Feb 11, 2020 - Economy & Business

Inside the fall of SoftBank-backed startup Brandless

Illustration: Aïda Amer/Axios

Brandless, the SoftBank-backed e-commerce startup that originally sold all of its products for $3, confirmed yesterday that it will shut down.

Behind the scenes: Sources say Brandless had sought a buyer, via a bank-led process, but was unable to garner any bids.

  • The company had enough cash to last the year, but its board concluded that the business model wasn't viable long-term and that the best option was to return some money to investors, pay vendors, and provide severance to the 80 or so employees who will lose their jobs.

The company announced nearly $300 million in total funding, including a $240 million Series C round in late 2018 led by SoftBank Vision Fund.

  • But Brandless never really raised that much.
  • The Series C round was tranched, with SoftBank only investing around $100 million upfront and committing to fund around another $120 million if certain milestones were met. That final tranche never came.

The big picture: This isn't really a story about SoftBank Vision Fund, beyond how it reflects the firm's belief in the supremacy of capital and structural misalignment of staff incentives. SoftBank was in the car when Brandless went off the cliff, but it didn't set the GPS.

Brandless was primarily felled by a thesis that never panned out — that there were young consumers who craved a digital middle ground between dollar stores and malls. People who were price-sensitive, cared somewhat about quality, but not about brands. Walmart for hipsters. Trader Joe's for millennials.

  • It's unclear if this cohort really exists. Brands do matter to people. And, when they don't, there's no particular reason to pick Brandless over the top/cheapest choice on Google or Amazon.
  • Brandless also suffered from a lack of focus and quality, offering everything from spatulas to pet food to candy, to blenders. Doing everything, but none of it particularly well.

There should be no gloating here, even among those who were waiting for a SoftBank Vision Fund portfolio company to outright fail. Lots of people are out of work, other investors lost money, and countless hours of work will go without reward.

Instead, let it serve as a reminder that core ideas and execution remain paramount for startups. Fundraising, no matter how big the numbers, are just an enabling tool.

Go deeper

Activist investor Elliott Management knocks on SoftBank's gates

Photo Illustration: Sarah Grillo/Axios. Photo: David A. Grogan/CNBC/NBCU Photo Bank/NBCUniversal via Getty Images

Activist investor Elliott Management has acquired around a $2.5 billion stake in SoftBank Group, saying the market "significantly undervalues" the Japanese group's assets.

The state of play: So far the relationship appears to be friendly, but Elliott isn't shy about getting into the mud if that's where it feels the most profit lies.

Sequoia Capital's peacetime war chest

Photo: Smith Collection/Gado/Getty Images

Sequoia Capital two years ago made a decision that stunned many of its VC peers and limited partners: It would raise a whopping $8 billion for its third global growth fund, in an effort to defend both itself and its portfolio companies from SoftBank Vision Fund.

The plan: Sequoia still wouldn’t have SoftBank’s aggregate firepower, but it would have enough to compete for follow-on deals within its own portfolio, and to fund pro rata checks in SoftBank-led deals.

Go deeperArrowJan 21, 2020

Online dollar store Hollar to wind down

Illustration: Eniola Odetunde/Axios

Hollar, an e-commerce company that raised more than $75 million in VC funding, is expected to wind down soon, Axios has learned from multiple sources.

Between the lines: It's been a very tough month for direct-to-consumer startups, beginning with Casper Sleep's uninspired IPO and Monday's shutdown of SoftBank-backed Brandless.