The Pulse: VanMoof files for bankruptcy protection

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Before we start, a small change. I’m renaming Thursday’s article’s series to The Pulse from The Scoop. The content will not change, but ‘The Pulse’ just better represents the mission of these articles, which is to help you keep an “ear to the ground” on what’s happening across Big Tech and at startups – sectors which regularly affect the whole tech industry.

I receive and validate plenty of interesting information from insiders at these companies, but my main focus is analyzing what’s going on in our industry; the implications of that and the opportunities for software engineers and tech businesses.

Names matter, and I feel “The Scoop” suggests a more gossipy, tabloid newspaper-style approach than what these articles actually deliver. Since The Scoop’s first issue I’ve focused on relevant industry changes and what they mean. I hope “The Pulse” makes the intent of this series clear: to provide you an ear to the ground and the latest analysis of the state of our industry.

Now, on to today’s topic:

VanMoof files for bankruptcy protection

VanMoof has been a Dutch e-bike success story. The company was founded in 2009 by two brothers who had a vision of creating the perfect city bike. The company started making waves in 2017, when it raised a €4M seed round. Then the company raised $197M in funding – as per Dealroom – including a giant, $128M round in August 2021.

The business manufactures custom built, premium e-bikes. The bikes look slick, employ sound effects, have a built-in battery (which is different from most e-bikes with removable batteries which is easy to steal,) and VanMoof offered innovative customer service such as Peace of Mind (theft protection and bike recovery via a Bike Hunter squad) and maintenance.

Living in Amsterdam – where VanMoof is headquartered – I’ve seen more and more of its distinct bikes on the streets and honking with a distinct sound! Bikes like this one:

It’s not just the bike that’s innovative, delivery is as well. The company distributes its bikes through the post. To avoid rough handling during delivery, the company came up with an innovative idea: package the bike like a TV box:

This change made a major difference:

“In 2015 we began shipping our bikes to the USA. The only problem was that a lot of them were arriving to their new customers damaged. Annoying for them and expensive for us. We couldn't say for certain, but US handlers didn’t seem to take as much care as we’d hoped. (...)

Bikes obviously didn’t have the kind of priority flat-screen TVs have for example… And that was it. The lightbulb moment. Our co-founder Ties Carlier’s simple idea. Our boxes are about the same size as a really big, expensive, flat-screen television. So we put an image of one on every box. We assumed handlers would care a little more about that. And we were right.

That small tweak had an outsized impact. Overnight, our shipping damages dropped by 70-80%.”

One limitation of VanMoof bikes is that they can be serviced only in dedicated shops. Until 2019, the company had only 8 locations, which limited their customer base. However, by 2020 the company expanded service hubs to 50 cities, including Paris, New York, San Francisco, Los Angeles and Tokyo.

When announcing the $128M fundraise, the company shared its grand plans:

“The funding will be used to both expand production and reinvent the way in which hardware and software components are made, and make high-quality, high-tech e-bikes more accessible to consumers.

Surge in demand shows the US is the fastest growth market for VanMoof, with the post-pandemic e-bike wave showing no sign of slowing down. The latest projections expect the e-bike market to surpass $46 billion in the next six years, with a growth rate now twice as high as predicted before Covid-19.”

It all seemed to be lining up for VanMoof: their bikes were in demand, and biking was a growing industry. So it was unexpected to hear a few days ago that VanMoof has paused all sales and has had its executives depart, as reported by TechCrunch this Monday (10 July). At first, the company blamed the pause of sales on a bug in their system, then confirmed that pausing sales was intentional.

And on Wednesday, 12 July, the company filed for payment deferment in the Netherlands – which is the last step to avoid bankruptcy and gives a few months’ breathing space to try and get the business together. So, what happened?

By this January VanMoof was running out of money. As Patrick Brady at Electric Bike Report wrote (emphasis mine):

“Dutch e-bike brand VanMoof went to its shareholders and requested a capital investment, saying that its projections showed that it would struggle to remain liquid following the first quarter of 2023. The company’s request was in the €10-40M range ($10.9-$43M).

Analysts point to a workforce of more than 900 people as being a significant hurdle in their operations, in part owing to a retail operation spread over more than nine time zones. It’s a huge workforce for a company with relatively modest sales.

