generic $27 Million Gone: NowRx Is Latest High-Profile Startup To Hold Firesale As Equity Crowdfunding Favorite Breaks Silence
California-based startup NowRx recently announced that it sold its patient files to Alto Pharmacy and Capsule Corp. The move comes as a result of the company's inability to raise additional capital because of "the current economic climate," according to a statement from NowRx.
Effective Nov. 30, Alto Pharmacy acquired patient files for NowRx's California business. Capsule acquired patient files for NowRx's Arizona business on Dec. 1. The move will allow NowRx to "satisfy regulatory requirements with the California and Arizona Board of Pharmacies, as well as the DEA," the company said in its statement.
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NowRx, which provides on-demand prescription delivery, has struggled in recent months because of "war in Ukraine, high inflation, continued supply chain issues, Fed rate hikes, substantial loss of value in NASDAQ, etc," according to the company.
NowRx still owns other assets, including furniture, equipment, vehicles and its proprietary software QuickFill, which it is "actively trying to sell," the company said. More information about the sale of these assets as well as the company's financial situation and the status of its shareholders will be provided in the coming weeks.
NowRx was an equity crowdfunding favorite, closing one of the biggest raises in equity crowdfunding history and raising a total of $27 million. A few short months after closing this record round, some potentially troubling news suggests it has gone into a firesale. The company is selling off its assets to the highest bidder to recover as many funds as possible to pay off creditors and potentially return funds to preferred shareholders.
On Dec. 1, NowRx announced the sale of its patient files to Alto Pharmacy, but the press release left more questions than answers. Typically, if a startup is exiting, its entire business is acquired and a public announcement is made. But investors weren’t notified about the sale NowRx’s patient lists until about four days later. Given the continued sell-off of assets in pieces rather than a whole, the negative messaging around environmental factors and the ceasing of operations, it’s increasingly looking like a firesale.
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What This Means for Investors
While it doesn’t look great, all hope is not lost. Anyone who invested in NowRx’s SeedInvest rounds purchased “preferred” shares, which tend to be structured more like debt and include a liquidation preference. As of its most recent Security and Exchange Commission filings, NowRX held roughly $15 million in liabilities which isn’t much for a company this size. This means anything above the $15 million paid back to creditors will be turned over to pay off preferred shareholders.
The previous two rounds were both preferred shareholders with a liquidation preference at their respective purchased share prices. If there is not enough money to completely buy out their stakes at that share price, everyone holding preferred shares will effectively split the remaining money and be given their pro-rata share of the remaining funds.
While nobody is likely to see a return on investment, it is unlikely that anyone will lose their entire investment. This shows the importance of understanding the investment terms of each offering and doing your own research when investing in startups.
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