Munchery, Inc.
Chapter 11 Bankruptcy
Case Summary

United States Bankruptcy Court for the Northern District of California
Case No. 19-30232

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Bankruptcy Case Summary

The following details regarding Munchery, Inc.'s bankruptcy filing are excerpted from the Declaration of the Chief Executive Officer and sole member of the Board of Directors of Munchery, Inc. which was filed with the Northern District of California Bankruptcy Court on February 28, 2019.  A copy of the full declaration can be downloaded by clicking on the image to the right.

• "Munchery was founded in 2011 . . . The business of the company was to make, sell and deliver freshly prepared meals, cooking kits, sides, desserts, and drinks to consumers. It did so through a local business, where orders placed through the company’s site or mobile apps were made and fulfilled on the same day by local delivery, and a meal kit subscription business in which customers were shipped weekly kits with recipes and ingredients to prepare meals at home."
• "The original strategy for the business was to create a platform that enabled local professional chefs to make fresh meals at Munchery kitchens and to sell their products directly to customers through the Munchery website and mobile apps."

• "Munchery launched its service in private beta in San Francisco in March 2011 and then launched to the public in May 2011. The company expanded its service to Seattle in July 2014, New York in March 2015, and Los Angeles in May 2015."
• "Between 2013 and 2015, the company raised $120.7 million in three preferred equity financing rounds: Series “A” of $4.3 million in 2013; Series “B” of $28 million in 2014; and, Series “C” of $88.4 million in 2015. Participants in these rounds included Menlo Ventures, Sherpa Capital and E-Ventures. In addition, Munchery secured $11.8 million in venture debt financing, including a secured term loan of $8.4 million from Comerica Bank in December 2014 and a secured growth capital loan of $3.4 million from TriplePoint Venture Growth BDC Corp  in June 2016 . . .. The TriplePoint Debt was subordinated to the Comerica Debt."
• "As a result of our efforts in 2017, we were able to significantly improve our operating metrics, including our labor cost, food cost, food waste and gross margins—across all four markets. By the end of 2017, we had reduced EBITDA losses by 49% from 2016. While we reduced marketing spend by 59%, our revenues decreased by only 8% from 2016."
• "In addition to improving our financial operating metrics, we also significantly reduced our fixed costs, including terminating or subleasing lease agreements for non-operational or non-essential properties in each of the four markets. Over 2017, we reduced the number of active leases from 23 to 13."
• "By the third fiscal quarter of 2017, less than one year from my joining the company, the Board decided to market the company for sale. We engaged a boutique investment banking firm based in Palo Alto in October 2017. The thesis was that we had improved the business significantly in 2017 and that it was an appropriate time to identify a strategic buyer who would invest in completing the turnaround and growing the business as part of a larger platform. . . . Although the firm reached out to well over 100 potential buyers in the U.S. and abroad, and we conducted over 20 management calls and meetings, we did not receive any offers to purchase the company."
• "As part of the First Sale Process, we were introduced to a large regional grocery chain in the mid-Atlantic. Initial discussions focused on a potential acquisition of the company, but eventually led to a wide scale intellectual property license of the Munchery technology platform, the assumption of Munchery’s office lease at 375 Alabama Street in San Francisco, and the hiring of a large portion of the company’s engineering, culinary management and marketing teams. The transaction closed in June 2018."
• "The company received $7.5 million in cash consideration under the terms of the June 2018 Transaction, $3.4 million of which was used to pay down the Comerica debt in exchange for Comerica’s consent to the IP License. The balance was used to finance the operations of the company."
• "In parallel with the June 2018 Transaction, and as a result of not finding a buyer for the company through the First Sale Process, the Board decided to suspend operations outside San Francisco, announcing on May 11th, 2018 the closure of its facilities and operations in Los Angeles, Seattle, and New York in order to further decrease operating expenses and EBITDA losses towards preserving capital and extending the cash runway of the company."
• "In the third and fourth quarters of 2018, the quarters immediately following the Munchery Closures, the San Francisco business was down more than 30% year-over-year. We expected the San Francisco business to be impacted by the closures of the other three markets, but we expected that the business would recover after the summer, which was historically our slowest period-- but it did not. We underestimated the impact of the news of the closures in Los Angeles, Seattle and New York on the San Francisco business. In fact, we received feedback that there was confusion about our announcement, that customers had assumed that the company was shutting down in all markets, including San Francisco. Additionally, our original analysis concluded that we would retain approximately 50% of the Los Angeles based business but we were only able to retain approximately 25%."
• "In the third quarter of 2018, the Board again decided to market the company for sale, based on the thesis that there would be interest in the company based on the fact that the business was simplified to operating only in San Francisco, that the EBITDA losses and balance sheet had significantly improved by the actions in 2017, the decrease in headcount related to the June 2018 Transaction, and the decrease in costs related to the Munchery Closures in mid-2018."
• "During the Second Sale Process, the team reached out to fifty or more potential buyers, including some of the potential buyers we engaged with during the First Sale Process. Despite the improvements in the business, and despite conducting 20 or more management calls and meetings, we were again unable to find a buyer for the business.
• "From early 2017 through October 2018, the turnaround efforts and ongoing operations of the business were financed through a series of convertible bridge notes, proceeds from the June 2018 Transaction, and proceeds of the sale of certain assets following the Munchery Closures."
• "During that period, existing and several new investors participated in four convertible bridge debt financings: Spring 2017 for $12 million; Fall 2017 for $7.8 million; Winter 2018 for $1.5 million; and, $1.4 million in Spring 2018."
• "Up until the evening of Sunday January 21, 2019, management was negotiating with the Senior Secured Creditors and several investors to continue financing the operations of the company."
• "However, the company could not come to an agreement with our Senior Secured Creditors and investors to continue financing the business through a longer period of time to consummate a transaction on the San Francisco facility while the business continued to operate."
• "As a result, the Board decided to cease operations on January 22, 2019. The entire workforce of 257 employees, including full-time and part-time workers in Los Angeles and San Francisco, were laid off and were paid all accrued and unpaid wages and vacation through the end of that business day. A small team came back onto the company’s payroll on the following day to assist former employees with questions related to payroll and benefits, assist them in finding new employment with companies in the San Francisco Bay Area, inventory and secure the South San Francisco facility and the company’s tangible assets, and begin the process of preparing for the bankruptcy filing."

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