The first cannabis startup to raise big money in Silicon Valley is in danger of burning out. TechCrunch has learned that pot delivery middleman Eaze has seen unannounced layoffs, and its depleted cash reserves threaten its ability to make payroll or settle its AWS bill. Eaze was forced to raise a bridge round to keep the lights on as it prepares to attempt major pivot to ‘touching the plant’ by selling its own marijuana brands through its own depots.
If Eaze fails, it could highlight serious growing pains amid the ‘green rush’ of startups into the marijuana business.
Eaze, the startup backed by some $166 million in funding that once positioned itself as the “Uber of pot” — a marketplace selling pot and other cannabis products from dispensaries and delivering it to customers — has recently closed a $15 million bridge round, according to multiple source. The fund was meant to keep the lights on as Eaze struggles to raise its next round of funding amid problems with making decent margins on its current business model, lawsuits, payment processing issues, and internal disorganization.
An Eaze spokesperson confirmed that the company is low on cash. Sources tell us that the company, which laid off some 30 people last summer, is preparing another round of cuts in the meantime. The spokesperson refused to discuss personnel issues but noted that there have been layoffs at many late stage startups as investors want to see companies cut costs and become more efficient.
From what we understand, Eaze is currently trying to raise a $35 million Series D round according to its pitch deck. The $15 million bridge round came from unnamed current investors. (Previous backers of the company include 500 Startups, DCM Ventures, Slow Ventures, Great Oaks, FJ Labs, the Winklevoss brothers, and a number of others.) Originally, Eaze had tried to raise a $50 million Series D, but the investor that was looking at the deal, Athos Capital, is said to have walked away at the eleventh hour.
Eaze is going into the fundraising with an enterprise value of $388 million, according to company documents reviewed by TechCrunch. It’s not clear what valuation it’s aiming for in the next round.
An Eaze spokesperson declined to discuss fundraising efforts but told TechCrunch, “The company is going through a very important transition right now, moving to becoming a plant-touching company through acquisitions of former retail partners that will hopefully allow us to more efficiently run the business and continue to provide good service to customers.
The news comes as Eaze is hoping to pull off a “verticalization” pivot, moving beyond online storefront and delivery of third-party products (rolled joints, flower, vaping products and edibles) and into sourcing, branding and dispensing the product directly. Instead of just moving other company’s marijuana brands between third-party dispensaries and customers, it wants to sell its own in-house brands through its own delivery depots to earn a higher margin. With a number of other cannabis companies struggling, the hope is that it will be able to acquire brands in areas like marijuana flower, pre-rolled joints, vaporizer cartridges, or edibles at low prices.
An Eaze spokesperson confirmed that the company plans to announce the pivot in the coming days, telling TechCrunch that it’s “a pretty significant change from provider of services to operating in that fashion but also operating a depot directly ourselves.”
The startup is already making moves in this direction, and is in the process of acquiring some of the assets of a bankrupt cannabis business out of Canada called Dionymed — which had initially been a partner of Eaze’s, then became a competitor, and then sued it over payment disputes, before finally selling part of its business. These assets are said to include Oakland dispensary Hometown Heart, which it acquired in an all-share transaction (“Eaze effectively bought the lawsuit,” is how one source described the sale). This will become Eaze’s first owned delivery depot.
In a recent presentation deck that Eaze has been using when pitching to investors — which has been obtained by TechCrunch — the company describes itself as the largest direct-to-consumer cannabis retailer in California. It has completed more than 5 million deliveries, served 600,000 customers and tallied up an average transaction value of $85.
To date, Eaze has only expanded to one other state beyond California, Oregon. Its aim is to add five more states this year, and another three in 2021. But the company appears to have expected more states to legalize recreational marijuana sooner, which would have provided geographic expansion. Eaze seems to have overextended itself too early in hopes of capturing market share as soon as it became available.
An employee at the company tells us that on a good day Eaze can bring in between $800,000 and $1 million in net revenue, which sounds great, except that this is total merchandise value, before any cuts to suppliers and others are made. Eaze makes only a fraction of that amount, one reason why it’s now looking to verticatlize into more of a primary role in the ecosystem. And that’s before considering all of the costs associated with running the business.
