Rappi, SoftBank-Backed Startup, Slapped With Layoffs, Lawsuit

Rappi, the Latin American on-demand delivery startup backed by Japanese tech conglomerate SoftBank Group, has laid off 6% of its workforce and also faces legal action for allegedly stealing trade secrets.

The Brazil Journal reported that Rappi employs about 5,000 workers – suggesting at least 300 people will lose their jobs.

Rappi said its “internal leadership team” made the decision to slash its workforce. The company’s board of directors includes a representative from SoftBank after it invested $1 billion in the startup last year.

SoftBank, already reeling from losses sustained by companies in its portfolio, particularly the U.S.-based workspace provider WeWork, is pressuring Rappi to become profitable.

Based in Colombia, Rappi was founded in 2015 and operates in nine countries. The company delivers groceries, meals, medication, furniture, and has expanded into scooter rentals and even basic banking services.

“We are in fact actively hiring a large number of people in our areas of focus for 2020,” Rappi stated. “We are investing heavily in our tech team, automating some roles, rebalancing areas and embracing high performers.”

Rappi is also amassing consumer and sales data from millions of users that is coveted by consumer brands, restaurants, supermarkets and stores.

But like many of SoftBank’s beneficiaries, Rappi has yet to turn a profit.

The startup, valued at $3.5 billion, has embarked on a risky and rapid expansion program that depends on constant new cash.

“Part of the vision of Rappi is to build an ecosystem,” said co-founder Sebastian Mejia. “It’s much more than a delivery company.”

Mejia added that Rappi wants to push into more cities in Latin America with at least 500,000 people.

Gabriel Simoes, tech research analyst at Itau BBA in Sao Paulo, said Rappi is “trying to try to lock more users into their platform. It could play out well. But it’s very early in the game to make sure this is the best strategy or not.”

Rappi now has more troubles on its plate.

The Colombian media outlet Dinero reported that Rappi’s founders Simon Borrero, Felipe Villamarin and Mejia allegedly stole the idea for their delivery firm from three Colombian businessmen named Mauricio Paba, Jose Mendoza and Jorge Uribe.

Crunchbase reported that these accusations led to an investigation by Colombian authorities for “possible illegal appropriation of the business model.”

The trio of businessmen also filed a formal complaint with the U.S. District Court in the Northern District of California that alleged “misappropriation of trade secrets under the Defend Trade Secrets Act” and “misappropriation of trade secrets under the California Uniform Trade Secrets Act.”

In the filing, Paba claimed he came up with the idea for the mobile app that connects users with messengers willing to perform deliveries. Paba said he partnered with Mendoza and Uribe to develop the idea into “a detailed business plan” and that they agreed to “share equally any revenue generated by their new business idea.”

In January 2015, the plaintiffs said it contacted a Bogota-based software development company called Imaginamos, which was founded by Borrero (who later co-founded Rappi). The trio of businessmen alleged that Imaginamos intentionally delayed development of the app – and soon thereafter Borrero established Rappi with their original app concept.

In response, Rappi said it will vigorously defend itself, describing the allegations as “objectively incorrect” in a statement. The company also said it registered its trademark with Colombian authorities and its internet domain name in mid-2014 – almost a year before the trio of businessmen approached Borrero.