SoftBank-backed startup Fair burned through nearly $400 million in 10 months. Insiders reveal how Softbank stepped in and cleaned house in the wake of WeWork.

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Scott Painter stepped down as Fair's CEO last week amidst a SoftBank rescue

• SoftBank-backed Fair burned through nearly $400 million in 10 months, a cautionary tale of a startup on an explosive growth path.
• A dozen current and former employees said Fair's unconstrained growth was its undoing. It hired people it didn't have jobs for and bought millions of dollars in inventory it lost track of as it burned through funding, they said.
• SoftBank stepped in to manage the company in recent weeks, installing an interim CEO. Fair laid off hundreds of employees and is reevaluating its business model.
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When Scott Painter wanted to get an engineering project over the finish line at Fair, his short-term car leasing company, he pulled out all the stops.

In February, programmers spent a week in a swanky Santa Monica rental home they dubbed the "Fairbnb," sprinting to create a functionality that would help the company better partner with Uber.

As they worked, a chef prepared meals. A masseuse was on hand to physically ease the tension. And some developers offered others Adderall to help the team stay focused, multiple employees who were there said.

Back then, the startup was flush with cash. It had raised $385 million in a Series B funding round two months earlier, in December 2018, led by SoftBank's Vision Fund.

Painter, a serial entrepreneur described by employees as a charming visionary, appeared to be on a roll. Fair had gone from a stealth-mode startup in 2016 to an app with 40,000 active users, including a partnership with Uber, in just two years.

Today, those millions are gone. Eight months after the swanky "Fairbnb" retreat, Fair found itself needing an emergency cash injection.

SoftBank, already on edge after a tumultuous autumn dealing with WeWork, swept in last month, initiating an audit, helping the company slash headcount, and infusing an extra $25 million to keep it afloat. Painter relinquished his role as CEO to a SoftBank insider but stayed on as chairman. It's the first time SoftBank has put one of its own in the top executive role, said a source close to the company.

Business Insider spoke with Painter as well as 12 current and former Fair employees about what it's like to be a Softbank-backed company in the wake of WeWork. Most declined to be identified, citing non-disclosure agreements.

Painter claims he's built a real business. But with no prospects of turning a profit, he needs money to keep coming.

"We've built the hardest part; we have to figure out how to finance all of it," he told Business Insider from a conference in Portugal. "We're at a point now where we have to get it right, given our scale."

Employees told a different story. They said Fair's unconstrained growth was its undoing. It hired people it didn't have jobs for and bought millions of dollars in inventory it lost track of as it burned through funding, they said.

Fair's accelerated expansion, followed by SoftBank's sudden application of the brakes, echoes WeWork, which ousted CEO Adam Neumann after a disastrous attempt at going public. As SoftBank moves to put more limits on founders in light of the WeWork debacle, it also hints at how the giant investor might shake up other portfolio companies.

Painter rejects the comparison to WeWork, saying that the car leasing business is more attractive than real estate. Fair is a "fundamentally different business than WeWork," he said - one that, while capital intensive, offers higher margins. And Fair owns hundreds of millions of dollars worth of cars now. For the same amount, WeWork can only own only a handful of buildings.

Representatives for Fair and SoftBank declined public comment. We reached out to Painter directly.

A deal with Uber

Painter started Fair to give drivers a debt-free option to rent cars with no long-term commitments.

The company accepted customers whose credit scores might otherwise disqualify them from a lease, and drivers could view inventory through an app, eliminating the need to walk into a dealership. They paid a nonrefundable "start payment" of two to three months' cost.

As SoftBank-backed, money-losing Uber geared up to go public, Fair entered another market by acquiring the ridesharing company's money-losing leasing program this January. Lyft has had a similar tie-up with three rental car providers including Hertz since March 2016, a Lyft spokeswoman said.

Employees were succinct in describing what they saw as Fair's weakness: the company bought too many cars for too much money, then tried to rent them out too cheaply and without the infrastructure to manage them. The Uber deal exacerbated those problems, they said.

