
The recent deal comes only months after Juul released its plan to combat teen vaping — something the FDA had required of the company.
In the commitments it made last year, the vape manufacturer and retailer said it would expand its secret shopper program to make sure underage buyers weren’t getting access to its products; pull its campaigns from social media; and limit sales of non-traditional cigarette flavors (menthol, mint, Virginia tobacco, and “classic” tobacco) to the company’s website — which requires age verification.
Gottlieb isn’t the only one who has a problem with Juul. We’ve written about how the company has lowered the barrier to entry for nicotine addiction.
For Gottlieb, the addition of Altria’s marketing firepower and network of 230,000 retail locations likely isn’t an indicator of a company that’s willing to winnow down access to its products.
“I am aware of deeply concerning data showing that youth use of JUUL represents a significant proportion of the overall use of e-cigarette products by children. I have no reason to believe these youth patterns of use are abating in the near term, and they certainly do not appear to be reversing,” Gottlieb wrote. “Manufacturers have an independent responsibility to take action to address the epidemic of youth use of their products. My office will contact you to arrange a meeting to discuss these issues. Pursuant to your request, we intend to schedule this as a joint meeting with both Altria and JUUL.”
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The 10 largest US venture rounds of 2018
Three U.S. companies raised more than $1 billion in just one funding round in 2018, a year in which total deal value for U.S. startups is expected to surpass $100 billion for the first time.
For the most part, it was the usual suspects, and yes, SoftBank was an accessory in many of these rounds. Here’s a look at the 10 largest venture rounds of 2018.
Epic Games: $1.25 billion
The video game Fortnite Battle Royale was the star of the year 2018; more than 200 million players worldwide are registered online. (Photo Illustration by Chesnot/Getty Images)
Given the absolute phenomenon Fortnite became in just one year from its original release, it was no surprise private investors wanted to put money into Epic Games, the company behind it. In October, Epic Games announced a whopping $1.25 billion round at $15 billion valuation from KKR, Iconiq Capital, Smash Ventures, Vulcan Capital, Kleiner Perkins and Lightspeed Venture Partners to continue growing its Fortnite empire. That game alone is expected to bring in $2 billion in revenue in 2018 and reports 200 million registered players — not too shabby.
Cary, N.C.-based Epic Games’ monstrous fundraise was a standout in a year when funding for gaming and esports startups really took off. According to Crunchbase, global venture investment in the industry increased nearly 75 percent, to $701 million in the first half of 2018. Given Epic’s round, Discord’s $150 million infusion of capital this week and several others since June, the second half of 2018 undoubtedly set major records in the space.
Uber: $1.2 billion
Travis Kalanick, co-founder and former chief executive officer of Uber Technologies Inc., speaks during the TiE Global Entrepreneurs Summit in New Delhi, India, on Friday, December 16, 2016. Kalanick said the company will introduce Uber Moto across India. Photographer: Udit Kulshrestha/Bloomberg via Getty Images
One of the largest rounds of 2018 was also one of the first big financings of the year. To be fair, the negotiations behind Uber’s $1.2 billion SoftBank investment and much of the press coverage surrounding it came in 2017, but the deal officially closed in January. This deal was monumental for many reasons. First of all, it made Uber founder and former chief executive officer Travis Kalanick a billionaire — not just on paper — and it cemented SoftBank’s position as the ride-hailing giant’s largest shareholder.
The financing brought San Francisco-based Uber’s total raised to date to just over $20 billion at a valuation said to be around $72 billion. Of course, Uber has since privately filed for an initial public offering slated for the first quarter of 2019.
Juul Labs: $1.2 billion
Juul Labs, the maker of the popular e-cigarette brand that has recently come under fire from health officials over its popularity with young adults, plans to introduce a line of lower-nicotine pods. Photographer: Gabby Jones/Bloomberg via Getty Images
Juul, one of the buzziest companies of 2018, raised $1.2 billion from private investors Tiger Global, Fidelity and more in mid-2018. Then, this month, the developer of e-cigarettes popular among teenagers accepted a $12.8 billion investment from the makers of Marlboro that valued it at $38 billion. Not only has Juul created significant controversy surrounding the ethics, or lack thereof, of its core product and its marketing to the younger generation in a short time, but it has also accumulated value at a clip rarely seen before. Juul, for context, surpassed a $10 billion valuation just seven months after its first round of VC backing — that’s four times faster than Facebook.
