Butler shows hundreds of employees the door after raising $50 million for room service

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16th of May, The Butler Hospitality, an on-demand platform for room service and amenities, sent out an email to providers that might have seemed reassuring under other circumstances. We are writing to inform you [that] Room service and catering services will continue as usual. All software still works,” the email says. “We appreciate your loyalty in staying with us during these times.”

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The problem was that about 1,000 of Butler’s employees had been fired just a few days before. In fact, most were told the company had been dissolved, according to TechCrunch interviews with a number of former employees, which the report corroborates. last week by industry blog Restaurant Dive.

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The Fall of Butler is a cautionary tale about both the opportunity and the challenges in the on-demand startup world. There may be clear gaps in the service market that, in theory, seem like easy sailing. However, they may inevitably face economic, social and, more recently, extreme public health barriers. And among all this, those who work there are the first to leave.

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New York-based Butler was founded in 2016 as a ghost kitchen operator with a simple business model. Butler rented a hotel kitchen from one of the hotels and used it to deliver food to guests of the hotel and other nearby hotels.

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Gjonbalich has experience in the hospitality industry. According According to a Forbes profile, he opened his first restaurant in New York at the age of 19, located in a “big box” hotel. Gjonbalich too listed as an advisor to Fast Acquisition Corp., a specialty acquisition company that unsuccessfully attempted to take out Fertitta Entertainment, a food service, hospitality and gaming giant.

“We come and show what the experience should be” – Gjonbalich. said Crunchbase in a 2020 interview. “You don’t need a cart in your room or a $20 service charge for food delivery. Guests want good packaging, a good menu, price transparency, and the ability to track their order. This should have happened a long time ago.”

Butler has owned five different restaurant concepts where he has worked, including Standard by Butler (a casual bar and grill), Prime by Butler (an American restaurant), and Super Franc (a Tuscan steakhouse). Hotels could choose which concepts would be available to their guests; Butler handled integration, experience, menu design, and packaging. For customers, he promised to deliver orders, including “convenient” off-site items such as chargers and shaving cream, in less than 30 minutes, paying directly on the hotel bill.

Following a seed round and initial funding from Gjonbalic, Butler raised $15 million in Series A contributions from The Kraft Group, &vest, Scopus Ventures and Mousse Partners. The company subsequently raised $30 million from backers including Shamrock Holdings, Maywic Select Investments and Platform Ventures, bringing Butler’s total raised to “north” of $50 million.

AT Press release released last October, Butler said he wants to more than double his presence in 12 U.S. markets, with plans to serve numbers in cities like Boston, Dallas, Houston, Los Angeles, Philadelphia and Pittsburgh (expanding from his bases in New York). , New Jersey, Chicago, Miami, Denver, San Francisco and Washington DC) The company said that Hilton, Hyatt, IHG and Marriott were among its more than 400 hospitality partners, which was a big plus for the small business.

But some former employees say trouble was brewing behind the scenes.

Signs of instability

Butler has undoubtedly suffered as the pandemic has reduced service and hospitality costs. In April 2020 the company received $600,000 loan through the Paycheck Protection Program. But Butler, eager to expand, continued to rent expensive new hotel restaurants.

At one point Butler was sentence USD 500 prepaid Visa cards for each partner hotel that successfully applied to it.

“Butler has expanded its presence in the country in 2021, hoping to capitalize on the recovery of travel,” Gjonbalich told TechCrunch via email. However, the startup has found that COVID-19 has both direct and indirect long-term impacts, it added, including labor and supply chain shortages, closed international borders, and continued corporate and group travel delays.

As travel resumed at the end of the first quarter of 2022, Butler’s troubles didn’t go away: inflation, geopolitical issues (like the war in Ukraine), rising interest rates and increased pressure on technofinance create a difficult fundraising environment for a startup. . This led to a “sudden” failure of commitments, Gjonbalich said.

But Gjonbalich and the rest of the company’s executives were unable to communicate the gravity of the situation, according to former employees who spoke to TechCrunch on condition of anonymity. Just weeks before the mass layoffs, a former employee claims Butler was told he had no cash flow problems and that “the next [financing] the round was approaching. Another says they have been assured that the company’s board of directors will give six months of runway no matter how the next fundraiser goes.

