Fresh funding and more departures at Quirky, the New York startup that burned through $150 million

QuirkyYouTubeQuirky CEO Ben Kaufman

Quirky, the New York City startup with the goal of “making invention accessible,” is close to closing a new round of funding, even as more employees leave.

CEO Ben Kaufman told Business Insider in April that he planned on raising more money, and that close is “just days away,” Fortune’s Dan Primack and Stacey Higginbotham report.

The funding comes at a crucial time for the company, which has had an incredibly tumultuous year.

In the past seven months it gone through multiple rounds of lay-offs, burned through tens of millions of dollars, and discovered that its founding business model broke at scale.

Now, Business Insider has learned, Quirky’s chief technology officer, Steven Heintz, has left the company to work at Bay Area-based Flextronics Invention Lab, and Quirky appears to have shut down the San Francisco office where he was based.

We also heard from a former employee that Quirky’s “Internet of Things” subsidiary Wink was almost sold, but the would-be buyer backed out after a major malfunction of Wink’s products in April.

(Quirky did not initially respond to a call and multiple emails for this story. If they do, we’ll update it.)

A recap of how things went wrong

When Kaufman founded Quirky in 2009, it allowed ordinary people to become inventors by submitting ideas that Quirky would turn into real products and sell at stores like Target, Staples, and Bed Bath & Beyond. As the company grew, it started accepting more complex product ideas, which not only cost more to manufacture, but often sold far fewer units than its simpler, cheaper items.

Meanwhile, the company created a subsidiary “Internet of Things” business called Wink, which it launched after striking a deal with General Electric in 2013. The partnership gave Wink access to old GE patents and it was an impressive vote of confidence from a major company in a young startup.

But Wink’s first product launches in 2014 were far from smooth. Disappointment is rife in forum posts about various software products and Gizmodo ran an extremely harsh review of the Wink system earlier this year.

Wink’s financials were such that in February, Quirky decided to hire bankers to help it either sell Wink or raise new outside investment.

“There’s a point where it doesn’t make sense for one unprofitable startup to keep funding another unprofitable startup,” Kaufman told Fortune.

As that process got started, Quirky decided to scale back in a few ways.

It had a round of layoffs (which, compounded with cuts in November and December, amounted to more 20% of the company), decided to stop making so many products, and shut down its ecommerce site. A new initiative, called Powered By Quirky, would align the startup with major brands like Mattell and headphone maker Harmin and help those corporations figure out new products to launch. Quirky itself would only manufacture products in three categories: “connected home,” “electronics,” and “appliances.”

That process was “moving along,” Kaufman told Fortune, but then disaster struck.

Heintz quirkyLinkedInFormer Quirky CTO Steven Heintz, now at Flextronics

In April, the company had to do an expensive nationwide recall of its Wink products because of a “completely preventable” security error. A former Quirky employee tells us that a company that had previously been interested in an acquisition pulled out after the malfunction. Kaufman told Fortune that inventory backlogs for Wink products are still not fully resolved.

In May, Quirky’s chief technology officer, Steven Heintz, left the company to work at Bay Area-based Flextronics Invention Lab. In early June, sources told Business Insider that Quirky had laid off between 20 and 30 more employees.

Several former Quirky employees tell Business Insider that the remaining people in Quirky’s San Francisco office either followed Heintz to Flextronics, started working at Wink, or lost their jobs. Kaufman declined to comment at the time of that report (and Quirky hasn’t answered Business Insider’s phone calls or emails for this story), but three former employees say that the office also sold all of its machine equipment, like 3D printers and a plastic injection moulding machine, to Flextronics.

What’s next?

Selling off that machinery would make sense, because Kaufman tells Fortune that Quirky will stop making any of its own products at all. It’s looking for Powered By Quirky partners for the “electronics” category it had decided to stick with in February.

As for the “appliance” category, Quirky announced in March that it would start making smart appliances through a partnership with Amazon, but Kaufman says that a formal announcement will come about that soon, given its decision to stop manufacturing.

Kaufman also told Fortune said that Wink is now “closing in” on a round of outside funding, separate from the funding that Quirky is raising. Both rounds will have new lead investors — Quirky has previously raised $US185 million from GE, Andreessen Horowitz, Keiner Perkins, Caufield, RRE Ventures, and Norwest Venture Partners.

“The Powered by Quirky business is going really well, but we’ve definitely shifted some things around and had to say goodbye to some great people who had been here for a long time,” Kaufman tells Fortune. “The investors we’ve been talking to about the new round know about what we’re doing, and are excited by it.”

So far, the company hasn’t announced to the inventor community whether any of their product ideas have been picked up by Powered by Quirky partners

In a blog post today, a Quirky community manager wrote that the team is “hustling out there pitching new business leads,” and that it’s holding an internal workshop with Mattel brand Little People.

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