2019 is poised to be an interesting year for San Francisco-based Juul as it navigates public scrutiny, regulations and the completion of its partnership with Altria Group, which, according to Juul’s CEO Kevin Burns, will “help accelerate [Juul’s] success switching adult smokers.”
Magic Leap: $963M
Magic Leap’s flagship product, the Magic Leap One AR headset, began shipping to consumers this year.
It wouldn’t be an end of the year round-up of the largest VC deals without any mention of Magic Leap, the extremely well-funded virtual reality company. Tucked away in Plantation, Fla., 8-year-old Magic Leap has closed round after round, raising more than $2 billion to develop its hardware and software. The key investors in this year’s big round, which valued the company at $6.3 billion, were Temasek and AT&T, which announced it would become the exclusive “wireless distributor” of Magic Leap products in the U.S. starting this summer. Magic Leap is also backed by Google, Alibaba and Axel Springer.
Not only did Magic Leap land one of the largest VC deals this year, but it also finally began shipping to consumers its flagship product, the Magic Leap One AR headset. That was a long time coming — years, in fact. So long, many doubted whether the buzzy headsets would ever see the light of day. Now, the headsets are available to buyers in 48 states, though it’s worth mentioning they cost more than two grand.
Instacart: $600M
Founder and CEO of Instacart Apoorva Mehta and moderator Megan Rose Dickey speak onstage during TechCrunch Disrupt SF 2016 at Pier 48 on September 14, 2016 in San Francisco, California. (Photo by Steve Jennings/Getty Images for TechCrunch)
Instacart has a lofty goal of delivering groceries to every household in the U.S., and it needs a lot of cash to get there. The company has raised VC every year since it completed the Y Combinator startup accelerator in 2012, and 2018 was no different. In October, the service brought in $600 million at a $7.6 billion valuation in a round led by D1 Capital Partners. Headquartered in San Francisco, the company has raised $1.6 billion to date from Coatue Management, Thrive Capital, Canaan Partners, Andreessen Horowitz and several others.
Instacart CEO Apoorva Mehta told TechCrunch at the time that the startup didn’t really need the capital and that this was more of an “opportunistic” battle. The market is hot, after all, and Instacart has ambitious plans to scale and it has a fierce competitor in Amazon to take on. As for an IPO, Mehta said “it will be on the horizon.”
Katerra: $865M
SoftBank-backed Katerra says it’s brought in more than $1.3 billion in bookings for new construction ranging from residential to hospitality and student housing.
One of SoftBank’s first major bets of 2018 was on construction technology, with an $865 million investment in Katerra at a $3 billion valuation out of its Vision Fund. Katerra, a tech startup based out of Menlo Park, develops, designs and constructs buildings. At the time of its January fundraise, Katerra told TechCrunch it had brought in more than $1.3 billion in bookings for new construction ranging from residential to hospitality and student housing. Founded in 2015 by three former private equity barons, the company has raised a total of $1.1 billion to date from SoftBank, Foxconn, Greenoaks Capital and others.
In June, Katerra announced it would merge with KEF Infra, an offsite manufacturing technology specialist, and would begin operating in India and the Middle East markets.
Opendoor: $725M
Yet another SoftBank investment, San Francisco-based Opendoor is also backed by Fifth Wall Ventures, GV, Andreessen Horowitz and more.
Opendoor’s two big SoftBank-backed investments this year totaled $725 million, valuing the company at $2.5 billion. The deal gave SoftBank a minority stake in Opendoor, an online real estate marketplace, and put one of its five managing directors, Jeff Housenbold, on the company’s board of directors. The round brought Opendoor’s total funding to slightly more than $1 billion — most of which it acquired in 2018, a major year for the company. Founded in 2014, the San Francisco-based startup is also backed by Fifth Wall Ventures, GV, Andreessen Horowitz and more.
According to TechCrunch’s Connie Loizos, Housenbold had hoped to work with Opendoor co-founder and CEO Eric Wu for some time. “The minute he joined [SoftBank] he reached out to me and let me know … saying if there was an opportunity to work together, to reach out to him,” Wu said.
Lyft: $600M
Uber competitor Lyft expanded aggressively in 2018, raised hundreds of millions in additional venture capital funding, and filed confidentially to go public.
Lyft managed to stay quite busy this year. Not only did the ridesharing company raise a $600 million round at a $15.1 billion valuation, it also acquired bike-share operator Motivate and filed confidentially to go public. Founded in 2012 by Logan Green and John Zimmer, the company has long competed with Uber, and will continue to do so as the pair race to the public markets in early-2019. Lyft, much smaller than Uber and only active in the U.S. and Canada, has raised nearly $5 billion in venture backing from KKR, Mayfield, Didi Chuxing, Floodgate and others.