Eaze is suffering from a problem rampant in the marijuana industry: a lack of working capital. Since banks often won’t issue working capital loans to weed-related business, deliverers like Eaze can experience delays in paying back vendors. A source says late payments have pushed some brands to stop selling through Eaze.
Another drain on its finances have been its marketing efforts. A source said out-of-home ads (billboards and the like) allegedly were a significant expense at one point. It has to compete with other pot purchasing options like visiting retail stores in person, using dispensaries’ in-house delivery services, or buying via startups like Meadow that act as aggregated online points of sale for multiple dispensaries.
Indeed, Eaze claims that its pivot into verticalization will bring it $204 million in revenues on gross transactions of $300 million. It notes in the presentation that it makes $9.04 on an average sale of $85, which will go up to $18.31 if it successfully brings in ‘private label’ products and has more depot control.
The poor margins are only one of the problems with Eaze’s current business model, which the company admits in its presentation have led to an inconsistent customer experience and poor customer affinity with its brand — especially in the face of competition from a number of other delivery businesses.
Playing on the on-demand, delivery-of-everything theme, it connected with two customer bases. First, existing cannabis consumers already using some form of delivery service for their supply; and a newer, more mainstream audience with disposable income that had become more interested in cannabis-related products but might feel less comfortable walking into a dispensary, or buying from a black market dealer.
It is not the only startup that has been chasing that audience. Other competitors in the wider market for cannabis discovery, distribution and sales include Weedmaps, Puffy, Blackbird, Chill (a brand from Dionymed that it founded after ending its earlier relationship with Eaze), and Meadow, with the wider industry estimated to be worth some $11.9 billion in 2018 and projected to grow to $63 billion by 2025.
Eaze was founded on the premise that the gradual decriminalisation of pot — first making it legal to buy for medicinal use, and gradually for recreational use — would spread across the US and make the consumption of cannabis-related products much more ubiquitous, presenting a big opportunity for Eaze and other startups like it.
It found a willing audience among consumers, but also tech workers in the Bay Area, a tight market for recruitment.
“I was excited for the opportunity to join the cannabis industry,” one source said. “It has for the most part has gotten a bad rap, and I saw Eaze’s mission as a noble thing, and the team seemed like good people.”
Eaze CEO Ro Choy
That impression was not to last. The company, this employee was told when joining, had plenty of funding with more on the way. The newer funding never materialised, and as Eaze sought to figure out the best way forward, the company cycled through different ideas and leadership: former Yammer executive Keith McCarty, who cofounded the company with Roie Edery (both are now founders at another Cannabis startup, Wayv), left, and the CEO role was given to another ex-Yammer executive, Jim Patterson, who was then replaced by Ro Choy, who is the current CEO.
“I personally lost trust in the ability to execute on some of the vision once I got there,” the ex-employee said. “I thought that on one hand a picture was painted that wasn’t the truth. As we got closer and as I’d been there longer and we had issues with funding, the story around why we were having issues kept changing.” Several sources familiar with its business performance and culture referred to Eaze as a “shitshow”.
The quick shifts in strategy were a recurring pattern that started well before the company got tight financial straits.
One employee recalled an acquisition Eaze made several years ago of a startup called Push for Pizza. Founded by five young friends in Brooklyn, Push for Pizza had gone viral over a simple concept: you set up your favourite pizza order in the app, and when you want it, you pushed a single button to order it. (Does that sound silly? Don’t forget, this was also the era of Yo, which was either a low point for innovation, or a high point for cynicism when it came to average consumer intelligence… maybe both.)
Eaze’s idea, the employee said, was to take the basics of Push for Pizza and turn it into a weed app, Push for Kush. In it, customers could craft their favourite mix and, at the touch of a button, order it, lowering the procurement barrier even more.
The company was very excited about the deal and the prospect of the new app. They planned a big campaign to spread the word, and held an internal event to excite staff about the new app and business line.
“They had even made a movie of some kind that they showed us, featuring a caricature of Jim” — the CEO at a the time — “hanging out of the sunroof of a limo.” (I’ve been able to find the opening segment of this video online, and the Twitter and Instagram accounts that had been created for Push for Kush, but no more than that.)
