
Fair, the SoftBank-backed car startup, lays off 40% of staff, sacks CFO - dcu
https://techcrunch.com/2019/10/24/fair-the-softbank-backed-car-subscription-startup-lays-off-40-of-staff-sacks-cfo/
======
high_derivative
The reckoning may be still to come for various other Softbank-backed
companies. Will just take a while for them to run out of cash.

For example, Improbable also got 500M from Softbank a few years ago, and makes
500k (!) revenue at a loss of 50M [0] and cost of revenue of 10M. It's insane.

[0] [https://uk.finance.yahoo.com/news/softbank-backed-gaming-
sta...](https://uk.finance.yahoo.com/news/softbank-backed-gaming-startup-
improbable-burns-50m-huge-cash-injection-131849943.html)?

edit: for anyone interested in the details, look at the most recent group
accounts file here:
[https://beta.companieshouse.gov.uk/company/08070525/filing-h...](https://beta.companieshouse.gov.uk/company/08070525/filing-
history)

~~~
cdolan
I thought you were kidding with the name of the startup, given its situation.

There has to be a word for that kind of irony?

~~~
high_derivative
Hah. I have wondered about this particular one a fair bit.

First, it seems there is just not market for their product that could possibly
support the valuation in the near future. Second, by virtue of already being
so large a company, there is no room for evaluation of new small projects that
would change direction. Anything must immediately have enough potential to
generate millions in revenue.

Runway is maybe 5 years, so they got until then to produce enough revenue to
raise more funding or become profitable. IIRC they sold approximately 50% of
the company for the 500M round. Maybe I got this one completely wrong, but I
just don't see how this can go well. What an incredibly inefficient allocation
of capital for the ecosystem. Imagine giving 100 teams 5M each instead.

~~~
leesalminen
> Imagine giving 100 teams 5M each instead.

In 2014 I took $250k as an investment and turned it into ~100x that (in cash)
in 2017 with a SaaS product.

At the time, VCs said it was “too risky” and so we turned to people in our
industry for the investment cash. VCs are funny.

~~~
grepthisab
Respectfully it may have been above their risk tolerance, and of course you
being successful with it doesn't make it a prudent investment. That's the "I
won the lottery so everyone should have played the lottery" thing.

------
robert707
Fair is probably done al la WeWork. Out of money, living a 25 million dollar
loan from Softbank, and abandoning everything but their Uber rental product.
The Uber product is the Xchange Leasing one they took over from Uber because
Uber was constantly losing money on it. In exchange for taking over that
Softbank had given Fair a pile of money that lasted just over a year. Now that
is gone and Softbank is just trying to figure out how to keep a pale shadow of
Fair alive because Uber needs those cars on the road.

This 40% came very hastily and was focused on product and eng. 4 weeks
severance and no clarity on if you have benefit coverage during this. This was
cutting for the sake of cutting, no clear consolidation of teams. Folks on the
lots are expected to go in the next wave. Word is there is another 25 million
out there Softbank will give Fair once Fair cuts enough overhead.

Also some suppliers haven't been paid for months, some going back to July. At
one point an irate supplier blocked the entries to the Irvine lot with his tow
trucks until Fair paid at least some of the 700k they owed.

------
maxaf
Setting aside SoftBank, let's talk about Fair.

I'm a Fair customer, and I like the service, but I don't think it's a steal.
It's a fair deal (no pun intended), but by no means would I call it a
ridiculous, out-of-this-world deal.

Surely some fellow New Yorkers will remember the good old days of the Uber-
Lyft price war, when it was possible to travel from the low 90-s & York to the
low 80-s & Columbus for $2 on an Uber Pool. Or how during the morning rush an
Uber Pool would take one from the UWS to FiDi for about $5. Those were
unimaginably good deals because they were heavily subsidized by the VC cash
that was flowing so easily into rideshare companies and out the other end into
riders' wallets. Those were the days!

Fair is nothing like that. I pay $266/month for a 2018 CPO Honda Accord that I
received with 2k miles and most of its original warranty. I reckon this costs
me about 15-20% more than a dealership lease of a brand new car. I consider
this a fair (...) premium for the flexibility that a Fair lease affords me: I
can end it at any time without undue shenanigans, whereas a traditional lease
would require me to either transfer it or pay an early termination fee.