San Francisco-based Lyft has spent much of the last two years expanding rapidly across the U.S. market, as well as pursuing its autonomous vehicle ambitions.
Automation Anywhere: $550M
Automation Anywhere raised a monstrous $550 million Series A in 2018, with support from the SoftBank Vision Fund.
The only surprise to make this list is Automation Anywhere, a 15-year-old provider of robotic process automation. The company raised a total of $550 million in Series A funding, a large chunk of which came from the SoftBank Vision Fund, as well as NEA, General Atlantic and Goldman Sachs. The round valued Automation Anywhere at $2.6 billion. According to PitchBook, this was the first round of institutional backing for the San Jose, Calif.-based company.
In a conversation with TechCrunch, Automation Anywhere CEO Mihir Shukla said they were attracted to SoftBank because of Masayoshi So — the CEO and founder of SoftBank: “[He} has a vision and he is investing in foundational platforms that will change how we work and travel. We share that vision.”
Peloton: $500M
SAN FRANCISCO, CA – SEPTEMBER 06: Peloton Co-Founder/CEO John Foley speaks onstage during Day 2 of TechCrunch Disrupt SF 2018 at Moscone Center on September 6, 2018 in San Francisco, California. (Photo by Kimberly White/Getty Images for TechCrunch)
Peloton’s growth exploded in 2018 as it launched its $4,000 treadmill, doubled down on original fitness streaming content and raised an additional $500 million in equity funding at a $5 billion valuation. The New York-based startup, often referred to as the “Netflix of fitness,” has raised nearly $1 billion in venture capital funding in the six years since it was founded by John Foley. It’s backed by L Catterton, True Ventures, Tiger Global and others.
It’s likely Peloton will take the public markets plunge in 2019 much like Uber and Lyft. Foley earlier this year told The Wall Street Journal that though he doesn’t have any concrete plans, 2019 “makes a lot of sense” for its stock market debut.
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How Juul made vaping viral to become worth a dirty $38 billion
A Juul is not a cigarette. It’s much easier than that. Through devilishly slick product design I’ll discuss here, the startup has massively lowered the barrier to getting hooked on nicotine. Juul has dismantled every deterrent to taking a puff.
The result is both a new $38 billion valuation thanks to a $12.8 billion investment from Marlboro Cigarettes-maker Altria this week, and an explosion in popularity of vaping amongst teenagers and the rest of the population. Game recognize game, and Altria’s game is nicotine addiction. It knows it’s been one-upped by Juul’s tactics, so it’s hedged its own success by handing the startup over a tenth of the public corporation’s market cap in cash.
Juul argues it can help people switch from obviously dangerous smoking to supposedly healthier vaping. But in reality, the tiny aluminum device helps people switch from nothing to vaping…which can lead some to start smoking the real thing. A study found it causes more people to pick up cigarettes than put them down.
Photographer: Gabby Jones/Bloomberg via Getty Images
How fast has Juul swept the nation? Nielsen says it controls 75 percent of the U.S. e-cigarette market up from 27 percent in September last year. In the year since then, the CDC says the percentage of high school students who’ve used an e-cigarette in the last 30 days has grown 75 percent. That’s 3 million teens or roughly 20 percent of all high school kids. CNBC reports that Juul 2018 revenue could be around $1.5 billion.
The health consequences aside, Juul makes it radically simple to pick up a lifelong vice. Parents, regulators, and potential vapers need to understand why Juul works so well if they’ll have any hope of suppressing its temptations.
Shareable
It’s tough to try a cigarette for the first time. The heat and smoke burn your throat. The taste is harsh and overwhelming. The smell coats your fingers and clothes, marking you as smoker. There’s pressure to smoke a whole one lest you waste the tobacco. Even if you want to try a friend’s, they have to ignite one first. And unlike bigger box mod vaporizers where you customize the temperature and e-juice, Juul doesn’t make you look like some dorky hardcore vapelord.
Juul is much more gentle on your throat. The taste is more mild and can be masked with flavors. The vapor doesn’t stain you with a smell as quickly. You can try just a single puff from a friend’s at a bar or during a smoking break with no pressure to inhale more. The elegant, discrete form factor doesn’t brand you as a serious vape users. It’s casual. Yet the public gesture and clouds people exhale are still eye catching enough to trigger the questions, “What’s that? Can I try?” There’s a whole other article to be written about how Juul memes and Instagram Stories that glamorized the nicotine dispensers contributed to the device’s spread.