Then just one week later, the whole plan was scrapped, and the founders of Push for Pizza fired. “It was just brushed under the carpet,” the former employee said. “No one could get anything out of management about what had happened.”
Something had happened, though: the company had been taking payments by card when it made the acquisition, but the process was never stable and by then it had recently gone back to the cash-only model. Push for Kush by cash was less appealing. “They didn’t think it would work,” the person said, adding that this was the normal course of business at the startup. “Big initiatives would just die in favor of pushing out whatever new thing was on the product team’s radar.”
Eaze’s spokesperson confirmed that “we did acquire Push For Pizza . . but ultimately didn’t choose to pursue [launching Push For Kush].”
Payments were a recurring issue for the startup. Eaze started out taking payments only in cash — but as the business grew, that became increasingly problematic. The company found itself kicked off the credit card networks and was stuck with a less traceable, more open to error (and theft) cash-only model at a time when one employee estimated it was bringing in between $800,000 and $1 million per day in sales.
Eventually, it moved to cards, but not smoothly: Visa specifically did not want Eaze on its platform. Eaze found a workaround, employees say, but it was never above board, which became the subject of the lawsuit between Eaze and Dionymed. Currently the company appear to only take payments via debit cards, ACH transfer, and cash, not credit card.
Another incident sheds light on how the company viewed and handled security issues.
At one point, employees allegedly discovered that Eaze was essentially storing all of its customer data — including users’ signatures and other personal information — in an Azure bucket that was not secured, meaning that if anyone was nosing around, it could be easily discovered and exploited.
The vulnerability was brought to the company’s attention. It was something that was up to product to fix, but the job was pushed down the list. It ultimately took seven months to patch this up. “I just kept seeing things with all these huge holes in them, just not ready for prime time,” one ex-employee said of the state of products. “No one was listening to engineers, and no one seemed to be looking for viable products.” Eaze’s spokesperson confirms a vulnerability was discovered but claims it was promptly resolved.
Today, the issue is a more pressing financial one: the company is running out of money. Employees have been told the company may not make its next payroll, and AWS will shut down its servers in two days if it doesn’t pay up.
Eaze’s spokesperson tried to remain optimistic while admitting the dire situation the company faces. “Eaze is going to continue doing everything we can to support customers and the overall legal cannabis industry. We’re excited about the future and acknowledge the challenges that the entire community is facing.”
As medicinal and recreational marijuana access became legal in some states in the latter 2010s, entrepreneurs and investors flocked to the market. They saw an opportunity to capitalize on the end of a major prohibition — a once in a lifetime event. But high government taxes, enduring black markets, intense competition, and a lack of financial infrastructure willing to deal with any legal haziness have caused major setbacks.
While the pot business might sound chill, operations like Eaze depend on coordinating high-stress logistics with thin margins and little room for error. Plenty of food delivery startups from Sprig to Munchery went under after running into similar struggles, and at least banks and payment processors would work with them. With the odds stacked against it, Eaze has a tough road ahead.
Nodle, which is competing in the TechCrunch Disrupt Berlin Startup Battlefield this week, is based on a simple premise: What if you could crowdsource the connectivity of smart sensors by offloading it to smartphones? For most sensors, built-in cell connectivity is simply not a realistic option, given how much power it would take. A few years of battery life is quite realistic for a sensor that uses Bluetooth Low Energy.
Overall, that’s a pretty straightforward idea, but the trick is to convince smartphone users to install Nodle’s app. To solve this, the company, which was co-founded by Micha Benoliel (CEO) and Garrett Kinsman, is looking to cryptocurrency. With Nodle Cash, users automatically earn currency whenever their phones transmit a package to the network. That connection, it’s worth noting, is always encrypted, using Nodle’s Rendevouz protocol.
The company has already raised $3.5 million in seed funding, mostly from investors in the blockchain space: Blockchange, Work Play Ventures (Marc Pincus), Blockchain Ventures (Blockchain.com), Olymp Capital, Bootstraplabs and Blockhead.