Why is this important? With Fair I don't feel as if some hapless VC is
subsidizing my use of the vehicle. The whole thing feels like an actual
business with assets and employees and some kind of plan, not a reckless
gamble for market share that in itself is worth nothing to begin with. It all
makes a certain kind of cold sense: when you browse Fair's app for a vehicle,
the cars you see aren't actually on Fair's balance sheet until the lease has
started. Since their prices aren't too good to be true, my gut tells me that,
at the very least, they have a spreadsheet somewhere that spits out the price
they should charge a customer after having quantified the risk of this
customer ending the lease before its break-even date, thus saddling Fair with
the car for which it now has to pay out of its own coffers.

SoftBank being SoftBank, it's possible that Fair is one of its better bets.

~~~
robert707
On the back end, that flexiblity to let you end at any time costs more than
the 10 to 15 percent premium you pay. Equity dollars are used to recondition
and transport your car and also to pay the debt on it until a new customer can
get in it. Since the majority of their customer base churns through the
platform with low tenure and is not retained (short term Uber drivers), it is
a major problem and has destroyed every other player who tried to do short
term leasing. You need a longer tenure to cover the cost of turning the car
around.

Your gut is very wrong on this one, sorry.

~~~
maxaf
> Equity dollars are used to recondition and transport your car

Not true! I get charged at the end of my lease for any "wear & tear above
normal". Fair allows the customer to pre-pay a monthly surcharge to avoid the
lump sum W&T charge at the end. Transport is cheap: I can get the car towed
across town for <$100, which is less than 40% of a single monthly payment.

> Since the majority of their customer base churns through the platform with
> low tenure and is not retained (short term Uber drivers)

How can you possibly know that? Here in NYC driving for Uber is _not_ a short-
term thing by any means. TLC licensing cost and the time it takes to obtain
this license is sufficient overhead to lock Uber drivers in for a long time in
the hope of perhaps one day breaking even. Fair also charges a relatively
hefty (I paid ~$2k) lease start fee in order to discourage customers from
churning too quickly.

> Your gut is very wrong on this one, sorry.

I encourage you to present information in support of your assertion.

~~~
rockarage
That lease start fee has gone up about 3x, to about 6k, so obviously it was
not enough. And at that rate people are better off getting a new car via a
typical lease agreement.

------
tomnipotent
There was a post here a little awhile ago from Fair Eng. team that mentioned
how they _saved_ hundreds of thousands annually on their AWS ES bill through
some change or another.

Hundreds. of. thousands.

I couldn't fathom a situation where they needed that much hardware to return
some car listings. Even if you had every car in the world in their database
(~1 billion) at ~10k/doc, that's only 10GB of data. And how many people could
possibly be looking to rent/lease a car at any single time? So between two
pretty guessable ceilings (data size + traffic) it was red flags everywhere.

------
jsemrau
The demise of Softbank seems largely exaggerated [1]. While surely some
investments are struggling, overall the company seems still to be in good
shape.

[1]
[https://www.japantimes.co.jp/news/2019/08/07/business/corpor...](https://www.japantimes.co.jp/news/2019/08/07/business/corporate-
business/softbank-groups-quarterly-profit-jumps-%C2%A51-12-trillion-highest-
recorded-japanese-firm/)

~~~
JumpCrisscross
> _overall the company seems still to be in good shape_

One, that article [1] precedes the WeWork debacle.

Two, it refers to SoftBank Corp., a conglomerate that also holds a large stake
in Alibaba. Nobody doubts SoftBank Corp’s solvency. Its Vision Fund is the
dubious foray, to which the Corp is insufficiently exposed to be tanked by.

[1]
[https://www.japantimes.co.jp/news/2019/08/07/business/corpor...](https://www.japantimes.co.jp/news/2019/08/07/business/corporate-
business/softbank-groups-quarterly-profit-jumps-¥1-12-trillion-highest-
recorded-japanese-firm/)

~~~
onlyrealcuzzo
I'm under the impression that Kyle Bass and a lot of other investors think
Alibaba and Ten Cent could be cooking their books. Is this not true?