Some complaints were more public and open. Kelly Burger, a former startup manager for Butler, filed a complaint. class action v. the company in June, alleging that Butler did not notify employees in advance of their termination. Under the New York WARN Act and the federal WARN Act, companies with 50 or more employees are generally required to give several weeks’ advance notice of mass layoffs.

“Starting approximately April 22, 2022 and within 90 days from that date, [Butler] fired hundreds of its employees,” the lawsuit says. “[Butler] The WARN Act required that [Bruger] and prospective class members at least 60 days prior to written notice of their termination… [Butler also] didn’t pay [Brueger] and to each of the prospective class members their respective wages, salaries, commissions, bonuses, accrued vacation pay and accrued leave within 60 days of their respective termination, and other compensation benefits within the 60 day period.”

Some former Butler employees who were promised medical benefits through August received an email a week after the disbandment saying their plans would be terminated early.

Layoffs begin

Butler began to take emergency measures to preserve the remaining capital. An employee at a client at the Butler Hotel said the company had begun halting services and imposing new fees without prior warning. For example, Butler started charging for shipping that used to be free.

At the beginning of the year, Butler experienced a series of layoffs—less than 20 people—in what management described to employees as a “one off.” Some 50 people were laid off a few weeks later, in what Butler internally described as a response to “challenges.”

“We regret to inform you that due to… the circumstances faced by [Butler] Due to the COVID-19 pandemic, including the urgent need to conserve our financial resources, we have made the very difficult decision to place you on temporary leave,” reads a notice received by a former Butler employee. “We hope that [Butler’s] your financial situation will improve and we hope to recall you from your temporary leave to resume work with [Butler] no later than November 9, 2022.”

The massive layoffs began in May, shortly after Butler hired a new chief operating officer and chief income officer. The company was liquidated on May 13.

Gjonbalich claims that Butler’s board and legal counsel at Cooley, a Palo Alto law firm, explored “several options” to try to save the company, but ultimately decided on May 12 to close and dissolve the company.

“On May 13, a Delaware-based legal advisor was hired to help with the closure and liquidation of business assets, and employees were laid off on May 13,” Gjonbalik told TechCrunch in an email. Butler doesn’t work. The board of directors has agreed to… shut down the company, but this doesn’t happen overnight, so several redundant responsibility centers have been appointed or transferred back to hotel ownership to help do this as quickly as possible.”

Employees laid off during the latest round, including operations staff working at Butler’s leased restaurants, were briefed in a three-minute Google Meet call. A former employee told TechCrunch that after the dissolution of the company, the provision of services abruptly stopped; guests at one hotel with a butler contract were suddenly unable to order room service.

The rest of the company remains. A former employee with knowledge of the matter said people who previously worked for Butler sent direct messages to the company’s Instagram account, which remains active, to ask about missed payments. Much of Butler’s senior management has not updated their LinkedIn profiles to reflect the closure, and there is no mention of this on Butler’s website.

“Hotel owners and management companies have taken on most of the [Butler’s] lease obligations, and fortunately my father agreed to take over two of the remaining lease obligations and debts from the hands of the company,” Gjonbalich said. [in an email to TechCrunch]. “The commissioner is in place, and he handles all matters after the dissolution.”

Instructive tale

While this is an extreme example, Butler is hardly the only food delivery startup to have fallen on hard times. recently. Instagram last month cut its value by almost 40% and hiring slowed down. publicly traded DoorDash as well as Deliveru have seen their stock prices fluctuate wildly over the past year. Gorillas, Gethir, Zapp, Jokras well as gop are among other delivery startups that have laid off employees in recent months despite fundraising. And some were forced to close completely, for example Refrigerator no longer needed1520 and Buik.

Food tech aside, stories like Butler’s are playing out more frequently as investors tighten their belts fearing an economic downturn. As one former Butler employee put it, venture capitalists fueled an insatiable demand for growth, encouraging expansion that later proved foolhardy. Estimates have become inflated, causing unrealistic expectations and a change in direction—and initiatives.

“Butler is a prime example of what’s happening in tech right now — except instead of 20% layoffs, the entire company went bankrupt,” the employee said.

Credit: techcrunch.com /

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