Days after announcing its launch into the United States ride sharing market, Karhoo closed up shop.
According to the company’s website, many of its nearly 250 employees have been working for nearly two months with no pay.
“The Karhoo staff around the world in London, New York, Singapore and Tel Aviv have, over the past 18-months, worked tirelessly to make Karhoo a success. Many of them have worked unpaid for the last six weeks in an effort to get the business to a better place.”
While the company never formally divulged how much money investors sank into the business, reports indicate it was close to $250 million.
Sky News reported on an internal memo that claimed the company had to shut down its R&D operations in Israel for a short time because they were unable to pay employees. However, the alleged document also claimed the company was expecting to find emergency funds from an unknown backer.
“Unfortunately, by the time the new management team took control last week, it was clear that the financial situation was pretty dire, and Karhoo was not able to find a backer,” their website stated.
“We have had a whole ‘doom and gloom’ in the air for the past week, starting at Halloween when we found out UK and Israel did not make payroll,” a Karhoo employee told Business Insider.
High Competition Expectations
There had been high expectations from the company as they were considered a viable competitor to Uber. Users on popular rideshare forums were praising the app, with one writing “I look at the future in Karhoo“.
The Karhoo app allowed customers to see the price, arrival time, car make and cab company details before they booked a ride.
Karhoo was founded in the United Kingdom in 2014 by Daniel Ishad but moved their headquarters to New York. They also had offices in Israel. Tel Aviv and Singapore.
According to Crunchbase the $250 was raised in two rounds from three investors, including David Kowitz, Nick Gatfield and Paramorma Point Partners.
Kowitz has over 20 years experience in investment and works as a chartered financial analyst. Gatfield is the former chairman and CEO of Sony Music and the co-founder of Synchronized. Paranorma Point Partners have 23 investments in 22 companies, Crunchbase reports. The company is based in Omaha and founded by Stephen George and Clary Castner, former CEO of University of Nebraska Foundation.
Karhoo boasted 200,000 cars in their London network and 10,000 cars in New York. The company earned 10 per cent commission on rides booked through their service while their competitor, Uber, charges 20 to 25 per cent.
The Fall of Giants
According to some media part of the problem was that the company offered several free rides to new customers. Bloomberg also claimed that a lot of money was spent on marketing and promotion – free rides and TV advertising. While incredibly effective, this type of promotion is costing rideshare rival Uber millions of dollars per year.
The publication also reported that after Ishad was out two other employees attempted to save the company.
Just a couple of weeks ago a press release indicated the company was “gearing up for the U.S. launch of its app-based ride comparison and hailing service.”
They had partnered with Bank of America Merchant Services for customer payments.
“In London, Karhoo-connected fleets are seeing revenue increase up to 30 per cent,” the release stated.
In comparison Uber has reportedly raised $10 Billion and has been estimated to be worth over $60 Billion.
The company said they wanted to thank those who had tried to make them a success.
“We would like to thank our staff, our partners, the fleets around the world that shared our vision, and the hundreds of thousands of people who downloaded the app and supported what we were trying to do. The world needs a Karhoo.”