Roomi’s fall from grace: Major layoffs follow allegations of frivolous spending and nepotism

Next week will mark one year since Roomi announced a fresh $11 million in funding, a cash injection that came just as the New York-based shared housing marketplace declared it had hit the magic 1 million user milestone.

That series A round was intended to spearhead a major domestic and global expansion drive — and that, on the surface at least, is what happened. In March, Roomi snapped up New York-based roommate matching service Symbi before establishing a footprint in European markets by buying out Study Abroad Apartments. A few months ago, Roomi acquired Mexican shared rental platform DadaRoom.

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Roomi appeared to have been healthy and making good on its promise to grow its global presence beyond North America. But VentureBeat received a tip last week that the startup had laid off most of its workforce — up to 50 of its 63 employees — which was in addition to a handful of departures earlier this year. The company confirmed that most of them received no severance payout.

More than that, several former employees VentureBeat talked to recounted tales of frivolous spending, nepotism, and an often intimidating work environment.

Layoffs

In the wake of mass layoff reports last week, Roomi issued VentureBeat the following statement:

Roomi has made the exceptionally difficult decision to let go of a number of staff due to unavoidable changes to our funding structure. We would like to thank our dedicated team for all their hard work and contribution towards the Roomi mission to make housing safer.

In a separate statement provided to CNN on Friday, shortly after the publication ran a lengthy feature on the startup, Roomi said that one of the reasons for the layoffs was that an anticipated round of funding had fallen through, with founder and CEO Ajay Yadav adding that it “took us all by surprise.”

But according to people close to the situation who spoke to VentureBeat on the condition of anonymity, the company’s predicament should not have come as much of a surprise to anyone, due to the manner in which it was spending money.

For example, the entire company embarked on an all-expenses-paid, 10-day team bonding trip to Thailand last year, which Yadav blogged all about. Roomi also spent significant sums of cash, which sources tell us may have been in the region of $1 million, on outdoor advertising in New York and London.

Freewheeling spending isn’t a new phenomenon in the startup world, and such activity can sometimes be put down to naivety or inexperience. It may be reckless, but there is nothing inherently sinister about it.

However, the fact that investors have not been willing to put more money into the startup, so far at least, could be a sign of something more serious. And our sources tell us that Roomi wasn’t as close to closing a fresh round of funding as it has claimed. VentureBeat did reach out to Roomi’s series A lead investor Atami Capital for input, but at the time of writing, the firm has yet to respond. VentureBeat did manage to get responses from Yadav, however.

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“Not true,” Yadav said, in response to suggestions that Roomi may not have been close to completing a fresh round of funding. “As a startup, we are always in conversations about our funding situation. However, our interactions with investors are confidential. We can’t disclose anything publicly, due to legal agreements in place with investors.”

Family affair

Several people with knowledge of the matter told VentureBeat that Yadav employed several close family members at the company’s Indian office, which Roomi confirmed to VentureBeat.

“Three family members have been hired in the Delhi office from a total of 10,” chief operating officer (COO) Alex Larsen said, “all of whom were interviewed by me and passed the official processes. India is a tough market to manage remotely for many reasons, and we needed people who were skilled but also who we could trust in that office.”

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However, multiple former employees said that one of Yadav’s family members was accused of sexual harassment by a female employee who has since left the company. Though we have not been able to confirm the exact nature of the allegations, the consensus from our sources was that there was more than one instance of alleged harassment reported by the employee, and that the allegations were not treated as seriously as they should have been. When we asked Larsen about this matter, he said there was only one “isolated” report of harassment that was sent to HR before being sent to him, and he insisted that the matter was handled appropriately.

Larsen said:

We were made aware of one isolated report of an inappropriate comment being made to an individual. We took the issue very seriously, as we would do in any such instance, and worked immediately to deal with it through the correct disciplinary procedures. We do not condone this behavior.

The individual was given a formal verbal warning and told they would be fired if it happened again, required to take formal training, and had follow-up meetings with HR to confirm what they had learnt. I oversaw the disciplinary procedures and kept Ajay informed on how we were managing it. No other incidents have ever been reported.

Separately, multiple ex-Roomi staffers told VentureBeat that Yadav’s fiancée was on the payroll for up to a year, even though she carried out no official duties for the company. When asked about this by VentureBeat, Roomi issued the following statement:

Ajay’s fiancée has never been a full-time employee, but she was contracted on a part-time basis to manage some room listings, as well limited work on social media channels.

However, nobody that we spoke with had first-hand knowledge of Yadav’s fiancée carrying out any work in the aforementioned fields. One person I spoke with said that his fiancée may have periodically posted some content to Yadav’s personal Instagram account, though we have not been able to independently verify that claim.

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Multiple people, who again spoke on condition of anonymity, also said that Yadav’s fiancée had traveled to Kenya for a trip on Roomi’s dime. Larsen vehemently denied this allegation. “This is false,” he said. “None of Roomi’s funds were ever used to pay for a trip that Yadav’s fiancée went on to Kenya.”

According to Larsen, Roomi did sponsor half the cost of a trip for Yadav’s executive assistant as part of a social impact cause, but although Yadav’s fiancée traveled too, Larsen said she paid her own travel expenses.

Intimidation

From all the people VentureBeat spoke with, most spoke highly about working at Roomi in terms of their coworkers. But the conversations turned sour in relation to senior management, including Yadav, whom some felt was sometimes a little “volatile” and a “bully.” One person said:

The company and team was absolutely amazing and exceptional. Truly some of the best people I have ever worked with. Which is why it is so scary how two people (the CEO and another senior executive) could completely ruin a culture and make people anxious and scared to come into work.

Another former employee said:

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The product, engineering, and marketing team managers were respectful, effective, and led their teams well. However, most employees were generally uncomfortable around, and even fearful of Ajay, who absolutely intimidated and bullied.

In response to this, a Roomi spokesperson told VentureBeat that the HR department received no formal bullying complaints over the course of the company’s four-year history.

The future

In terms of what the future holds for Roomi, well, it appears to hang in the balance. From what we understand, the company has more or less run out of cash. There are whispers that Roomi could pivot to become a student-focused platform, something the company would not confirm to VentureBeat — though it did say that it was “evolving” its business into a new model.

How it plans to do that without raising additional funds is not clear. It’s possible that a follow-on investment could still happen*, though it may depend on the exact nature of the new business model. It’s also plausible that such funding may hinge on who is leading the company forward.

“We still firmly believe in making renting better and safer,” Yadav said. “And we’re working with our board and investors to do just that.”

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*Update: 11/09/18

Since we published this article, one investor, who said that they had previously invested in Roomi three times, reached out to say that they stand by Roomi and are prepared to invest in Roomi for a fourth time. We have also removed an embedded tweet of theirs to respect their wishes.