How Boosted went bust - The Verge

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Kanye wanted a meeting.

That was basically all a small group of employees at Boosted knew in early 2019 after they heard the rapper-mogul had taken an interest in the company’s electric skateboards.

A partnership, an investment, an endorsement — whatever he was considering, a meeting with Kanye West seemed absurd. But then again, Boosted was also working on a secret project with skateboard legend Tony Hawk at the time. Was it really a stretch to think the startup could work with Yeezy?

Apparently. Kanye spent the meeting — two, in fact, over the course of 2019 — focused more on his ultimately doomed vision for sustainable cities than he did discussing a tangible deal with Boosted, two former employees tell The Verge. (Kanye could not be reached for comment.)

At the time of the Kanye meetings, Boosted had outgrown its Kickstarter roots, and had defined the market for electric longboards — which had emerged as part of a rideables craze in the mid-2010s. The brand was potent, but the startup was losing focus. It wasn’t just Kanye’s off-topic meetings, though some employees felt they were symbolic. Boosted was just spread too thin. It had launched half a dozen models — each with different configurations — in just six years, on a shoestring budget. Then it was hit hard by the Trump administration’s tariffs on goods made in China, and a delayed electric scooter, and eventually ran out of money.

But while Boosted is dead, the beloved electric skateboard startup’s carcass is still drawing buzzards. Its biggest investor, the eponymous venture firm founded by surfer-fighting billionaire Vinod Khosla, has spent the last year waging a pair of lawsuits against Lime in an attempt to reverse the scooter-sharing giant’s purchase of Boosted’s intellectual property. (Khosla Ventures is also an investor in Vox Media, the parent company of The Verge.)

Khosla Ventures’ lawyers say Lime sabotaged a potential bailout of Boosted from Yamaha in late 2019 and conspired with Boosted’s biggest debt lender to rig the sale of the startup’s remains a few months later. Lime’s team has argued the powerhouse firm is simply raw about a “failed business negotiation” that ultimately couldn’t save a “dying business.”

The fight likely won’t end for months. (A trial is tentatively scheduled for May 2022.) But interviews with six former Boosted employees, as well as an examination of the lawsuits, help reveal in the greatest detail yet just how the category-defining electric skateboard startup fell apart, and why seemingly nothing — not a partnership with Tony Hawk, the constant support of one of YouTube’s biggest stars, or even Kanye West — could save it.

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Things weren’t always so dire at Boosted. The startup was one of Kickstarter’s earliest success stories after it transitioned out of a Stanford incubator in 2012. A few years later, Boosted’s electric longboard became the go-to vehicle for YouTube star Casey Neistat. It seemed like in every vlog he posted, there was Boosted’s board: hanging behind him on the wall of his studio, or under his feet as he carved through Manhattan traffic.

Neistat made Boosted so popular that it was hard for the startup to keep up with the orders that were pouring in. And co-founder Sanjay Dastoor attained cult status among the startup’s customers — not just because of the quality and popularity of the product, but because he was so hands-on that in 2016 he flew across the country to a board owner’s house to diagnose a battery failure.

But Dastoor handed over the company to Jeff Russakow in 2017, a fellow Stanford grad. With that changing of the guard came new, much bigger goals. “The company is just doing splendiferously well, and we’re looking forward to an exciting roadmap of many new form factors of light vehicles and other cool stuff,” he said at the time. Russakow told The Verge he wanted to “be able to move faster on innovation,” and do “two major product releases of some cool exciting announcement” per year — “an Apple-like cadence,” he said.

Boosted rode this momentum for a while, and in early 2018 launched a second-generation board, along with a mini board and a high-performance variant called “Stealth” that eventually became its biggest hit. The startup then raised nearly $80 million by the end of 2018 from Khosla Ventures and others. In 2019 Russakow described that funding round to The Verge as being full of “really supportive investors” who are “absolutely committed to the vision of the company.” He used the money to take Boosted global, expanding the brand into more than 30 countries.

Boosted even started working with Birdhouse, the company run by perhaps the most famous skateboarder on the planet, Tony Hawk. The startup also discussed making a board for kids and tapped another pro skater, Andy Macdonald, to work on the project. Boosted’s electric longboards had never really been a natural fit with skateboard culture, so validation from two of the sport’s icons felt, to some of the employees, like recognition of what they (and customers) already knew: that Boosted’s boards kicked ass.

By 2019, Russakow’s efforts to grow the company appeared to be working, too. It even drew interest from premium bike company Specialized, two of the former employees tell The Verge.

But Boosted needed more money. The growth was eating up a lot of the revenue the company was generating in those new markets, and even cut into the money it had raised. Making matters worse, the company took a hit when then-President Donald Trump started a trade war with China. Boosted had outsourced manufacturing to China starting in 2016, and while Russakow told The Verge in May 2019 that the startup had “the financial ability” to “eat” the tariff on the skateboards, it turns out that was easier said than done. (Boosted eventually applied for, and was granted, exclusions from the tariffs, but refunds for them were still outstanding when the startup went under.)

