Funding

Too Little, Too Late: Why Honestbee's US$7M Funding Can't Stop The Ship From Sinking

We probably do not need to recap the financial problems that homegrown grocery delivery startup honestbee is facing. 

A combination of poor capital management, as well as poor cap table management has sunk the company into around S$313 million in debt.

(Note: A capitalisation table or cap table is a table providing an analysis of a company’s percentages of ownership, equity dilution, and value of equity in each round of investment by founders, investors, and other owners)

Majority of the debt is owed towards ex-chairman Brian Koo and his associates — it amounts to around S$258 million, which makes up almost 90 per cent of the company’s debt.

Koo is also a key investor and shareholder of honestbee; and his family controls South Korean tech giant LG.

Earlier last week, it was reported that honestbee plans to restructure the business in the following manner: 

  1. honestbee, where Brian Koo is both a shareholder and creditor, will be absorbed by a new entity incorporated by US-based FLK Holdings.
  2. Brian Koo is also a shareholder of FLK Holdings.
  3. FLK Holdings will invest US$7 million into honestbee for working capital, full payment to creditors owed $500 or less, debt repayment to scheme creditors, and professional fees and expenses.
  4. Existing creditors will have their debts converted into shares in the new company. This means that instead of getting their money back, they will own shares in honestbee through the new entity.
  5. Post-transaction, this will result in creditors owning between 70 and 75 per cent of honestbee.

According to a report from The Straits Times, honestbee’s independent financial advisor DHC Capital shared that should honestbee be liquidated, unsecured creditors will receive between zero and one cent on the dollar, and shareholders will receive nothing.

While the new proposed restructured business provides some consolation in terms of returns to those who ploughed money into honestbee, we can’t help but feel like they received the short end of the stick.

Several questions also come to mind with regards to the new controlling entity of honestbee. 

Alignment Of Interest Of Honestbee’s 800 New Shareholders

First of all, with 800 new shareholders who were all previously creditors of honestbee, who is going to represent the interest of these new shareholders?

According to the Singapore Company Constitution, major decisions of the company involving movement of shares, or appointment of key personnels of the company need to be approved by the shareholders.

Properly communicating these company announcements to the various shareholders and getting their consent to approve any decisions will make it hard for the company to move fast. Besides that, who is going to ensure that none of these new shareholders is left out? 

On top of that, the future of honestbee remains bleak — with the board focusing on restructuring the cap table, who is strategically thinking about the company’s growth?

At a digital edge where the popular ‘move fast and break things’ mantra is no longer enough to make sure that you stay on top of the game, can honestbee afford further delays in their business operations and still hope to stay relevant in their industry?

A quick check on honestbee’s social media shows that their last posting was dated 8 December 2019, where they announced that their same-day delivery is now back in Singapore. There has been no further communication from the company since then.

Projected Loss Of Confidence From Employees And Customers

Another question we have in mind with regards to the new honestbee is that, how can the company instil enough confidence within its employees — both current and future — and more importantly, its customers?  

With no official communication from the company, it will be hard to trust honestbee to have the employees’ best interests at heart.

honestbee team singapore
Image Credit; honestbee

While previous employees who were owed unpaid salaries have already received their payments, albeit in tranches, how can new employees be sure that their payroll won’t be further delayed again?

Without a strong team, it will definitely be a challenge to run the business and move it forward. 

For customers, how can one be sure that honestbee can deliver on their products and offerings after all of these had happened?

To win back the hearts of customers, and regain the ‘original’ honestbee that early adopters had grown to love, the firm would probably need nothing short of a miraculous marketing and branding strategy.

Is Online Grocery Delivery Even Worth Pursuing?

honestbee grocery delivery
Image Credit: honestbee

Perhaps one last point worth noting is that, is the online grocery delivery in Singapore or Southeast Asia even worth pursuing?

Since its inception in 2015, honestbee had been hard at work trying to capture the online grocery delivery space.

Almost five years and over S$50 million of funding later, in a small market such as Singapore, they should have had succeeded in figuring out or capturing the online grocery delivery space.

Competition with Lazada-backed RedMart, e-commerce giant Amazon Prime and local supermarket chain NTUC FairPrice aside, the margins for online grocery delivery is really small.

One needs a huge economy of scale to at least break even on the delivery fees, before even thinking of earning any margins to cover the operation cost. The leftovers from that will be the operating profit, which is further subject to taxes and debt coverage.

In fact, back in 2015, RedMart’s then-CEO Roger Egan explained to TechinAsia that it is hard to see economies of scale from the grocery business in Singapore.

We think [the on-demand marketplace] works for certain product categories but I don’t think it scales for groceries.

In groceries, you have many more items per order than other e-commerce. So, the efficiency of picking and packing those orders becomes really important at scale.

Picking and packing from a physical store can never be as efficient as a fully automated fulfilment centre. It’ll always cost more per pick. It’s good for lowering delivery time and for convenience but once you have to scale up, it’s not as efficient because physical retail space is more expensive and has less throughput.

– RedMart ex-CEO Roger Egan in an interview with TechinAsia

Essentially, it is pointless to keep fighting for the online grocery delivery space. So why continue spending money into a low-margin and potentially money-losing category when the fund, if any, can be utilised in other business opportunities?

While it is commendable that Koo and his associates have continued to pour money into honestbee to ensure that creditors at least get something back, at this point, it might be a lost cause.

Will we continue to hear from honestbee as a consumer? Honestly, with all that has happened, I don’t think so.

Featured Image Credit: honestbee

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