~~~
ptenk
It’s possible, but it’s important to note Kyle Bass has been short China for a
very long time and has been spreading FUD (true or not) since 2008.

------
ausjke
Softbank's boss is a world famous investor.

Looking back, the only bet he won big is Alibaba, the rest are either
lukewarm, or disaster.

Statistically, he is probably worse than ordinary people like us as far as
investing goes, the difference only lies in that he has guts, he can call the
shots no matter what. Other than that, he is probably no better than anyone
else here?

he is a good business man for sure, that's why he collected his first bucket
of gold, but a good investing guy? to me not so at all.

~~~
eigenvalue
That's really not accurate if you read more about him and his story. He made a
ton of money early on by designing some electronic game system. He also made a
lot on Yahoo Japan. And he saw the opportunity of the iPhone when no other big
business in Japan did, and immediately moved to capture and leverage that
opportunity in a massive way. But I am the first to admit that his recent
picks in the Vision Fund are highly questionable. I doubt he would have been
as reckless if it were his own (or Softbank's) money that he was investing and
not Saudi royal money.

~~~
mikemotherwell
> not Saudi royal money

That's the missing piece of all this. The Saudis may legitimately be in the
market for turning $15B into $10B, and being happy.

Oil is under a LOT of pressure, and while it won't go away anytime soon, the
Saudis need to put their money somewhere. They likely already have a
diversified portfolio of other stocks, they have after all made billions for
almost a half century, and risking a smallish percentage of their wealth
(there's a terrifying thought) is likely a smart move, even if they lose big,
by anyone else's standards.

As a political strategy it is also probably sane. Vision Fund is likely good
for the Saudi's reputation, as investment in innovation over, say, real estate
in London or SF is less politically charged.

The Saudi's likely get a lot of this investment.

------
servercobra
I interviewed with them a few months ago. The guy who interviewed me was super
nice and really smart, but the company's business model seemed really odd. It
was some sort of arbitrage on cars with dealerships owning most of the stock
and trying to guess when the best time to sell the car as used was. Plus they
had this belief there was some customers who wanted something between
ZipCar/rental cars and a traditional lease, which I found dubious. I can see
wanting one year leases, but below that seems like a pretty tiny market. I'm
not surprised they've mostly switched to focusing on Uber.

~~~
lonelappde
There's a market for people who need a car to match their short term housing.
(<1yr, or even a 3-yr lease on a _used_ car). This is Rent-a-Wreck's market.
Not a huge market, though.

~~~
pkaye
> <1yr, or even a 3-yr lease on a used car

Why not just buy an used car and sell it after it is no longer needed?

~~~
vkou
Because you have to pay sales taxes on the full value of the car, not on the
fraction of the value that you got use out of.

Sales taxes are the #1 reason for why people who constantly lease do not just
buy and resell cars.

~~~
perl4ever
This doesn't make a lot of sense to me, don't competitive pressures mean you
implicitly pay for the sales tax you're not explicitly paying when you lease?

In my state (although not all) you get credit against sales tax for a trade-
in. But it seems to me that's a primary reason why a dealer offers less on a
trade-in than a private party would. Just because you're not paying sales tax
doesn't mean you get the whole benefit.

------
rax0m
A result of the zombification of the japanese economy. The BOJ is buying
stocks on all of these zombie companies to keep them alive and this is what
you get.

~~~
zaroth
There are clearly fundamental issues with SoftBank's VC operations; everything
from investment thesis, evaluation criteria, valuation model, to post-raise
governance.

It smacks of exactly the result you expect when the money they are investing
isn't "real". When what you're spending is actually _funny money_ , why not
ring up a $1B+ valuation just for the sake of being able to call the company a
unicorn? Maybe they are hoping for self-fulfilling prophecy. But underneath
you have money chasing problems which are completely uninteresting, non-
technical, or niche markets which will never support the valuation.

The money then proceeds to corrupt the teams which have raised it, because if
someone just handed you half a billion dollars you better "put it to work" one
way for another, even if the opportunities you are chasing don't measure up.
The CEO convinces themselves their time is worth $50,000 an hour and suddenly
it's irresponsible not to fly private, etc.

