Mexico-based hospitality startup Casai is dismissing dozens in Brazil and Mexico as it plans a merger with Loft’s Nomah to restructure the company. Under the deal being negotiated, Loft would sell its shares in Nomah to Casai and invest in the new merged company.
“A merge with Nomah is coming very soon,” said a person familiar with the deal, who told Bloomberg Línea that negotiations haven’t been finalized. The transaction is a way to save the proptech after its attempt to get a Series A extension in April didn’t move forward, a person familiar with the issue said.
After Sonder, a similar startup based in Canada reported poor performance and laid off staff, affected by the economic environment harming tech businesses, family offices owning Casai’s real estate reacted by pulling off the fundraising check. And VCs followed suit, as one person familiar with the fundraising deal told Bloomberg Línea.
Because of this, Casai had to cut costs and fire staff. People directly affected by Casai’s layoffs told Bloomberg Línea that at least 60 employees were cut in Brazil last Monday, from the nearly 200 the team had, and at least 20 people were cut in Mexico.
People laid off by the firm in Brazil haven’t received severance yet, but they could get it in up to 10 days, according to a person familiar with the matter. The situation in Mexico is blurrier. The staff in the country is being told by managers that their severance compensation could be paid in up to six installments, people affected said.
A person that was unnamed because the discussions are private said Casai told employees in June that the company was going through an M&A. Even so, they had to restructure because the proptech was in no position to do business for another month.
While former employees mentioned that the startup expected to raise a $70 million Series B at the end of 2021, other people said that there was no deal for a Series B, but only an extension. That didn’t happen. Yet, last April, Casai acquired the Brazilian company Loopkey, which offers hardware (locks) and software for room access.
In 2020, the startup co-founded by Nico Barawid and María del Carmen Herrerías raised a $48 million Series A financing round, led by Andreessen Horowitz (a16z) and TriplePoint Capital, in which Monashees also participated. Previously, Casai had obtained a $5-million seed funding led by Kaszek Ventures and Monashees.
The Series A was one of the largest rounds in that stage and Casai used it to expand into Brazil, a market that, according to a former employee, is becoming more relevant than the Mexican operations at present. And it will become even more important when Nomah’s deal closes. But it can also lead to more redundancies, as the newly merged company will have to adjust its businesses and portfolio.
The new deal would reportedly keep Barawid as CEO, and Thomas Guz, the current CEO in Nomah, would step out in six months, Bloomberg Línea has learned.
This is an emergency operation to save Casai. “The merger with Nomah will come very soon,” said a person familiar with the deal, who said negotiations have not been finalized.
Severance issues
The severance packages offered to employees reveal some discrepancies. While a person with knowledge of the matter said payments for severance (liquidaciones) in Mexico abide by the local labor laws, Bloomberg Línea saw documents showing the opposite.
One of the former employees said he knew that a16z gave six months of runway with $5 million to Casai, in part to pay the settlements. A person said Barawid didn’t accept a bigger ticket because it would dilute his control over the startup and he wouldn’t be the major owner of his business. But another person says that this didn’t happen, and Casai had no capital.
Bloomberg Línea sought a16z’s Angela Strange, and Monashee’s Marcelo Lima for a comment, but there was no response.
Money to burn
With no capital, Casai has looked for other alternatives to stay afloat. First, it began cutting expenses from day-to-day operations a few weeks ago.
One of the people consulted said that until six months ago, everything was growing in Casai. “There was a lot of growth and a lot of money to invest, the strategy was to grow as fast as possible, and all the ideas that could help us move forward were accepted, it was a very exciting time,” said this person affected by Casai’s layoffs policy.
But that accelerated growth without financial discipline, people consulted by Bloomberg Línea said, led Barawid to speak to the entire company on June 24 to inform them that he was running out of capital and told them that they better start looking for a new job.
“Since that day there was an atmosphere of total uncertainty, there was no contact from the team leaders to explain what was happening,” said one of the people affected by the dismissals.
Also from that moment, the workload began to decrease in most areas of Casai. Just a few months earlier, former employees say, the teams were steadily growing in different areas, but beginning in June some leaders began negotiating their departures from the company. And they also noticed that the human resources departments of Mexico and Brazil almost disappeared. People that handled public relations and marketing were also dismissed.
According to former employees, there were 349 members in the communication channels of the company. After the cut, there were only 299, according to a person who reviewed the data before their employee account was deactivated.
According to several of those interviewed, Casai’s administration could not keep up. They said that in recent weeks employee benefits began to be reduced and suppliers were paid not with deposits as was customary, but with credit cards issued by Clara, the Mexican unicorn founded by Gerry Giacoman.
Also in June, leaders at Casai were asked not to announce any new launches in Mexican or Brazilian cities. ”The investors wanted discretion because each launch involves hiring people and they didn’t want us to keep announcing that we were spending money because it would affect capital raising,” said a person familiar with these discussions. Yet another person familiar with the negotiations said there were no announcements because Casai is still testing if Brasilia’s operation is going to work out.
Settlements breaking the law?
Once, working at Casai was pleasant because “we were like a family”, said some former workers. Every Friday there were meetings where employees with outstanding performances during the week were recognized.
For this reason, the morning of July 18 shocked Mexico’s employees. On that day they were told to sign their resignation with a severance seemingly inconsistent with their calculations.
Casai’s former employees agree that the startup is only offering them half of what they are entitled to in six installments. Under this scheme, the first payment is between 40 and 50% of the total amount, and the rest is in monthly deposits.
Those affected sought legal advice and their lawyers agree that this practice is not usual. But they did acknowledge that payments often differ when the company is in financial trouble or at risk of bankruptcy, although this is usually resolved after just three months.
Some of the former employees threatened to sue Casai, but the law firm that represents them told them that there was no point because the company could disappear in a few months.
In fact, every Mexican employee who didn’t accept Casai’s layoff deal is dealing with their own lawsuit. The majority of the people laid off accepted Casai’s severance terms because they needed the money. Others want to deal to see if Casai will pay in full. “Casai’s lawyers treated us poorly. They said the company was going down and there was no way to pay us,” said one person affected.
Some lawyers recommended that affected employees sign the severance packages because the company could change its corporate name and not be obliged to pay them anything. However, another person familiar with the discussions said the merger with Nomah wouldn’t be a path to run away from lawsuits, but rather a way to comply and properly have money to pay for severances in Mexico.
In Brazil, a person who knows the situation of the co-workers said that the dismissals also took place on July 18 and that they were asked for 10 days to contact them and review their settlement, although initially they were offered shares of the startup as part of the compensation.
Brazil’s people affected by the layoffs are still handling paperwork conversations with the HR and health dismissal exam. Another person said in Brazil there won’t be any deal regarding severance because Brazilian’s labor law is harsh about it.
Bloomberg Línea contacted the directors of Casai but did not receive a response on the case. Nomah said the company has nothing to comment at this moment.
