Cellular service provider Solavei files for bankruptcy

solavei-444Solavei emerged on the scene two years ago with a high-profile list of investors, celebrity endorsers and an ambitious business model that relied on customers to spread the word about the company’s cellular phone service, earning cash along the way.

From the beginning, Solavei’s multi-level marketing approach drew criticism, sparking hundreds of comments on GeekWire.

Now, Solavei — which has flown under the radar for the several months — has hit some headwinds. The company filed for Chapter 11 bankruptcy protection last week, restructuring its debt to be more “manageable with current operating income.” The filing lists more than 200 creditors, and liabilities in the range of $50 million to $100 million.

One of those creditors, Cavallino Consulting of Sausalito, Calif. — is owed $7.5 million alone.

“We believe the actions taken today will give Solavei the flexibility it needs to better serve our significant member base in a high growth and rapidly changing market,” said Solavei CEO Ryan Wuerch in a statement today. “Solavei members and employees will notice no changes in service or operations as we work with our vendors and investors to refine the social commerce platform and model we pioneered. Solavei will emerge from this process equipped to continue our growth with strong operations, a better cost structure, and opportunity for our members.”

Ryan Wuerch

Ryan Wuerch

Wuerch is the former CEO of Motricity, which also fell on tough times back in 2012.

Late last year, some members of Solavei lashed out when the company decided to introduce a new rate plan that throttled how much cellular data they could use.

At the time, Solavei had paid out more than $18 million to its members. The company — backed by the likes of former AOL CEO Jonathan Miller, Amazon Kindle VP David Limp and others — said last October that it was on a revenue run rate of $67 million.

Solavei said it expects to emerge from Chapter 11 later this year.

Here’s the full filing.

Solavei Bankruptcy14 14505 TWD 1

  • Bill

    Wuerch seems to leave a trail of tears. Despite his bio saying that Motricity generated huge returns for investors, I don’t think his investors made any money. Ipo priced disappointingly and went nowhere from there. Raised and burned huge capital with nothing to show for it. Solavei looks the same.

    He has a unique gift for transforming gold into lead.

    • http://www.solveigwhittle.com/ Solveig Whittle

      No tears for Wuerch or Solavei upper management. Look who made the money in this deal – no doubt the handsomely compensated management team who sucked $100+ million from dumb investors. Let future investors beware: do your research. Ryan Wuerch indeed leaves a trail of tears for his customers, “members” and investors. This is the second time he has raised and burned huge capital. He doesn’t turn gold into lead – the money went somewhere. As Gigaom reported in 2010, before Wuerch was fired from Motricity, the company had to pay all expenses associated with his $2M house until it sold – and it was purchased by…. Motricity. Who knows what kind of compensation deal Wuerch had this time around, but I guarantee it was a sweet one.

      • Ryan Koke

        The ones who make the money in a pyramid scheme…eeeeerrrr…MLM are the ones at the top. If you look closely, many of those at the top are friends and family of Ryan Wuerch. Same thing at Motricity. He’s once again pulled off a heist. Just amazing that investors aren’t on to him yet.

    • Pdiddy Dduh

      I worked for Infospace and was converted to Motricity when they bought the mobile division. This guy is a lying thief. They robbed us of all we had, played games with RSU to Options conversions, making everyone a restricted person so no one could trade and then they all did insider trading. To add insult to injury, they did a $6.00 IPO but employee strike was 12 and they did a 12 to 1 reverse. I didnt make a penny off over 3000 Infospace RSUs worth a pretty penny. He ripped off millions and got away with it. Oh Motricity bought his mansion to facilitate his move to Bellevue and I think bought that also. That is just a few of the scams. Oh got mad at the VP of HR when she told him that the HR dept was not his day care…

  • Jim Brown

    With $63mm in debt and $1.5mm in tangible assets, this company has a short shelf life. A highly competitive industry (cellular market) that is becoming more a commodity everyday, tight margins, layoffs/attrition at the corporate office, and the inability to expand past cellular service (marketplace is an unmitigated disaster) – the future is not bright.

    • Dave

      It will come out of bankruptcy with much less debt or no debt. It still won’t have a viable business model though.

    • Rusty Scupper

      Jim,

      Why so negative? With the number of subs they are near break-even and Chapter 11 gives them a chance to renegotiate the unfavorable contracts based on higher growth targets. Solavei can survive and continue to make payments to members in their social commerce model.

      • Jim Brown

        Rusty,

        I consider myself a realist and recognize the challenges faced
        by Solavei. As far as my reasons for being “negative”, I listed
        a number of them above, but to go more in-depth:

        1. Upper level management is largely responsible for this Chapter 11 due to past poor decision making. The
        CEO remains the same, and therefore I expect this poor decision making to continue. VC’s and other investment
        firms recognize this as shown by a lack of investment in this company after the initial round.

