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Failed meal-kit service Munchery owes $6M to gift card holders, vendors
Several weeks after a sudden shutdown left customers and vendors in the lurch, meal-kit service Munchery has filed for bankruptcy. In the Chapter 11 filing, Munchery chief executive officer James Beriker cites increased competition, over-funding, aggressive expansion efforts and Blue Apron’s failed IPO as reasons for its demise.
Munchery owes $3 million in unfulfilled customer gift cards and another $3 million to its vendors, suppliers and various counterparties, the filing reveals. The company’s remaining debt includes $5.3 million in senior secured debt and convertible debt of approximately $23 million. Munchery says its scrounged up $5 million from a buyer of its equipment, machinery and San Francisco headquarters.
The business had raised more than $100 million in venture capital funding, reaching a valuation of $300 million in 2015 before ceasing operations on January 22 and laying off 257 employees in the process. Munchery was backed by Menlo Ventures, Sherpa Capital, e.Ventures, Cota Capital and others.
The company, which failed to notify its vendors it was going out of business, has been scrutinized for failing to pay those vendors in the wake of its shutdown. To make matters worse, emails viewed by TechCrunch show Munchery continued aggressively marketing its gift cards in emails sent to customers in December, weeks before a final email to those very same customers announced it was ceasing operations, effectively immediately.
An email advertising Munchery gift cards sent to a customer weeks before the startup went out of business.
The latest court filings shed light on Beriker’s decision-making process in those final months, touching on Munchery’s frequent pivots, the company’s 2017 layoffs, its plans to scale sales of Munchery products in Amazon Go stores and failed attempts at a sale. Beriker is the sole remaining Munchery board member. He has not responded to several requests for comment from TechCrunch.
In the third quarter of 2018, Munchery, at the recommendation of its board, hired an investment bank to find a buyer for the startup, to no avail. Beriker suggests the lack of a buyer, coupled with industry trends like larger-than-necessary venture capital rounds and inflated valuations, were cause for the startup’s failure to deliver.
“The company expanded too aggressively in its early years,” the filing states. “The access to significant amounts of capital from leading Silicon Valley venture capital firms at high valuations and low-cost debt from banks and venture debt firms, combined with the perception that the on-demand food delivery market was expanding quickly and would be dominated by one or two brands– as Uber had dominated the ridesharing market– drove the company to aggressively invest in its business ahead of having a well-established and scalable business model.”
Increased competition from well-funded competitors drove the startup off course, too, and the epic failure that was Blue Apron’s IPO, which had a “material negative impact on access to financing for startups in the online food delivery business,” was just the cherry on top, according to Beriker’s statements.
Former Munchery vendors protested today at @sherpa, one of the startup’s investors that’ve stayed silent as former employees, vendors and drivers claim to be owed thousands: “Startup idea don’t steal pies!” Photo by @ThreeBabesBake pic.twitter.com/kfaOZ9CFkq
— Kate Clark (@KateClarkTweets) January 30, 2019
Munchery’s vendors, who were not notified or paid following Munchery’s announcement, have provided outspoken criticism to the company and venture capital’s lack of accountability in the weeks following Munchery’s shutdown. Lenore Estrada of Three Babes Bakeshop, among several vendors owed thousands of dollars in unpaid invoices, orchestrated a protest outside of Munchery investor Sherpa Capital’s offices in January. She said she has spoken with Beriker and founding Munchery CEO Conrad Chu in an attempt to pick up the pieces of the failed startup puzzle.
“None of us who are owed money are going to get anything,” Estrada told TechCrunch earlier today. “But the CEO, after fucking it all up, is still getting paid.”
Beriker, indeed, is still earning a salary of $18,750 per month, one-half of his pre-bankruptcy salary, as well as a “success fee based on the net proceeds recovered from the sale of the company’s assets up to a maximum of $250,000,” the filing states.
View the full bankruptcy filing here:
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Former Munchery employees sue company, blame CEO for shutdown
The Munchery saga continues.