And perhaps most insidiously, vaping seems healthier. A lifetime of anti-smoking ads and warning labels drilled the dangers into our heads. But how much harm could a little vapor do?
A friend who had never smoked tells me they burn through a full Juul pod per day now. Someone got him to try a single puff at a nightclub. Soon he was asking for drag off of strangers’ Juuls. Then he bought one and never looked back. He’d been around cigarettes at parties his whole life but never got into them. Juul made it too effortless to resist.
Concealable
Lighting up a cigarette is a garish activity prohibited in many places. Not so with discretely sipping from a Juul.
Cigarettes often aren’t allowed to be smoked inside. Hiding it is no easy feat and can get you kicked out. You need to have a lighter and play with fire to get one started. They can get crushed or damp in your pocket. The burning tip makes them unruly in tight quarters, and the bud or falling ash can damage clothing and make a mess. You smoke a cigarette because you really want to smoke a cigarette.
Public establishments are still figuring out how to handle Juuls and other vaporizers. Many places that ban smoking don’t explicitly do the same for vaping. The less stinky vapor and more discrete motion makes it easy to hide. Beyond airplanes, you could probably play dumb and say you didn’t know the rules if you did get caught. The metal stick is hard to break. You won’t singe anyone. There’s no mess, need for an ashtray, or holes in your jackets or couches.
As long as your battery is charged, there’s no need for extra equipment and you won’t draw attention like with a lighter. Battery life is a major concern for heavy Juulers that smokers don’t have worry about, but I know people who now carry a giant portable charger just to keep their Juul alive. But there’s also a network effect that’s developing. Similar to iPhone cords, Juuls are becoming common enough that you can often conveniently borrow a battery stick or charger from another user.
And again, the modular ability to take as few or as many puffs as you want lets you absent-mindedly Juul at any moment. At your desk, on the dance floor, as you drive, or even in bed. A friend’s nieces and nephews say that they see fellow teens Juul in class by concealing it in the cuff of their sleeve. No kid would be so brazen as to try smoke in cigarette in the middle of a math lesson.
Distributable
Gillette pioneered the brilliant razor and blade business model. Buy the sometimes-discounted razor, and you’re compelled to keep buying the expensive proprietary blades. Dollar Shave Club leveled up the strategy by offering a subscription that delivers the consumable blades to your door. Juul combines both with a product that’s physically addictive.
When you finish a pack of cigarettes, you could be done smoking. There’s nothing left. But with Juul you’ve still got the $35 battery pack when you finish vaping a pod. There’s a sunk cost fallacy goading you to keep buying the pods to get the most out of your investment and stay locked into the Juul ecosystem.
(Photo by Scott Olson/Getty Images)
One of Juul’s sole virality disadvantages compared to cigarettes is that they’re not as ubiquitously available. Some stores that sells cigs just don’t carry them yet. But more and more shops are picking them up, which will continue with Altria’s help. And Juul offers an “auto-ship” delivery option that knocks $2 off the $16 pack of four pods so you don’t even have to think about buying more. Catch the urge to quit? Well you’ve got pods on the way so you might as well use them. Whether due to regulation or a lack of innovation, I couldn’t find subscription delivery options for traditional cigarettes.
And for minors that want to buy Juuls or Juul pods illegally, their tiny size makes them easy to smuggle and resell. A recent South Park episode featured warring syndicates of fourth-graders selling Juul pods to even younger kids.
Dishonorable
Juul co-founder James Monsees told the San Jose Mercury News that “The first phase is proving the value and creating a product that makes cigarettes obsolete.” But notice he didn’t say Juul wants to make nicotine obsolete or reduce the number of people addicted to it.
Juul co-founder James Monsees
If Juul actually cared about fighting addiction, it’d offer a regimen for weaning yourself off of nicotine. Yet it doesn’t sell low-dose or no-dose pods that could help people quit entirely. In the US it only sells 5% and 3% nicotine versions. It does make 1.7% pods for foreign markets like Israel where that’s the maximum legal strengths, though refuses to sell them in the States. Along with taking over $12 billion from one of the largest cigarette companies, that makes the mission statement ring hollow.
Juul is the death stick business as usual, but strengthened by the product design and virality typically reserved for Apple and Facebook.
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