        2. Many past “big” initiatives that have often been discussed, have not come to fruition. I’m not confident
        in the company’s ability to expand past cellular service – something that is sorely needed.

        3. Solavei already has poor relationships with its vendors; filing
        for Chapter 11 does nothing to improve this, especially if these vendors are forced to defer receiving payment even longer, or worse, receiving pennies on the dollar.

        4. The cellular market is becoming more and more competitive by the day. Just yesterday (06/18/2014), T-Mobile announced unlimited data streaming (for audio) – something that Solavei cannot offer. Also, T-Mobile, the network Solavei utilizes,
        is a fierce competitor and in a sense eating their young (e.g., Solavei). While 400,000 people have signed up for
        Solavei in <2 years, only ~100,000 remain (and declining daily) – that’s a poor retention rate even for the cell industry.

        5. The idea of multi-level-marketing is a decent one, but selling
        friends and family cell service (especially one that utilizes the worst cellular network) is very challenging and much more difficult than the company leads you to believe. Yes, there are a
        few people that do very well, but if the average person signs up 2 or 3 people, that equates to $10/$15 off your phone bill/month. The challenge of retaining the members you
        signed up is ongoing, especially in the face of competition in the
        industry. At the end of the day, is that extra $10/$15 worth your time and effort? 300,000 leaving would lead you to believe not.

        I'm curious, aside from the ability to reorganize, renegotiate their debt, why are so bullish on Solavei?

        • Terri

          I couldn’t have said it better, Jim Brown! Thank you for setting the record straight for those who simply regurgitate that which Solavei has fed them.

        • JP Bressieux

          Very good assessment of Solavei’s current situation. Ryan Weurch and upper management are clearly to blame for killing the goose who laid the golden eggs. They’ve lost all credibility from me as a past participant in the business. They had a decent mlm comp plan, had they stuck to it and rewarded people appropriately who decided to build the business. They sabotaged that with last October’s change to the marketing plan and reduced access to data. Greed I expect got in the way or maybe it’s just a case of poor management built on an initial good idea.
          I don’t believe Ryan, upper management or even Staci Wallace can spin their way out of this one……

  • http://bestantikeylogging.com/ Kevin Crabb

    I’m getting a lot questions from my friends who are in a company who’s future is in question. Their business is filing Chapter 11

    Q. I am worried. My Cell Phone Company has had financial problems for sometime and there have been rumors about the company such as, are they going to close as a result of filing for bankruptcy Chapter 11? What happens to the Service? Will we get paid still? When a business files for Chapter 11, What happens to the company?

    Here is an article on Bankruptcy:

    My Employer is Filing for Bankruptcy-What do I Need to Know?

    Some Companies are able to successfully weather the storm. However, Attorney Unrad noted: That many corporate bankruptcies start as Chapter 11 reorganization cases, but where efforts are unsuccessful, they may ultimately be converted into a liquidation Chapter 7; proceeding overseen by a court-appointed trustee.

    My advice is to still work with them but start looking for plan b right away!

    Read more…

    http://www.boston.com/jobs/news/jobdoc/2013/08/my_employer_is_filing_for_bank.html

  • monk

    I was one of those taken on this ride….I have never seen a CEO spend money so badly, he should go into hiding,

  • tryingtocalmdown

    mlm/network marketing/social commerce works best when there is a wide range of products being offered and access to an online mall or shopping portal. Single product schemes rarely work. Excell was a telecom related mlm-style that did “long distance” (remember we used to pay 40 cents a minute for that?) and it went belly up, as much from financial mismanagement as the death of paying for long distance. it also sounds like the ceo is not someone worth investing in.

    • Ed

      Not true, a number of single product network marketing companies have succeeded very well. It’s also true that over the years pioneers like Amway, who began with their SA8 cleaning product, did add other products and lines, but that was after they were well rooted. A lot has to do with the company’s leadership and the decisions they make (or fail to make). This model makes a lot of sense as this is the direction of e-commerce. However, when a company relies in relationship marketing and decides to renege on a delivery promise, it is destined to cause major defections by those upon which their success is required. Once the trust is gone it’s very difficult to reestablish. This is most likely a major “why” Solavei is contracting, and not because it chose MLM to market it’s product.

  • http://cheapwirelessphoneplans.org CandraMechelle™

    I believe Solavei will pull out of this “rut”. Hopefully.

  • John

    all I know is I have never done any MLM, got with Solavei, offered to my friends and family who are now saving money on their service (some don’t even have any bills or making little extra), I have made thousands so far and I just got paid couple hundred, so you all can just keep saying how horrible it is while we laugh all the way to the bank..suckersss