It’s worth noting that this isn’t Benoliel’s first rodeo in this space. He also co-founded the mesh networking startup Open Garden, which used a somewhat similar approach a few years ago to crowdsource connectivity (and which made a bit of a splash with its FireChat offline chat app back in 2014). Open Garden, too, competed in our Startup Battlefield in 2012 and won our award for most innovative startup. Benoliel left his CEO position there in early 2016, but Nodle definitely feels like an iteration on the original idea of Open Garden.
“We define the category as crowd connectivity,” Benoliel told me. “We leverage crowdsourced connectivity for connecting things to the internet. We believe there are a lot of benefits to doing that.” He argues that there are a number of innovations converging right now that will allow the company to succeed: Chipsets are getting smaller, and an increasing number of sensors now uses Bluetooth Low Energy, all while batteries are getting smaller and more efficient and blockchain technology is maturing.
Given the fact that these sensors depend on somebody with a phone coming by, this is obviously not a solution for companies that need to get real-time data. There’s simply no way for Nodle to guarantee that, after all. But the company argues it is a great solution for smart cities that want to get regular readouts of road usage or companies that want to do asset tracking.
“We do not address real-time connectivity, which is what you can do with more traditional solutions,” Benoliel said. “But we believe IoT is so broad and there is so much utility in being able to collect data from time to time, that with out solution, we can connect almost anything to the internet.”
While some users may want to simply install the Nodle Cash app to, well, make some Nodle cash, the team is also betting on working with app developers who may want to use the platform to make some extra money from their apps by adding it to the Nodle network. For users, that obviously means they’ll burn some extra data, so developers have to clearly state that they are opting their users into this service.
The team expects a normal user to see an extra 20 to 30 MB of traffic with Nodle installed, which isn’t really all that much (users of the standalone Nodle app also have the option to cache the data and postpone the transfer when they connect to Wi-Fi). Some app developers may use Nodle as an alternative to in-app payments, the team hopes.
The company is also already working with HTC and Cisco Meraki, and has a number of pilot projects in the works.
If you want to give it a try, you can install the Nodle Cash app for Android now.
Between Amazon, FedEx, UPS, and indie merchants, it’s easy to lose track of when your online purchases will be delivered. And if you’re buying something pricey or important, a lack of shipping insurance can leave you anxious and constantly checking your porch.
But a fresh startup has found unprecedented growth by letting you monitor all your ecommerce orders in one app thanks to a Gmail extension. Plus, you can buy insurance for just 1% of an item’s cost. Meet Route, emerging from stealth today to become the Find My Friends for packages. By helping merchants handle post-purchase satisfaction while charging consumers for insurance, this year Route has grown to $8.85 million in revenue run rate and from 5 to 100 employees.
Now Route is announcing it’s raised $12 million in total through a quiet $500,00 January pre-seed round from Peak Venture Capital and a new seed round with the rest from Album VC and strategic partner in direct-to-consumer brands Pattern. The cash will help Route keep up with demand and add new features to its app. Route co-founder and CEO Evan Walker tells me consumers “no longer accept the unsatisfying status quo of not knowing exactly where their order is.”
Domino’s saw sales skyrocket thanks to its highly visual pizza tracker app that shows live updates as your pie goes in the oven, hits the road, and reaches your door. Route wants to bring that reassuring experience to all of ecommerce.
Route co-founder and CEO Evan Walker
Walker asks “How could I NOT build this company?” The 25-year ecommerce entrepreneur got his start selling video games online in 1994, and has founded seven companies since. The communications gap between customers and merchants always plagued his businesses.
“The big lightbulb moment happened when I was traveling in Italy a few years back” Walker recalls. Talking to a furniture shop owner, he heard about their troubles of shipping vintage trunks. “He mentioned he was having a lot of issues with these items breaking in transit and wished he had a solution for it.” Now there is one.
The Route iOS app for visually tracking orders officially launches today. Purchases from partnered merchants instantly show up in the app and its website via API, but all your other buys from Amazon etc can be automatically ingested by authorizing the Route Bot Gmail extension that scans for shipping updates. Route lays out all the orders on a map with immediate access to their latest status changes like when shipping info is received, an item goes out for last mile delivery, or there’s a problem. There’s no need to copy and paste tracking numbers across multiple websites.