The pressure of maintaining this pace of growth — which was coming from Russakow but also from Khosla Ventures, the former employees say — had Boosted running ragged. What especially tripped things up, though, was the Boosted Rev: the startup’s super-rugged, $1,600 electric scooter that debuted in early 2019.

Boosted announced the scooter just as its bank accounts started suffering, and almost immediately had to delay the rollout (in part because of an issue with the latch meant to keep it folded, but also because scaling up production was tricky). Khosla Ventures and Boosted’s other backers had just put money into the company — they didn’t want to add even more. So in May 2019, Boosted quietly turned to a “venture debt” firm called Structural Capital for what it hoped would be short-term help. The deal’s terms weren’t exactly favorable to Boosted: it had to use all its assets as collateral for an $18.5 million loan. Plus, if Boosted missed certain payments, Structural Capital could take control of parts of the business.

Boosted spent most of that loan in just a few months. So Boosted’s executives found themselves once again looking for money, just as the summer, their strongest sales period, was ending. In the meantime, Boosted started to delay payments to some vendors and began considering layoffs as early as September.

Khosla Ventures and another investor, Activate Capital Partners, made a small loan in October to help keep the lights on while Boosted looked for a way out, court documents show. But it wasn’t enough to stop Structural Capital from taking control of the company’s purse strings. Now every expense had to be run by the venture debt firm.

Employees quickly started to wonder how much longer Boosted had. The company no longer had access to its inventory, it stopped spending on advertising, and it certainly had no money to make any new products. Two former employees said they went on Thanksgiving break not knowing if there would be a company to go back to. That feeling of dread didn’t lift when they returned, though.

“We got stuck in this weird limbo land,” one former employee says. Some employees banded together to figure out what other sacrifices could be made to save money, like getting rid of free snacks and lunches (which Boosted eventually did) or giving up their company-subsidized Caltrain passes.

“The people at Boosted were great,” this person says. “Everyone felt very loyal to John [Ulmen, Dastoor’s co-founder, who remained with Boosted until the end] and wanted to stick it out. There was a lot of untapped potential with the brand. Everyone hung on longer than you’d expect because of that.”

At one point in mid December, one team inside Boosted was incorrectly told by their manager that everyone would be laid off the following morning. “Everyone panics. Rumors start flying. People are making sure they have their stuff backed up,” says the former employee. But when Russakow called the company together that following day, he swatted the idea down.

By that point, word had gotten around that something was going on with Lime, but most employees didn’t know what. The confusion ramped up when employees started taking jobs at Lime.

“We would expect to get let go every Friday,” the former employee said. “Then paychecks would come through and people would be surprised.”

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In the days before Christmas 2019, Boosted’s executives hunkered at their office trying to engineer a way out of a small mountain of debt — who to fire and what to salvage to keep the company alive. Suddenly, Russakow and his team received news that seemed like a Christmas miracle: Japanese giant Yamaha was interested in buying them.

Those executives had already spent most of December hammering out a deal with Lime that would allow the scooter-sharing giant to hire away a small group of core Boosted employees and license some of the intellectual property around their new scooter in exchange for $30 million worth of stock.

That deal wouldn’t save the entire company, though, and it wasn’t done. A Yamaha acquisition, on the other hand, would have been transformational. It could have buttressed Russakow’s efforts to grow the startup and expand into new markets — moves supported by Khosla Ventures, which was looking for big returns on its investment, the former employees told The Verge.

A Yamaha deal could have helped Boosted diversify into new categories while shipping products it had waiting in the wings, like an electric bike and new versions of its electric skateboards. But Yamaha ultimately got cold feet.

The failed Yamaha deal is at the center of Khosla Ventures’ lawsuits, one of which was previously reported by The Information. (The Japanese conglomerate is never named in the lawsuits, instead referred to as the “Manufacturer.”) Khosla Ventures unequivocally blames Lime for Yamaha backing out in the lawsuits, which were recently consolidated into one case in San Francisco Superior Court.

Lawyers for the venture firm have argued that Lime poached Boosted employees while negotiations with Yamaha were ongoing — including the Boosted VP who was coordinating interviews with the people Lime might hire as part of that deal. Khosla’s lawyers also claim Lime coordinated with Structural Capital to freeze the startup’s bank accounts and force it into dissolution — effectively preventing the Yamaha deal.

Lime “acted with malice by intending to cause injury to Boosted’s economic relationship with [Yamaha],” lawyers for Khosla Ventures argued at one point. “Defendants engaged in wrongful, intentional acts designed to disrupt [Khosla Ventures] and Boosted from consummating an alternative transaction.”