~~~
onlyrealcuzzo
To be fair, low interest rates all over the world are leaving zombie companies
alive everywhere.

In Japan, the problem is particularly absurd -- with the BoJ owning like 77.5%
of their ETF market, and days passing where not a single Japanese bond sells
(of which there are USD $10 Trillion outstanding, and the BoJ owns 43%!)

------
malandrew
Kind of a shame that all the comments are focused on Softbank here and no one
is discussing Fair. I know what HN generally thinks of Softbank. What I want
to know is what HN thinks of Fair and this layoff.

~~~
cellular
Usually people work for startups for low pay/high hours for a big payoff of
stock options. Will those laid off get nothing? That doesn't seem fair.

~~~
onlyrealcuzzo
You almost always get nothing unless your startup IPOs, which historically is
about ~0.01% of all seed-funded startups.

Even if the company sells privately, which does happen quite often, there's a
liquidation preference so that investors usually get all of the money, leaving
nothing for founders or employees.

Someone posted an excellent example of it today:
[https://news.ycombinator.com/item?id=21358531](https://news.ycombinator.com/item?id=21358531)

------
0xADADA
SoftBank is that saddad that keeps lending his dirtbag son money, the son
blows it all on lotto cards and shit food at Mohegan Sun, and then begs for
more money.

It'll blow up soon.

~~~
wiglaf1979
That's a suspiciously precise description...

~~~
gimmeThaBeet
especially given Mohegan Sun is a singular place?

------
scurvy
Given the recent issues they've had with other portfolio companies, I wonder
if the C suite moves were based on family ties that Softbank didn't like.
Seems like a lot of upper management at Fair were related to each other.

------
flog
Well that explains why their money-down price jumped from $500 to $5000 within
the last couple of weeks.

~~~
driverdan
They require $5000 down for a month-to-month lease? That seems significantly
higher than it should be.

------
lefstathiou
I think companies that over raised too soon are facing a reckoning.

------
piterdevries
Isn't car subscription called leasing?

~~~
MichaelApproved
Traditional leases have multi-year contracts. These cars don't.

------
tus88
> another startup is taking a proactive step to get ahead of the story, by
> cutting costs and restructuring before public opinion forces the issue on
> them.

I thought the proactive approach was to get bought out by Facebook? And that
was the entire goal all along...not to make an actually viable business.

------
kolanos
Softbank Vision Fund looks like a Saudi money laundering scheme to me.

------
xenihn
There's some juicy stuff in the recent Glassdoor reviews.

------
tempsy
Really curious how OpenDoor is doing. They've raised a ton from SoftBank as
well.

~~~
jdross
Latest round wasn't led by Softbank. Softbank just led the D.

"The round was co-led by General Atlantic, Access Technology Ventures, and
Lennar Corporation (the leading homebuilder in the U.S.), with additional
participation from new investors Andreessen Horowitz, Coatue Management, 10100
Fund, and Invitation Homes (a leading property owner of homes for lease in the
U.S.). Existing investors Norwest Venture Partners, Lakestar, GGV Capital,
NEA, and Khosla Ventures also participated in the round."

[https://www.businesswire.com/news/home/20180613005382/en/Ope...](https://www.businesswire.com/news/home/20180613005382/en/Opendoor-
Announces-325-Million-Series-Financing)

------
gentle
Good riddance.

------
MaupitiBlue
Whatever happened to f’edcompany.com?

~~~
gwbas1c
I know! I opened it a few hours ago to see if any of the old stories were
still there.

Now it's just the logo and an email list sign-up.

------
helpPeople
So the bubble is bursting from tech? Or is there an international crisis
causing this?

~~~
ebog
The bubble is bursting from Softbank*

Tech as a sector is still doing very well, even though there are some high
publicity mega failures like WeWork

~~~
actuator
Well, WeWork is not even tech. So, there's that.

~~~
Thlom
Glorified landlord?

~~~
actuator
Yeah, pretty much. Since tech startups rent their spaces out, it somehow gets
discussed with them.

