On Aug. 1, Hukkster's website abruptly shut down and was replaced with a message saying it was "time for a nap." The sudden closure caught many of its roughly 300,000 users, who were notified via email that the discount-alert startup was finished, by surprise. While few details were given about its closure at the time, sources familiar with the situation told BuzzFeed that Hukkster would have been saved, if it weren't for a last-minute tussle between Cameron and Tyler Winklevoss and the company's debtholders.
Hukkster, which counted the Winklevoss twins as its most prominent investors, sent users push and email notifications when items they wanted went on sale. The company seemed to be doing OK — it just raised a fresh $1.5 million in March, set up new SoHo digs, and its name was popping up in places like the New York Times and on the Today show. The twins, best known for suing Mark Zuckerberg over the invention of Facebook and their subsequent portrayal in the movie The Social Network, were early investors in the startup, and their involvement helped generate tons of publicity for Hukkster.
In reality, however, the startup was burning through cash.
Hukkster, which raised a total of $4.5 million in funding in its 27 months, was struggling to generate enough income to cover its costs, said a person familiar with the matter, who spoke on the condition of anonymity. The company, founded by two former A.T. Kearney consultants who previously worked at J. Crew, primarily made money from retailers when users bought merchandise flagged by Hukkster; it was also considering selling ad space within its emails to users. But even in a frothy environment for venture capital, where an app that simply sends the word Yo can raise $1 million, co-founders Erica Bell and Katie Finnegan were unable to find additional investors for a Series A round. That spelled trouble for the company and the 14 people it employed as of March. If Hukkster couldn't raise more money, it needed to find a buyer or face death.
In July, the company appeared to find a white knight in Marc Lore, the former Diapers.com CEO who just raised $55 million for his new e-commerce startup, Jet.com. Lore wanted to buy Hukkster for a fire sale price of less than $1.5 million, the person familiar with the matter said.
Despite the low price, the offer was the only one on the table. It appealed to Finnegan and Bell because it would allow Hukkster to keep its website running and its team mostly intact and return at least some money to the March investors, who had been issued convertible debt. (That money was going to be spent on digital marketing and advertising, the pair told BuzzFeed at the time.) The Winklevoss twins were equity investors and thus ranked below creditors for a payout, though they did have blocking rights for a deal, two people familiar with the matter said.
But with a term sheet on the table and the deal set to close, the twins said they wanted all equity holders to share in proceeds from the sale, which just "didn't make sense" given the financial structure, said two people familiar with the matter. The debtholders came back to the Winklevoss twins and said they could share in 15% of the deal's proceeds if they waived the block, but the twins refused to back down unless 20 or so equity investors were also able to split the money, according to a third person with knowledge of the negotiations. A number of the twins' friends were invested in the company as equity holders, though Winklevoss Capital was the largest equity investor, this person said.
The debtholders, who were already getting seriously diluted, refused to give in to the demand, however — and ultimately, the deal was killed. That's why Hukkster, which was close to depleting its bank account, was forced to abruptly shut down without explanation and will probably head into bankruptcy, where it's unclear how its assets will be valued or distributed.
"We closed Hukkster because we were not able to close on an acquisition or financing in the time needed and thus we had to make the difficult decision to wind the company down in an orderly fashion," Bell and Finnegan told BuzzFeed in an email. "We feel fortunate for the opportunity and we're very proud of our team for all their accomplishments."
A deal would have saved Hukkster's website and employees and given some return to a handful of investors — but this way, everybody lost. Some involved in the deal were left with the impression that the disaster was Winklevoss Capital's fault, while others contend it was the fault of the debtholders.
A representative for the Winklevoss twins declined to comment. Bell and Finnegan declined to comment beyond their statement.
Hukkster's website was updated with this image message on Aug. 1:
Hukkster's website in July:
Sapna Maheshwari is a business reporter for BuzzFeed News and is based in New York. Maheshwari reports on retail and e-commerce.
Contact Sapna Maheshwari at email@example.com.
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