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Future Shape

October 3, 2018

Cinder Grill Flames Out, Files for Bankruptcy After Production and Legal Problems

After a year of manufacturing issues and legal woes, Palate Home, the maker of the Cinder smart grill, is shutting down and filing for Chapter 7 bankruptcy. Palate Home Co-Founder and CEO, Eric Norman, posted the news on Indiegogo, where nearly a thousand people had crowdfunded Cinder, giving it more than $550,000 in total.

We kind of saw this coming when we uncovered last month that a San Mateo court had ordered Palate Home to repay a $250,000 convertible note plus interest to Tony Fadell’s Future Shape investment firm. The court issued a summary judgment, which indicated that Palate Home didn’t even provide a defense in the case.

In yesterday’s update, Norman said the lawsuit was the “proverbial straw that broke the camel’s back,” but also said that “the root cause of this is that the company was simply not able to sell enough product, or produce that product consistently and economically.”

Chapter 7 bankruptcy means that Palate Home’s assets will be sold off to pay its creditors. What this means for the future of the technology behind Cinder is unclear. Will the underlying IP be acquired and baked into a different product? Those who used the Cinder (our own Mike Wolf included), really liked the countertop precision cooking device.

This means that the vast majority of those who backed the project will not be getting their Cinder grills, joining the sad chorus of crowdfunding failures which includes HOPii and BrewBot. In previous Indiegogo updates, Norman indicated that there were hundreds of Cinder smart grills in a warehouse in China. The fate of those devices is unclear, or how they will work if the app is no longer being supported.

We’ve reached out to Norman for comment, and will update if we hear more. Here’s the full text of the update he left on Indiegogo yesterday:

Resolution

Dear contributors,

Today I write you with a heavy heart. Our final attempt at negotiating a settlement was not accepted and I have instructed our attorney to file for a Ch. 7 bankruptcy. Unfortunately, this means the company will not be able to ship any more perks. I never expected this to happen, but I do take responsibility for it and I am very sorry this is how things turned out.

We made a generous offer to which the rational response would be to accept, but unfortunately I cannot control the other party. Had that offer been accepted, I believe we would have been able to deliver all perks and continue supporting the product. At this point I have exhausted our options and there is no way to continue operating the business.

While it would be simplest to blame the other party, and I admit that I have felt anger and depression during this trying process, it ultimately comes down to my responsibility as CEO to take in what the world presents and turn it into a viable business. I was unable to make that happen and some promises are left unfulfilled and I feel terrible about that. I’m sure many of you will be angry, and I can’t blame you for that. All I can say is that I am very sorry and I hope that you can accept my apology.

While this lawsuit was the proverbial straw that broke the camel’s back, the root cause of this is that the company was simply not able to sell enough product, or produce that product consistently and economically. Many people thought that if only the product could be explained better, to more people, it would become a smash success, which is why we launched this campaign. We were so excited at the support and were on track to deliver perks and close out. Along the way, we experienced death by a thousand cuts which ultimately prevented that from happening (production was slower and at lower quality than expected, we sold less than expected, and the lawsuit reduced available resources, etc.).

I will monitor the comments for the rest of the day, so post if you have any questions or suggestions.

Eric

P.S. If you’re an entrepreneur, I recommend being wary of convertible notes. Brad Feld mentions in Venture Deals in passing that there can be problems like this, and it has caused enough difficulty that YC created a funding method that does not mature. If you’re like me and you love building product and making it something people love, then any time spent on things like legal matters is agony – you can avoid any chance of this happening by simply not using this type of funding.

September 12, 2018

Court Ordered Cinder Grill Maker to Repay Tony Fadell’s Investment Firm $294,736

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:

  1. All Indiegogo perks to be shipped with a target delivery of 3 months.
  2. Improvements customer service, software and recipe development, and shipping times.
  3. Initial cash payment earmarked to satisfy obligations to vendors.
  4. 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.

October 19, 2017

Nest Founder Launches Investment Firm, Highlights Investment in Solid State Cooling

Tony Fadell, the founder of Nest and the father of the iPod, has announced his next gig: founding and running a seed stage investment and advisory firm called Future Shape.

And while the company isn’t announcing it’s entire portfolio, one company Future Shape is highlighting is Phononic, a company which makes solid state cooling technology.

Readers of the Spoon will remember that Phononic has patented technology that enables a system manufacturer to build professional or home cooling systems without traditional vapor compression technology. Phononic’s technology utilizes the well known Peltier effect, a technique that has long been used for cooling systems in smaller areas like telecom closets but has not scaled to refrigerators or home cooling systems. Phononic hopes to change that. Much the way solid state RF heating market could have a disruptive impact on cooking devices, Phononic’s use of solid state/semiconductor technology could change industrial and home cooling.

When word broke last year that Tony Fadell had secretly been investing in startups, he mentioned Phononic as one of the investments. With the creation of Future Shape, it looks like he is essentially formalizing his investments into a company.  Interestingly, while Axios reports that Future Shape touts the fact they do not take board seats on companies in their portfolio, Phononic CEO Tony Atti told me that Fadell took a board seat back in 2014. It may be the case that Fadell’s early personal investments are slightly different in structure from the more formalized approach of Future Shape.

While Phononic’s early focus has been industrial markets for its tech, Atti told me last year that they see residential applications as a big part of their future. With the founder of Nest backing them, it will be interesting to see just where they take the cooling technology in the future.

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