The company bought cars for the ridesharing platform for $12,000 to $20,000 and charged drivers a few hundred dollars a month, then refurbished the cars at the end of the short-term leases. Adding on the Uber program, with about 15,000 drivers, led to a huge increase in costs as the company looked to expand inventory fast this year.

Anticipating more growth, Fair added bodies at every level, sometimes before they had responsibilities to fulfill. One employee said the company hired senior account managers for seven or eight markets. Because Fair never formally opened the areas, the employees sat in the territories for a year on payroll, and some moved jobs to manage lots, this person said.

Employees said that the ridesharing part of the business was more profitable for Fair than the general consumer business because it had less user acquisition cost and more dependable demand.

"We're excited about both sides of the business," Painter said. He noted that Fair still needs to figure out the financing side of the consumer business, because it relies on mega-credit lines to finance those cars with banks including Ally and Goldman Sachs.

Long wait times

Current Uber driver John Mizerek, who hasn't owned a car in six years, has tried Fair-Uber and Hertz-Lyft. He first drove for Lyft with a Hertz car for more than a year in Los Angeles before he switched to Uber and Fair in June, seeking to try a new platform and make more money, he said.

Mizerek faulted Fair for extensive wait times at their car depot, with every visit taking between 90 minutes and three hours. He said the depot had a snack cart to appease drivers facing long waits. With Lyft, he can't remember spending more than 15 minutes getting a rental. He had multiple banking issues with his Fair account, including erroneous charges that he said led to overdrafts. Poor email support led him to try to attract company attention on social media.

Mizerek's frustrations can be traced to the company's focus on growth without corresponding attention to underlying infrastructure, employees said.

While the company's server infrastructure was spectacular - one programmer compared it to Netflix, the gold standard - Fair's employees were frustrated by a poor backend. Operations relied on cumbersome Google spreadsheets and manual inputs, and the whole process was prone to user error, even when Fair added systems like fleet maintenance software Fleetio.

Once, an employee recalled, a colleague sent 80 cars to a town in Georgia after mistyping the state.

"I never met one engineer that was incompetent, but the whole thing was dysfunctional," said one employee, highlighting the lack of technical leadership.

Fair only began to seriously look for a chief technology officer in recent months, said an employee who was there for years. Multiple tech employees said Painter ignored their concerns about technical problems and direction, telling staff in an all-engineers meeting they were free to find another job.

Speed was of the essence: the backbone for the ridesharing program was built out operationally in two months, "which is absolutely unheard of," said one employee. But a rush to push out new functionalities often led to lack of field training and frustration for staff and customers, employees said.

To soothe customers and stave off negative reviews, employees said they'd send gift cards and cover repairs dealership wouldn't, adding to costs.

"One guy would go out and spend $10 million on cars, then the finance team would say, 'What the f---?'"

Well before SoftBank's cleanup effort, McKinsey came in to assess operations, according to sources. Mid-level employees at Fair told Business Insider the problem was Fair's focus on hiring more people at the expense of investing in operations tools - and they didn't need a consultancy to tell them that.

McKinsey "did a whole analysis and found out a large percentage of our inventory could not be accounted for. That was due specifically to the manual processes," said one employee, noting this has improved. At one point, the source said Fair could only account for 10% of their cars, since they weren't scanned into the proper systems, and now the company knows where 97% are.

A spokeswoman for McKinsey said the company does not comment on client work.

Leadership silos compounded the problem.

"One guy would go out and spend $10 million on cars, then the finance team would say, 'What the f---?'"

Executives also had side projects that vacuumed talent and spend. For example, Fair leased an old Walmart across from the Oakland Airport to build a facility to refurbish cars, with rent starting at about $225,000 per month, two sources said. Painter said that number was incorrect, but he declined to give specific figures.

"None of the math made sense," said one source, who called it "the Willy Wonka of car refurbishment."

"Fair is not and has not been recklessly spending capital," Painter wrote in a message. "It was never a part of our culture and despite the fact that it makes a salacious story, it isn't true. Fair is a transformative idea operating in an asset / capital intensive environment. The simple truth is that the vast majority of our capital is required to finance the cars which generate revenue. Fair doesn't have a cultural problem; it has an extremely capital intensive business that needs to operate at scale to generate sufficient cash flow to work."