It’s fair to wonder how long until some of those retail locations close and a portion of their workforce is laid off. Not that we applaud layoffs by any means, but the survival of a company with many jobs is better than the failure of a company with all the jobs.”

A few days later, analyst Micah Toll at Electric Bike Report added more thoughts on how (un)sustainable VanMoof looks:

“I can’t fathom how VanMoof can sustain such a large workforce. Companies like Rad Power Bikes sell considerably more e-bikes than VanMoof, and even Rad had to undergo several rounds of layoffs in the last year or so. I imagine VanMoof’s payroll must be a huge part of its burn rate, especially since you can’t put off paying employees the way you can with suppliers of brakes and pedals. And of course those e-bike hunters don’t work for free.”

Indeed, VanMoof did no mass layoffs despite an increasingly challenging financial situation, and the company having already come close to running out of money at the end of 2022.

Like with Bird, the writing is sadly on the wall that VanMoof goes bankrupt or is sold. The company has no public CEO – its cofounder and former CEO Taco Carlier no longer lists this position. VanMoof appointed the former CEO of Booking.com, Gillian Tans, as president in 2022. A post about the appointment has been removed, and Tans no longer lists VanMoof on her LinkedIn page.

VanMoof customers are at the risk of their bikes becoming bricked if the company shuts down. While it would be unfortunate if the business ceases to exist, current VanMoof owners face the pressing problem that their bikes depend on VanMoof’s servers to operate. The bikes can be controlled via smartphone, through Bluetooth. This connection is encrypted with a key obtained from VanMoof’s servers when logging onto the mobile app:

The problem? Should VanMoof’s servers go offline, customers cannot get this key, meaning they cannot communicate with their bike. So a €2,500-3,000 / $2,700-$3,200 smart bike becomes unusable with the smartphone.

Luckily, a group of VanMoof enthusiasts have created a third-party tool to obtain this encryption key. If you own a VanMoof bike, download – and safely store – your encryption key here.

Also, a VanMoof competitor – Cowboy Bikes – stepped in just in time, and they helpfully built an app to allow VanMoof owners to save their bike keys, so they can keep on riding. Get this app for iPhone here.

The risk of VanMoof’s bikes being bricked in the case of insolvency raises a pressing ownership question. If you buy an expensive e-bike, should you have the right for this bike to keep operating, even if the company you bought it from has problems, be they technological, or financial? It does feel unfair to not be able to use a smart bike you own because something’s happened to servers which your smartphone uses to communicate with the bike.

On the other hand, operating a service which passes over an encryption key costs money, and will have a business entity behind it. This entity can encounter financial troubles, and it might make business sense for it to stop operating.

With the spread of smart devices at risk of not working if a remote server shuts down, my sense is that regulators will eventually have to step in, and force companies to follow clear guidelines for how customers can – or cannot – use their smart devices, and what happens in the case of bankruptcy. Should consumers have the right to operate their device without being connected to the internet? Can companies be allowed to change contracts to charge a fee for keeping the lights on in cases of business going into liquidation? I don’t have the answers, but these questions are becoming more pressing.

This was one out of the six topics covered in this week’s The Pulse. The full edition additionally covers:

1. Further tightening of performance management at Amazon? Some engineering managers face a challenging constraint for engineers they want to promote by the end of the year. Is Amazon trying to encourage more churn? Exclusive.
2. Google Cloud Domains to shut down: more details. It’s been confirmed by Google that its Cloud product which was in preview, is to be shut down, with Google Cloud Domains customers being transferred (whether they like it or not) to Squarespace. Analysis.
3. Bird valued at a mere $26M. If you would have invested $1,000 in shares of the scooter sharing company when it went public in November 2021, those shares would be worth about $11. The company is at risk of going under, and its unit economics tell part of the story on why. Also, the company inflated its revenue numbers for 2 years after it went public using a SPAC. Analysis.
4. Is a startup bankruptcy wave underway? We may be at the start (or even in the midst of) the ‘startup purge’ that’s been expected for some time. Analysis.
5. Selling developer tools when most companies are cutting spending. SaaS spending is down, as is spend on developer tools. Anna Debanham (a partner at Boldstart Ventures) shares advice on how to sell these tools at this time. Advice.

Read the full The Pulse here.

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