The Route+ insurance program that lets customers pay for peace of mind is launching today too. Customers get the option to add it from partnered merchants, file claims for lost / damaged / stolen packages in one tap, and get reimbursement from respected Lloyd’s Of London.
Walker claims that merchants that offer Route+ (which is free for them) “have seen an increase in conversion, decreased spend on customer support teams, and an improved post-purchase customer experience due to Route’s ability to quickly handle customer claims.” Merchants can also opt to pay themselves for Route+ on every order
Route now works with 1600 merchants and 600 carriers and has overseen shipments to 1.3 million customers in 187 countries. John Mayfield from Peak Venture Capital says “Their phenomenal growth of acquiring over 600 clients in the first three months makes them one of the fastest growing companies we have ever seen.”
The biggest challenge for Route is overcoming the thick, thick crowd of competitors in the market. Rakuten’s Slice can pull orders from your email and also grabs you refunds if an item goes on sale after you buy it. 17Track lets you paste in big lists of tracking numbers in case they’re registered to someone else’s email. Parcel offers a barcode scanner. ‘Deliveries’ will set up calendar appointments for arrivals, and works on Mac and Apple Watch. ParcelTrack lets you forward it emails of purchases to monitor, and a $2.99 premium version offers live locations of your packages plus customizable push notifications.
Route’s strength is that it’s totally free for consumers unless they want to buy insurance, and does email tracking automatically, though it will lack manual tracking number input for a few more weeks. It’s managed a 90 percent customer satisfaction score. Still, the startup could be vulnerable to a major player in ecommerce like Amazon or Shopify barging into the space. There are also platform risks, such as if Gmail blocked its scanning for tracking numbers.
“The better that Amazon gets at providing similar services, the more other merchants need those tools in order to compete outside of Amazon” says Walker. “From the insurance side, we are pretty good at detecting risk before it becomes a major issue and we are insuring on an individual order basis so catastrophic incidences are minimized.” The company also has to keep a watchful eye out for fraudulent insurance claims.
The growing megatrend of purchase behavior shifting online means the once occasional activity of receiving a package has become a constant chore in need of streamlining. Plenty of merchants are meanwhile looking to offload the complexity of keeping impatient buyers happy. If Route conquers its first market, it could move into adjacent spaces ranging from merchant services like freight forwarding and financing to consumer features like physical mail scanning for electronic delivery.
“Ecommerce is in my blood. I feel like I’ve taken 25 years of experience and started to craft a really interesting product in this space” Walker concludes. “With commerce going more digital everyday, there is an opportunity to create a big dent.” Or in Route‘s case, an opportunity to insure your packages against big dents.
African on-demand trucking logistics company Lori Systems has raised a Series A round led by Chinese investors Hillhouse Capital and Crystal Stream Capital.
Lori Systems is not disclosing the amount of the Series A. DealStreet Asia reported the round amount at $30 million earlier Friday, but Lori Systems’ CEO Josh Sandler would not confirm that. That figure was “something lost in translation” and “a mischaracterization of the raise,” he told TecCrunch on a call.
The company issued a clarification to initial reporting in a Medium post. On the reason for the non-disclosure, “Lori has never released fundraising details as we feel it is a vanity metric that distracts from what matters most: our mission of lowering the goods in frontier markets,” Lori Systems co-founder Jean-Claude Homawoo told TechCrunch.
Founded in Kenya in 2016, the company provides mobile-based on-demand trucking logistics services through an Uber -like network of drivers and merchant partners. Lori Systems has operations in East Africa in Kenya and Uganda.
The company expanded to Nigeria in September 2019, where it faces a competitor in trucking logistics company Kobo360.
“We are using the round to ramp up operations, build up our technology, and hire a best in class team…that can drive a global revolutions in logistics,” Lori Systems CEO Josh Sandler said.
Lori Systems won Startup Battlefield Africa in 2017.
Alibaba is doubling down on its logistics affiliate Cainiao, two years after acquiring a majority stake in the firm. The Chinese giant said today it would invest an additional 23.3 billion yuan (about $3.33 billion) to raise its equity in Cainiao to 63% (from 51%).