This all amounted to “sabotage,” Khosla Ventures claimed in court. Boosted was losing crucial team members and access to cash, killing the Yamaha deal.

Khosla Ventures claims there was another twist of the knife, too. Just before this all allegedly played out in January 2020, Lime had come back to Boosted with a revised offer: $15 million in company stock and more Boosted employees in exchange for the scooter IP. Khosla’s team said in court that this was more evidence Lime was up to no good: it struck up negotiations with Boosted under false pretenses in order to steal employees and other nonpublic information from a startup on the rocks.

Khosla Ventures and Structural Capital did not respond to requests for comment. A Lime spokesperson declined to comment.

Khosla Ventures kept Boosted afloat through February with $2.4 million in bridge loans, but ultimately “decided not to fund Boosted any further” by the end of the month, according to one of the filings. The startup laid off most employees shortly after.

In March 2020, Structural Capital moved to foreclose on what was left of Boosted. The venture debt firm wound up in control of all of Boosted’s assets since the startup had used them as collateral. Structural also had the right to liquidate those assets if Boosted violated any terms of the loan — something Khosla Ventures agreed to when that deal happened, according to court documents.

Structural set up an auction for March 17th. It sent out a notice earlier in the month, which Khosla Ventures received. But one day before the sale happened, the San Francisco area received a shelter-in-place order, as an attempt to contain the spread of COVID-19. Khosla says it didn’t attend the sale in order to comply with the public health order.

The auction went ahead anyway. There, Structural bought the rights to the tariff refund Boosted was waiting on from the government — a value in excess of $5 million — for just $400,000. Lime walked away with all of Boosted’s IP and remaining assets in exchange for 62 million shares of its stock. Khosla Ventures, Structural, and Lime were supposed to split the proceeds of any sale. But Khosla Ventures says Structural set up a new LLC that bought some of the assets — a move designed to dodge this contractually obligated proceed split.

Lime fought back hard against most of Khosla’s claims. During a hearing in the San Francisco lawsuit, one of Lime’s lawyers argued there was no agreement that Lime wouldn’t solicit or hire employees. He also said there were “zero factual allegations” in Khosla’s complaint to support the claim that Yamaha backed out because of Lime’s actions.

“Your Honor, I — this is, I think, a truly kind of… kind of a mind-bending, in some ways, complaint, because… [Khosla Ventures’] alleges that Boosted was gonna fire these employees; that Boosted was under financial distress; that it, you know, was defaulting under the loan security agreement; that there was gonna be this massive bloodletting,” Lime’s lawyer said, according to a transcript of the hearing. And yet, he continued, Khosla was trying to claim these employees were still valuable and that it held the right to take legal action against Lime for hiring them away. “It just simply doesn’t make any sense,” he said.

“It is odd, I’ll give you that,” judge Ethan P. Schulman responded. But, he said, “odd things happen in the world and give rise to lawsuit[s].”

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Before the sale, the other shoe had finally dropped for employees in early March, when the building manager at Boosted’s San Francisco office was served an eviction notice. The company’s leadership told everyone to work from home, but just a few days after that, they laid everyone off.

“We understand this news will come as a surprise to many of you, but unfortunately, developing, manufacturing, and maintaining electric vehicles is highly capital-intensive, and over the last year-and-a-half our business has faced an additional unplanned challenge with the high expense of the US-China tariff war,” Russakow and Ulmen wrote on the company’s blog. (Russakow and Ulmen did not respond to requests to be interviewed for this story.)

Most of the employees who spoke to The Verge said they didn’t believe Boosted made obvious critical errors. Even the scooter, some said, could have been successful — especially if Boosted had survived through the first few months of the pandemic, after which the sales of bikes and scooters skyrocketed. Lasting until the Paycheck Protection Program launched in April of 2020 could have, at the very least, bought a little more time.

Instead, many of them simply blame Khosla Ventures and acknowledge that Russakow’s aggressive product goals were a reflection of the returns the big firm wanted on its investment. It was in pursuit of those goals that Boosted overextended itself.

In the days and weeks after Boosted’s downfall, some of the startup’s most loyal fans still held out hope that it could be resurrected. Every few days they would tweet at Casey Neistat, or Elon Musk, and beg for some sort of intervention — as if the right face with the right money would be able to untangle the legal knot tied around the remains of Boosted.

It’s hard to blame them; after all, throughout its early years, Boosted defied expectations. It was a successful Kickstarter project that turned into a bona fide company, and basically helped create an entirely new category of vehicle along the way. But at its end, Boosted had evolved into something far more common: yet another Silicon Valley startup that struggled to meet ambitious goals set by the people who wound up running the show.

Update:Added disclosure of Khosla Ventures’ investment in Vox Media.

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