Modsy quietly closed as some customers were still waiting for refunds

In late June, Modsy, an online interior design services startup, abruptly stopped offering design services, fired its designers, and left clients with unfinished renovations and ongoing project orders. The company refunded some service order fees and promised to refund furniture deliveries to those who filled out a form. But more than two weeks later, the tweets show that many Modsy customers are still waiting for updates.

Unfortunately for them, Modsy made it harder to get in touch. While the company’s website remains operational, Modsy recently took down its Twitter and Facebook pages and made its Instagram account private.

The reason is that Modsy shut down in early July, founder and CEO Shanna Tellerman said in an email to TechCrunch. Business of Home first reported in June that executives intended to dissolve “the corporate and legal entity of Modsy” and that most of the company’s staff, engineers and e-commerce management had been fired. But Tellerman refused to confirm this at the time.

“Capital constraints and uncertain market conditions forced the company to cease operations on July 6 and lay off all employees,” Tellerman told TechCrunch. Modsy’s assets were acquired by a “new entity” following insolvency proceedings, she added, and some former employees were hired by the entity to steer the business into a ” new direction”.

“Customers will be notified of next steps on how to meet their needs,” Tellerman said.

The entity is Pencil, LLC, legally classified as a “general assignment for the benefit of creditors” – or ABC. (“Pencil” is a nod to Modsy’s legal name, “Pencil and Pixel, Inc.”). To form an ABC, a company – in this case, Modsy – enters into an agreement to transfer its assets to an unaffiliated third party (eg, Pencil) to liquidate the company. This is not an untested strategy in the tech industry. E-ink smartwatch maker Pebble went the ABC route when it went out of business in December 2016. The ill-fated game streaming service OnLive also formed an ABC in 2015 to sell its technology to Sony.

ABCs have the advantage of allowing assets to be sold quickly, either for cash (to repay creditors) or to sell the business to a new owner and keep services running. The downside is that the equity of the original company – including any founder, investor, and employee capital – is wiped out. A former Modsy employee, speaking to TechCrunch on condition of anonymity, said he was told their stock options were worthless.

A link emailed to some Modsy customers directs to an “outside of [refunds]”, including profit sharing, salaries, wages, bonuses, severance, commissions, and contributions to a benefit plan. The wording suggests a process for recovering money and benefits that employees believe them to be owed, but it is unclear which claims, if any, will be successful.

Lennar, a home builder based in Fontainebleau, Fla., could partially fund Pencil, according to the former employee. TechCrunch couldn’t independently confirm this and Tellerman declined to comment, but it is true that Lennar was a major Modsy partner. In May 2021, the companies announced a collaboration to create “walk-in” 3D tours of model homes using Modsy’s technology. And Lennar’s venture capital arm, Len X, on its website identifies Modsy as one of its portfolio companies.

“With Modsy, we help Lennar clients envision their future home,” reads a post on the Len X blog. “With Modsy’s realistic designs, clients can visualize what their future floor plan will look like. before it’s built, work with a designer to customize the interior design to suit their needs and style, and easily purchase furniture and decor for their new home.”

Unhappy customers

While the shell of the old Modsy team finds a way forward, several customers say they’ve been blocked by Modsy’s support team — or what’s left of it. Five of the seven customers TechCrunch spoke to, all of whom requested refunds in June, either hadn’t heard from the company or had received boilerplate emails with no status information. refunds. One said he was told he would see a refund within three to five business days. Another was told he had been approved for a refund, but was not told when to expect it.

“I had $50,000 in pending orders that are in limbo,” one customer told TechCrunch on Twitter. “[Modsy has] indicated that they would fulfill the remaining furniture orders, but the actual logistics on this point have been scarce. »

Another customer said: “[Modsy’s] service was supposed to make returns easier – that was one of the pluses. But this is not the case. We have $4,500 in undelivered or unanswered return requests, not including missing design services.”

Modsy’s initial business model revolved around selling interior design services on an AI-powered platform. Prior to founding the company, Tellerman was a partner at GV (formerly Google Ventures) and focused on retail, 3D and augmented reality technologies.

Using Modsy’s apps, owners could create renderings of their rooms and makeover them in real time, or pay a designer for a custom layout. Fixtures can be purchased directly through Modsy or through partner tools such as Crate & Barrel’s 3D Room Designer.

Modsy’s backers included TCV, Comcast Ventures, Norwest Venture Partners and NBCUniversal. The company’s latest funding round closed in May 2019, bringing Modsy’s total raised to $72.7 million, according to data from Crunchbase.

In May, Modsy signaled that it would pivot to offer a software-as-a-service platform, Modsy Pro, as a service for interior designers. On the company’s website, Modsy Pro is described as “an online interior design software that will transform the way you do business…bring your client’s space to life with our exclusive scanning technology parts, 3D renderings and designs that are easily editable and purchasable”.

The move came two years after Modsy made a series of aggressive cuts, slashing designers’ pay and shrinking both salaried employees and its network of designers. At the time, Tellerman told Business of Home it was part of an effort to make the company “lighter.” Business of Home reports also revealed that Modsy, in addition to piloting its own line of furniture, at one point experimented with outsourcing design work to the Philippines and Bulgaria to reduce operating expenses.

The Modsy Pro landing page offers users a way to request early access to the product that is still in beta. But in light of Modsy’s shutdown, the launch appears to be up in the air.

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