At the end of June, when starting up online interior design services, Modsy abruptly stopped offering design services, fired its designers and left clients with unfinished renovations and projecters in progress. The company refunded a number of service order fees and promised to refund furniture deliveries to those who filled out a form. But more than two weeks later show tweets that many Modsy customers are still waiting for updates.
Unfortunately for them, Modsy has made it harder to get in touch. While the company’s website remains operational, Modsy recently deleted his Twitter and Facebook pages and made his Instagram account private.
The reason is that Modsy quietly shut down in early July, founder and CEO Shanna Tellerman said in an email to BestFitnessBands. Business of Home first reported in June that leadership plans to wind down Modsy’s “corporate and legal entity” and that most of the company’s e-commerce staff, engineers and management had been laid off. But Tellerman had refused to confirm this at the time.
“Capital constraints and uncertain market conditions forced the company to cease operations and lay off all employees on July 6,” Tellerman told BestFitnessBands. Modsy’s assets were acquired by a “new entity” out of insolvency proceedings, she added, and some former employees were hired by the entity to lead the company in a “new direction.”
“Customers will be informed about the next steps 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 allocate its assets to an unaffiliated third party (e.g. Pencil) responsible for carrying out the liquidation of the company . It is not an untried strategy in the tech industry. E-ink smartwatch manufacturer Pebble went down the ABC route when it stopped working in December 2016. The ill-fated game streaming service OnLive also set up an ABC in 2015 to sell its technology to Sony.
ABCs have the advantage that assets can be sold quickly, either for cash (to pay off creditors) or to sell the business to a new owner and keep the services in business. The downside is that the equity of the original company — including the assets of founders, investors, and employees — is wiped out. A former Modsy employee, who spoke to BestFitnessBands on condition of anonymity, said they were told their stock options are now worthless.
A link emailed to some Modsy customers leads to an “outside” claims form [refunds]including equity interest, wages, salaries, bonuses, termination benefits, commissions, and contributions to an employee benefit plan. The wording suggests a process to recover money and benefits that employees believe they owe, but it’s unclear which claims, if any, will be successful.
Lennar, a homebuilder from Fontainebleau, Florida, could partially fund Pencil, the former employee said. BestFitnessBands could not independently confirm this and Tellerman declined to comment, but it is true that Lennar was a key partner of Modsy. In May 2021, the companies announced a partnership to create “walkable” 3D tours of model homes using Modsy’s technology. And Lennar’s corporate venture arm, Len X, identifies Modsy as one of its portfolio companies on its website.
“Together with Modsy, we are helping Lennar clients envision their future homes,” reads a post on the Len X blog. “Modsy’s lifelike designs allow customers to visualize what their future floor plan will look like before it’s built, work with a designer to tailor the interior design to their needs and style, and easily purchase furniture and decor for their new home.”
Making customers angry
As the former Modsy team’s shell scrambles for a way forward, several customers say they’ve been thwarted by Modsy’s support team — or what’s left of it. Five of the seven customers BestFitnessBands spoke to, all of whom filed for refunds in June, had not heard from the company or received standard emails with no information about the status of their refunds. One said they were told they would see a refund within three to five business days. Another was told they had been approved for a refund but were not told when to expect it.
“I had $50,000 in pending orders that are in limbo,” one customer told BestFitnessBands on Twitter. “[Modsy has] have communicated that they will fulfill the remaining outstanding furniture orders, but actual logistics at this point have been scarce.”
Another customer said: “[Modsy’s] service was supposed to facilitate returns – that was one of the advantages. But that doesn’t happen. We have $4,500 in undelivered or unanswered return requests, not counting the missing design services.”
Modsy’s original business model revolved around selling interior design services on top of an AI-powered platform. Before founding the company, Tellerman was a partner at GV (formerly Google Ventures) focusing on retail, 3D and augmented reality technologies.
Using Modsy’s apps, property owners could create views of their rooms and restyle 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.
Supporters in Modsy included TCV, Comcast Ventures, Norwest Venture Partners and NBCUniversal. The company’s latest round of funding closed in May 2019, bringing Modsy’s total to $72.7 million, according to Crunchbase data.
In May, Modsy indicated that it would revolve around offering a software-as-a-service platform, Modsy Pro, as an interior designer service. The company’s website describes Modsy Pro as “online interior design software that will transform the way you do business…bring your client’s space to life with our proprietary room scanning technology, 3D renders, and easily editable and shopable designs.”
The move came two years after Modsy made a series of aggressive cuts, cutting designer wages and reducing both salaried staff and the network of designers. Tellerman told Business of Home at the time that it was part of an effort to make the company “leaner.” Business of Home’s reporting also revealed that, in addition to operating his own furniture line, Modsy at one point experimented with outsourcing design work to the Philippines and Bulgaria as a way to lower operating costs.
The Modsy Pro landing page provides users with a way to request early access for the still beta product. But in light of Modsy’s shutdown, the launch appears to be in the air.