In a new class-action lawsuit, former Munchery facilities worker Joshua Philips is claiming the startup owes him and 250 other employees 60 days’ wages, citing The Worker Adjustment and Retraining Notification Act, a U.S. labor law that requires employers with an excess of 100 employees to give notice 60 days ahead of mass layoffs.
Munchery, a prepared meal delivery company headquartered in San Francisco, announced in an email to customers on January 21 that it would cease operations, effectively immediately. The abrupt shutdown not only came as a surprise to Munchery’s community of customers, but shocked vendors, many whom had been expecting payments from the business for several weeks. Munchery’s own employees were left in the dark, too, according to several former workers who spoke to TechCrunch about their debt and dissatisfaction with chief executive James Beriker.
Munchery ordered mass layoffs on January 21, per the lawsuit, the same day customers were notified the company would go out of business. In total, Philips is seeking equal to the sum of his and other affected employees’ “unpaid wages, salary, commissions, bonuses, accrued holiday pay, accrued vacation pay, pension and 401(k) contributions and other ERISA benefits, for 60 days, that would have been covered and paid under the then-applicable employee benefit plans.”
Munchery is deep in a pile of debt. The startup’s former vendors, which includes San Francisco-based Dandelion Chocolate and Three Babes Bakeshop, say they’re owed tens of thousands in overdue payments. Those businesses, and several other small vendors in San Francisco and Los Angeles that notified TechCrunch following the publication of this story, are still awaiting overdue payments, with one supplier claiming to be owed north of $100,000.
As of Monday morning, Munchery had yet to file for bankruptcy.
“They entered into a 14-month payment plan with us to cover nearly $150,000 in debt, but never had the intention of fulfilling their obligation,” an LA-based Munchery vendor, who asked not to be named, told TechCrunch. “The entire meal prep business is not sustainable on a grand scale like these companies envision.”
On top of its outstanding debts to vendors and facilities workers, Munchery also failed to send final paychecks to delivery drivers. Several Instagram messages provided to TechCrunch show a cluster of drivers in the San Francisco and Sacramento area are confused by the lack of communication from the venture-funded startup and are hopeful checks will arrive.
After arguing with Munchery employees, a delivery driver in Sacramento by the name of Sharon Howard said she finally received a “janky looking handwritten check” from the business on Monday and is hopeful it will clear.
“My co-workers up here in Sacramento have not received their final checks and are just um…waiting,” Howard wrote in an Instagram message shared with TechCrunch. “I sort of have the feeling that if they don’t speak up, they’re just gonna be forgotten about … It’s just not right to work with the expectation of getting paid and then just allow Munchery to turn a blind eye.”
Munchery chief executive officer James Beriker joined the startup in 2016
Munchery had raised $125 million in venture capital funding at a peak valuation of $300 million from key investors e.Ventures, Infinity Ventures, Sherpa Capital and Menlo Ventures, as well as from Greycroft, M13, Northgate Capital and more since its founding in 2010 by Tran and Conrad Chu. Aside from a small $5 million check, all that cash was deployed under the leadership of Tran, who struggled to improve Munchery’s margins and was eventually replaced by Beriker, the former CEO of Simply Hired.
Munchery, however, struggled under Beriker, too, and ultimately shut down its Los Angeles, Seattle and New York operations and laid off 30 percent of its workforce. A former Munchery employee, who asked not to be named, said Beriker’s poor leadership is to blame for the startup’s failure.
“The CEO was very disconnected to the business,” the person said in a text message. “We would see him maybe once every other week and only for 15 minutes — if that. The kitchen staff didn’t even know who he was when he came to the facility. In my time with the company, he was rarely truthful or transparent about the current state of the business and the future direction. Not to mention his very hefty salary that compared to that of a publicly traded Fortune 500 company.”
“My heart goes out to all of the big and small businesses that Munchery’s closure has and will affect,” the person added. “I am also hopeful that the staff who had zero advance knowledge of the closure will find employment quickly.”
Beriker has not responded to multiple requests for comment from TechCrunch. We’ve reached out to Munchery’s investors for additional details surrounding the strange, sudden and silent shutdown.
Here’s a look at the full legal complaint:
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