Palate Home, the company behind the Cinder grill, was ordered by a San Mateo court in August to pay $294,736 to Tony Fadell’s investment firm, Future Shape LLC. The default judgment compels Palate Home to repay a $250,000 loan to Future Shape plus $43,737 in interest as well as $999 in costs.
We are not lawyers, but from reading the court documents it looks as though on January 14, 2015, Future Shape provided a $250,000 loan in the form of a convertible promissory note to Palate Home. The original $250,000 plus five percent interest came due on July 14, 2016.
We uncovered this judgment working on a story chronicling the troubles Palate Home was having manufacturing and shipping Cinder to its crowdfunding backers. The Cinder is countertop electric appliance that delivered sous-vide like precision cooking without the need for plastic bags and a circulating water bath, plus the ability to sear meats — something sous vide wands can’t do. Our very own Mike Wolf was a big fan of the appliance.
The fact that Future Shape was involved at all must have been a feather in the cap (and money in the bank, evidently) for Palate Home. Future Shape is the investment firm of Tony Fadell, who is famous for helping invent the iPod and for founding Nest Labs. The fact that he was involved at all seems like validation, at least at the time of the loan, that there was something promising in the Cinder.
Indiegogo updates provided by Palate Home Co-Founder and CEO Eric Norman over the past year outline manufacturing issues that his company was experiencing that were, in turn, delaying the shipment of orders to its crowdfunders.
What’s interesting is the timing. The Future Shape convertible note was issued in January of 2015, came due in July 2016, and Palate Home closed its Cinder Indiegogo campaign in June of 2017, raising $552,405 from 800 backers, almost a full year after the loan was due. The lawsuit from Future Shape was brought in April of 2018.
According to Indiegogo updates from Norman:
February 6, 2018 – A factory in China has 500 built Cinders (after delays caused by a faulty cooking plate) ready to ship to California.
April 2, 2018 – Palate Home still has not shipped grills to California. “Consequently,” writes Norman, “We’ve done everything we can to reduce our expenses. As things started to get tight, we reduced headcount and stopped taking any salary.
April 9, 2018 – In a Q&A style post, Norman writes:
What is the status of the grills?
They are built and accepted at the factory. Your grills are part of a larger order and the factory is not willing to release part of the order without payment in full. We’re in a bit of a Catch-22 situation: Selling more grills without shipping yours is (quite reasonably) difficult. At the same time, shipping your grills without the money to pay the factory for the full order would require us to sell more grills or secure a loan. We are exploring a few ways to solve this and ship to you.
That same day, Future Shape filed its complaint against Palate Home for breach of contract. Curious sidenote: according to a service of process court document filed August 23, 2018, a Summons and Complaint was sent to Eric Norman at the address listed for the designated agent on the corporation’s Statement of Information. “According to the process server’s declaration dated April 24, 2018, no company called Palate Home, Inc., is listed at this address. The current company at that location is called Shenzhen Valley Venture and the process server was informed that no one at that location had ever heard of Palate Home, Inc., or Eric [middle name removed by The Spoon] Norman.” To be fair, as you will read, there is a connection between Palate Home and Shenzen Valley, there could be any number of reasons someone at Shenzen didn’t know about Norman, especially depending on whom was interviewed.
July 2, 2018 – Norman says that he had reached an agreement to sell Palate Home to a Buyer that he says would have meant:
- All Indiegogo perks to be shipped with a target delivery of 3 months.
- Improvements customer service, software and recipe development, and shipping times.
- Initial cash payment earmarked to satisfy obligations to vendors.
- Royalties on future sales to provide a potential return for Cinder investors.
The problem, he says, is that the deal is being blocked by one of his investors. We should take a moment to recognize that Palate Home has more than one investor. According to Crunchbase (which, to be fair is not always up to date), Palate Home/Cinder has six:
- Highway 1 (convertible note)
- Zillionize Angel (seed round)
- Scrum Ventures (seed)
- Y Combinator (seed)
- Angel List (equity crowdfunding)
- Shenzen Valley Ventures (seed)
(Shenzen was mentioned by the process server in the previously mentioned court document)
This doesn’t appear to include the $552,405 raised on Indiegogo. Further, the $376,000 in total funding raised listed in Crunchbase seems to be just from the Angel List funding. Future Shape isn’t listed as an investor, and it doesn’t look like it’s $250,000 convertible note is listed. Doing the math, it looks as though at some point, Palate Home/Cinder had taken in at least $1.17 million, plus whatever money the company received from the remaining investors.
Going back to Norman’s update on July 2, 2018:
While investments in startups are generally considered to be long-term and non-refundable, we used a convertible note with one investor that gave them control over how to proceed at the maturity date. These notes are made to convert into equity at a future funding round. If a convertible note matures before such a funding round, there’s an expectation in Silicon Valley to either extend the maturity date – so much so that most notes give the company the ability to initiate conversion, and recent vehicles like the YC SAFE do away with maturity all together and simply convert at an equity event. While extremely unusual and unexpected, one of our investors asked for repayment at the maturity date. When we were not able to do so, they threatened legal action. This began a chain of problems for the company.
Norman writes that the “investor,” which is presumably Future Shape from the descriptions, agreed to a sale of the company and using that money to repay the loan. But, he writes: “Despite agreeing to this concept, this investor would not execute a written forbearance which killed any chance of moving forward.” Norman also alleges a number of clerical errors made by Future Shape in its filings.
August 5, 2018 – Norman writes “Since we were unable to reach a settlement agreement, we are essentially waiting for the court hearing which happens later this month.”
On August 17, 2018 a default judgment from the Superior Court of California, County of San Mateo (filed August 23), was issued against Palate Home ordering the company to pay $294,736. As we understand it, the default judgment was given because Palate Home basically did not present a defense.
In an update last week, on September 6, Norman wrote “Hello everyone. We are in discussions and I expect to have things wrapped up by the end of this month one way or the other, so if you can please bear us just a little bit longer. I greatly appreciate your patience.”
What exactly went wrong with Cinder? Is it dead dead, or does this lauded device still have a chance? Will Palate Home appeal? We have reached out to both Norman and Future Shape for more information, and will update this post if we hear back.