Painter's vision

Employees said Painter often used confusing metaphors to explain his vision, and now joke about how he frequently used sailing as an analogy, which came off as out-of-touch. And in an two-hour speech to employees who came in via Fair's acquisition of Ford's leasing program Canvas in September, sources recounted that Painter said he was looking for "crusaders" and said he would "liberate" the employees from Ford, who he compared to prisoners of war.

"If we're talking about spending SoftBank's money on sake and tuna, I'd guess I say I was a crusader in that area," one employee quipped. Most of the Canvas employees were laid off, either in immediate post-acquisition cuts or the more recent layoffs, employees said.

Painter declined to discuss Canvas, including his speech, calling the employees "bitter."

Some employees were also troubled by their personal work for Painter, echoing WeWork employees' complaints about their work for then-CEO Neumann's extended family.

"We'd have to assist Scott's [16-year-old] son with getting a car," one employee said. "His profile had a SpongeBob SquarePants license - the license picture was SpongeBob."

Painter said that was not an instance of nepotism, and that Fair took no risk in getting his son a vehicle. He highlighted that Fair is a good option for new drivers, among other groups, who want flexible ownership options.

"Not only is the son of the founder the lowest-risk customer possible, we must work towards evolving the product to serve a new generation of drivers that want everything Fair offers," he said.

'No money's going in or out'

Per the Wall Street Journal, SoftBank is taking a tougher stance with its portfolio companies post-WeWork, and is now emphasizing corporate governance. Before layoffs, Fair employees saw SoftBank's actions firsthand, in what could be a blueprint for work at other portfolio companies that need rescuing in the future.

Two weeks before layoffs, SoftBank employees appeared in the Santa Monica headquarters. Fair employees thought it was for a Series C round of fundraising, but instead some managers told them their projects were frozen. Consumers saw a huge price bump for cars. Previously, a driver might have paid $1,000 in a non-refundable deposit for a basic vehicle; now, the price jumped to $10,000, which employees explained as a way to avoid onboarding new customers.

"I didn't really understand how serious it was the first day," said one employee. "The second day was like, cancel any orders you have in process. No money's going in or out at all. The next day I realized it was bigger than I thought."

Another source compared Softbank's actions to a hostile takeover. Multiple Fair employees said they paid vendors personally, since small businesses weren't getting paid by the company, which Painter denied.

Fair quickly cut about 300 employees, with severance including one month of salary and one week of health insurance coverage, devastating those who depended on the coverage for themselves and their families, employees said.

Painter rejected employees' characterizations of their exit packages as below market standard.

"We went above and beyond what was expected or legally required," he said. "We did it based on a sense of fairness and to thank them for the work they did."

The company, under SoftBank's direction, moved quickly to curtail other expenses. Now, employees need to ask the new chief financial officer - who replaced Painter's brother - for approval on expenses over $100, multiple sources said.

SoftBank's Adam Hieber took over Painter's CEO role and will stay with the company at least through year-end, according to a person with knowledge of the situation.

He's "helping add some rigor to the process," they added.

In a Thursday memo to employees obtained by Business Insider, Hieber said he was focused on "enhancing our customer experience, while ensuring that Fair stays on the path to sustainable growth."

To that end, Hieber said his three main goals are to rework the consumer product with new pricing; "sharpen" the rideshare product; and optimize operational efficiencies.

IPO in the future

Last December, Painter told business TV platform Cheddar that in the coming year, he planned to expand to every US city and consider international markets. He also said he envisioned Fair as a public company "sooner rather than later."

"We are running the company today as if we are going to be a public company tomorrow," he said at the time.

Now, Painter, who continues to serve as chairman, said he still sees the company as on a path to an IPO - timing to be determined.

"This will be ultimately a public company because there's too much capital involved for it not to be," he said. "When that happens? Your guess is as good as mine."

A SoftBank source said no planning has gone into an IPO.

Instead, they said, Softbank's mission is to "get the company on a path to profitability much more quickly."