Zume Joins Long List of SoftBank-Backed Startups To Struggle And Restructure

Zume Pizza became the latest startup company financially backed by Japanese conglomerate SoftBank Group to cut its workforce, slash spending and refocus its businesses.

The Mountain View, California, firm said it will exit the automated pizza delivery business and cut about 360 jobs, more than half of its workforce. Zume CEO Alex Garden said the 5-year-old startup will now focus on its packaging line, as well as food production and delivery systems.

Zume had secured a $375 million investment from the SoftBank Vision Fund in late 2018.

“After much discussion with leadership, our board and our investors, we have a clear path to provide what the market wants and what the world needs -- a more sustainable food future,” Garden wrote to employees. “The market for sustainable package is about to explode and we and our partners are extremely confident in our ability to provide packaging alternatives to plastic.”

Zume will reportedly close an office in Seattle and seek to raise new funding.

Recode reported last November that Zume was in talks with investors to seek $4 billion in new funds. But the latest job cuts would suggest the company was unable to obtain that cash injection.

Zume joins a widening list of companies backed by SoftBank to struggle and retrench.

SoftBank is reportedly pressuring companies backed by its funding to cut costs and turn quicker profits as it continues to reel from the struggles at one of its biggest investments, the workspace provider WeWork.

Softbank had bailed out WeWork to the tune of $9.5 billion after its planned IPO collapsed. But WeWork has yet to generate a profit and takes costly long-term leases on buildings. The company has lost more than $5 billion since 2016. Last November WeWork announced it would cut thousands of jobs globally.

But this is just the tip of the iceberg.

Online car sharing company Getaround of San Francisco said this week it will lay off 150 employees, or about 25% of its staff. Getaround received $300 million in funding led by SoftBank in 2018. Getaround CEO Sam Zaid said the company faced a “set of challenges, leading to less efficient operations and increased costs” despite strong revenue growth. But in a blog post Zaid also seemed to partly blame SoftBank, saying they “had their own challenges, and it’s hard to say that doesn’t have a ripple effect across their whole portfolio.”

Late last year, Wag, a pet care service company based in Los Angeles that SoftBank poured $300 million into in 2018, fired 80% of its employees as it incurred continuing losses. SoftBank, unwilling to provide any more bailouts after the WeWork debacle, sold back half of its stake in Wag.

In October of last year, Fair.com, a SoftBank-backed car subscription startup, laid off 40% of its staff and fired its chief financial officer. Fair had received $500 million in equity from SoftBank and others but struggled to achieve profitability.

Last summer, Brandless, a purveyor of food, beauty and personal care products – also backed by $240 million from SoftBank – saw its CEO resign amid continuing tensions with SoftBank after losing waves of customers over quality control issues and poor inventory management, among other factors.

Late in 2019, Katerra Inc., a construction startup funded by SoftBank, cut 200 jobs and closed an Arizona factory in a bid to reduce costs. Katerra had received $865 million from investors led by SoftBank in 2018.

Katerra’s business model originally appealed to SoftBank because it sought to transform the construction industry through the use of efficient factories, prefabricated parts and modular construction units. But Katerra has been plagued by construction delays and has been unable to seamlessly integrate some of its acquisitions. CEO Michael Marks defended SoftBank’s huge investment in his company.

“There’s no question that if they hadn’t led a bigger round [of funding] than we expected, we wouldn’t be where we are today,” Marks said, citing projects across the U.S., India, and Saudi Arabia.

One of SoftBank’s biggest investments was in Oyo, a budget hotel and hospitality startup in India that received some $1.5 billion in funding. Founded in 2013, the company persuades small, family-run hotels across India to become Oyo-branded facilities that will list exclusively through its website. Oyo markets these rooms online to travelers and tourists and receives a cut from each stay. Oyo also runs some hotels on its own.

But SoftBank has become impatient with Oyo’s continuing losses and demanded that it dispose of unprofitable businesses by the end of March 2020 ahead of a planned public offering in the U.S. by 2023. The New York Times reported on the “toxic” culture at Oyo and its history of questionable practices. For example, the company has used thousands of rooms from hotels and guesthouses that are unlicensed. To avoid legal hassles Oyo has allegedly provided free rooms to police and other officials.

“[Oyo] is the only company which went global at this scale from India,” said Satish Meena, a senior forecaster for the research firm Forrester in New Delhi. “But as of now, there are serious doubts about the business model.”