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Wag! CEO Garrett Smallwood explains his firm’s ‘radically different path to profitability’
Wag! CEO Garrett Smallwood is a three-time entrepreneur with previous experience at Redbeacon (acquired by The Home Depot), Pillow (acquired by Expedia via Home Away Group) and Finrise (acquired by Wag!).
Wag!, the petcare company known for connecting pet owners with local dog walkers, has recently undergone a series of sweeping changes.
In late November, after I was named the new CEO, my management team and I began plotting a radically different path to profitability. We began by assessing our relationship with users. First and foremost, we recognized that Wag! needed to improve the way we supported the community, including pet parents, pet caregivers and their pets.
Next, we examined the company’s financial health and analyzed the competitive climate, investment community and direction in which the tech industry appeared headed. The time has come to share how this influenced our decisions.
Late in 2019, a lot of smart people began to note a philosophical shift taking place in the capital markets. Investors had begun to lose patience with startups that spent massive sums on acquiring market share, but had demonstrated little to no ability at creating lasting businesses.
We concluded that funding in some sectors would quickly dry up. Based on our analysis, we expect a growing number of startups will be forced to hew out self-sustaining business niches to survive. This assessment is partly what led us to conclude that accepting another funding round wouldn’t necessarily benefit the company in the area that matters most: providing value to customers.
A consensus formed after we took control, and found a constant drumbeat of bills coming in and payments going out, notably to Amazon (Web Services), Google (to help extend our brand), Facebook (to reach customers) and for our office space. These costs were growing faster than revenue.
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Week in Review: Pet startups will be the death of Silicon Valley
Hey everyone. Thank you for welcoming me into your inboxes yet again.
I’m in Berlin. where TechCrunch just pulled off another great Disrupt event — we’ve got a lot of great Europe-focused startup content on the site, so get to scrolling if your interest is piqued.
If you’re reading this on the TechCrunch site, you can get this in your inbox here, and follow my tweets here.
The big story
Just as Pets.com symbolized the ridiculousness that came to frame the tech industry preceding the Dot-com bubble burst at the start of the century, dog-walking startup Wag might symbolize that SoftBank’s earthquaking investment overexposure may extend far beyond a one-time WeWork mistake.
This week, The WSJ reported that SoftBank had tossed in the towel on Wag, selling off its massive “nearly 50% stake” in the startup. The report states that SoftBank sold its stake back to the startup at a valuation far below its previous $650 million value. SoftBank is walking away from its two board seats in the process.
Wag will be laying off “a significant amount of the remainder of its workforce,” according to the report.
High-ambition startups stumble all the time, but SoftBank’s money bag-swinging swagger has left a handful of startups with dollar signs in their eyes and the desire to grow at a pace that they never dreamed of. When LA-based Wag closed its $300 million raise from SoftBank at the beginning of 2018, plenty of people wondered why on earth a dog-walking startup needed that kind of money.
Shift forward to the end of 2019, and startups that have relied on connecting contractor labor with phone-wielding consumers haven’t proven to be as capable in shifting into profitability, with Wag seeming to be yet another example.
Needless to say, Pets.com and Wag really don’t hold much comparison when it comes to the broader impact. Pets.com was well-known largely because of its hilarious marketing overextension; Wag’s stumblings are far more impactful, especially as they relate to the reputation of its Japanese benefactor, which has significantly reshaped the venture capital market in Silicon Valley and around the world.
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On to the rest of the week’s news.
Trends of the week
Here are a few big news items from big companies, with green links to all the sweet, sweet added context:
- Apple revamps parental controls on iOS
Apple is giving new functionality to its parental control tools for iOS. The new update in iOS 13.3 lets parents set limits over who their kids can talk to and text with during certain hours of the day. - Away CEO steps down
One of the weirder sagas of the week was Away CEO Steph Korey’s stepping down from her role at the D2C luggage company. The step-down followed a long investigation in The Verge, which basically chronicled how awful life was on Away’s customer service team, which painted a pretty ugly portrait of Korey’s leadership style. It was a rough article, but after Korey’s apology acknowledged that she had made some mistakes and would be trying to fix her management style, most people assumed the saga had wrapped. She stepped down this week following what was reported to be board pressure to do so; turns out they had been wanting to replace Korey and the negative press was the excuse they needed.
GAFA Gaffes
How did the top tech companies screw up this week? This clearly needs its own section, in order of badness:
- An iOS bug is locking up iPhones:
[An iOS bug in AirDrop lets anyone temporarily lockup nearby iPhones]
Image: Bryce Durbin/TechCrunch
Extra Crunch
Our premium subscription business had another great week of content. Our good friend Alex Wilhelm (who hired me as an intern four years ago!) is back at TechCrunch and has fired up a new series on Extra Crunch. Here’s his first post on the new hot club to join:
The $100M ARR Club
…Firms with valuations that their revenues can’t back are in similar straits. In the post-WeWork era, some unicorns are starting to look a bit long in the tooth. I suspect that the companies in most danger are those with slim revenues (compared to their valuations), poor revenue quality (compared to software startups) or both.
That said, there is a club of private companies that are really something, namely private ones that have managed to reach the $100 million annual recurring revenue (ARR) threshold. It’s not a large group, as startups that tend to cross the $100 million ARR mark are well on the path to going public…
Sign up for more newsletters, including my colleague Darrell Etherington’s new space-focused newsletter Max Q, here.
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YC alum Keeper raises $1.6M to help gig workers pay taxes
Every year around this time, Uber drivers, Wag dog walkers, Bird scooter chargers, social media influencers and other gig economy workers face the unsightly challenge of paying their taxes.