In a statement, Alibaba said it will subscribe newly issued Cainiao shares in its latest financing round and also purchase equity interest from a certain, unnamed Cainiao shareholder.
Cainiao was co-founded by Alibaba in 2013 to bring organization in Chinese logistics, particularly around e-commerce deliveries. And it has delivered: Today Cainiao powers a significant volume of Alibaba’s logistics needs in the nation.
The affiliate, which reported $680 million revenue in the quarter that ended in September, matches riders, deliveries and warehouses, underpinning the logistics side of e-commerce platforms Taobao and Tmall in the same way Alipay underpins the payments side, analysts say.
Department store owner Intime Group, conglomerate Fosun Group and a number of other logistics firms also own stakes in Cainiao.
In 2017, Alibaba bumped its stake in Cainiao to 51% from 47%, and at the time committed to spend more than 100 billion yuan ($14.3 billion) to expand the logistics business over five years.
The Chinese technology group has tightened its grip on the logistics sector in the nation in recent years. Earlier this year, the company purchased nearly 15% stake of STO Express. As of earlier this year, Alibaba also owned about 10% of ZTO, 11% of YTO and 27.9% of Best Logistics.
Express delivery and logistics companies are crucial for e-commerce firms, Alibaba said last year. According to the firm, more than 50.7 billion parcels were distributed by e-commerce companies in the nation last year.
UPS is rolling along with its drone delivery program, working with partner CVS Pharmacy to deliver prescription drugs to customer doorsteps via its newly deployed commercial drones. UPS delivered medications to two paying customers on November 1 using the M2 drone system that the logistics company developed in partnership with Matternet.
UPS received approval last month from the FAA to fly its fleet of commercial drones in service of customers, and now it plans to iterate its drone delivery program “in the coming months,” with the aim of ensuring that it can deploy UAVs in a commercial capacity at increasing scale. It also launched “UPS Flight Forward,” a dedicated division focused on autonomous drone delivery.
For these early deliveries, drones were loaded with prescriptions filled by pharmacists at a CVS location in Cary, NC. Once a UPS employee loaded the cargo onto the drones, they flew autonomously from the store location to nearby customer homes, dropping off the packages from a hover height of around 20 feet above these locations. One of the customers has mobility challenges that would make travel to a CVS store for prescription pickup difficult, UPS points out.
This isn’t the first time UPS has deployed drones in a healthcare industry setting: The company has been working with Mattternet and WakeMed Hospital in Raleigh, doing commercial deliveries of medical samples in a B2B setting.
Researchers at MIT have developed a new method of navigation for robots that could be very useful for the range of companies working on autonomous last-mile delivery. In short, the team has worked out how a robot can figure out the location of a front door, without being provided a specific map in advance.
Most last-mile autonomous delivery robots today, including the ‘wheeled cooler’-style variety that was pioneered by Starship and has since been adopted by a number of other companies, including Postmates, basically meet customers at the curb. Mapping isn’t the only barrier to having future delivery bots go all the way to the door, just like the humans who make those deliveries today.
MIT News points out that mapping an entire neighborhood with the level of specificity required to do true front-door delivery would be incredibly difficult – particularly at national (let alone global) scale. Since that seems unlikely to happen, and especially unlikely for every company looking at building autonomous delivery networks to source separately, they set out to devise a navigation method that lets a robot process cues in its surroundings on the fly to figure out a front door’s location.
This is a variation on what you may have heard of referred to as SLAM, or simultaneous localization and mapping. The MIT team’s innovative twist on this approach is that in place of a semantic map, wherein the robot identifies objects in its surroundings and labels them, they devised a ‘cost-to-go’ map, which uses data from training maps to color-code the surroundings into a heat map wherein it can determine which parts are more likely to be close to a ‘front door’ and which are not, and immediately chart the most efficient path to the door based on that info.
It’s a much, much more simplified version of what we do when we encounter new environments we’ve never seen directly before – you know what’s likely to be the front door of a house you’ve never seen just by looking at it, and you know that essentially because you’re comparing it against your memory of past houses and how those properties have been laid out, even if you’re doing that all without even thinking about it.
Delivery is only one use case for this kind of intelligent local environment mapping, but it’s a good one that might see actual commercial use sooner rather than later.