Companies like Uber and Lyft classify their drivers as independent contractors, which means you aren’t given any benefits and the company doesn’t withhold any of your taxes. This puts gig workers in a tough position come tax day, especially if they aren’t prepared to shell out big sums to the IRS.
Keeper, a startup that’s just graduated from the Y Combinator startup accelerator, is here to make taxes a lot easier for that demographic and to save them as much money as possible.
Founded by childhood buddies and former debate partners Paul Koullick and David Kang, the San Francisco-based company has raised $1.65 million on a $10 million valuation in a round led by Jake Jolis of Matrix Partners.
Keeper co-founders Paul Koullick (left) and David Kang
The pair entered YC this winter with a big idea and little to show for it. Come March, they had developed a full-fledged product and accumulated 200 paying customers. With their first round of funding, they plan to add to their small but growing team and acquire 10,000 customers in the next 18 months.
“There are some companies that are trying to go very broad and trying to cover the whole spectrum of benefits; we’re just trying to go really deep on taxes,” Kang told TechCrunch. “This is a pain point. This is where people are definitely leaving the most money on the table.”
Keeper guesses the average gig worker in the U.S. is overpaying their taxes by more than 20 percent, or about $1,550 for those making more than $25,000 per year. Why? Because these independent contractors aren’t claiming the tax write-offs available to them, like phone bills, car maintenance fees and even a Spotify subscription for drivers.
“If you’re a dog walker, there are so many things you need to be writing off, like your poop bags, your extra leashes, your parking,” Koullick told TechCrunch. “This population needs the guidance of an accountant, but they can’t afford one and we’re trying to create this third option.”
Like a personal accountant, Keeper monitors gig workers’ expenses all year in search of possible tax deductions, saving each user $173 per month on average, it estimates. The startup uses Plaid to follow its customers’ transaction history, and once per day sends a text message asking if there are any tax write-offs to note. Over time, it gets smarter and smarter, keeping the SMS questions to a minimum.
Keeper doesn’t fully file taxes for 1099 workers yet, but will begin offering a quarterly tax filing service in June. Next year, it plans to offer a full-year tax-filing service.
Koullick, Keeper’s chief executive officer, worked in product at Square before joining another startup, called Stride, where he built and scaled Stride Tax, a mileage and expense-tracking app. Kang, for his part, has spent most of his post-graduate career at a trading firm in Chicago, focused on quantitative modeling. The two toyed with a few startup ideas before landing on Keeper’s tax business.
“We wanted to build something that actually mattered to real people,” Koullick explained. “And we wanted to do it in the financial space where we were happy to wade through ugly details and systems on their behalf.”
Keeper isn’t the only recent YC alum focused on the growing gig economy. Another, Catch, sells health insurance, retirement savings plans and tax-withholding services directly to freelancers, contractors or anyone uncovered. Given the rapid rise of Uber and other gig platforms, it’s no wonder YC startups are tapping into the various business opportunities available there.
“We’re willing to tackle some of these topics that are kind of boring and mundane and really intensive,” Kang added. “Like the average person doesn’t want to think about taxes or filling out forms. We saw that as an opportunity for us to step in and be like, hey, we’ll take it.”
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Dog-sitting startup Rover just raised $155M
Rover, a dog-walking and dog-boarding service that merged with DogVacay around this time last year, is now the second of such startups this year to raise a massive new round of funding with its announcement of a $155 million financing round.
While competitor Wag has become a juggernaut, there seems room for both room for a second player and the potential to outmaneuver Wag even with its massive influx of capital. Both DogVacay and Rover had a very similar model and eventually merged in an all-stock deal, creating a more substantial competitor for Wag. The round consisted of $125 million in equity financing led by funds and accounts advised by T. Rowe Price Associates, with a $30 million credit facility with Silicon Valley Bank. The Wall Street Journal is reporting that the round values Rover at $970 million.
Wag earlier this year picked up $300 million in a massive funding round led by SoftBank. That was, of course, SoftBank — which is investing massive piles of capital into startups and pretty much altering the calculus of venture capital in the process. But it also signaled a huge interest in various dog-care services, including apparently Rover, as a potential business opportunity for the millions of dog owners in the world. If you’ll walk anywhere in San Francisco, you’re destined to run into a very large number of very good dogs, and it makes enough sense that there should be an opportunity to capitalize on dog-ownership as a whole.
Rover connects dog owners with various users that will walk, board, or generally take care of dogs — a critical service for anyone who might be traveling, or just work in a non-dog friendly office. Users just book a dog walker or sitter through the app, which connects them with area sitters. It’s an area where Wag has faced a lot of criticism following a major Bloomberg report regarding poor service (and losing dogs). There are, of course, many challenges for any service that offloads some kind of daily need to a third party starting in a similar fashion to Uber.
Rover, interestingly, notes on its website that it “accepts less than 20% of potential sitters,” perhaps a dig at the criticism for Wag or the space in general and as an attempt to soothe concerns from potential users. Rover says it has more than 200,000 sitters throughout North America. The company previously raised $156 million, and previous investors include A-Grade Investments, Foundry Group, Madrona Venture Group, Menlo Ventures, OMERS Ventures, Petco, and StepStone Group.
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Dog-walking app Wag may be raising a huge round of funding
It looks like Wag may get another huge injection of cash following a big financing round earlier this year, according to a report by Recode, and also based on what we are hearing. We had heard a bit ago that Wag was looking to raise around $100 million, which the Recode report also suggests. But it now looks like Softbank is in talks to invest around $300 million in the dog-walking app.… Read More
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