The slowly unfolding demise of the PicoBrew home beer-brewing startup would be enough to drive some people to drink.
Among those frustrated: customers who bought the Fremont-based company’s equipment and proprietary ingredients only to see those potentially rendered obsolete in February when Picobrew plunged into receivership. A Kickstarter darling that raised more than $15 million, PicoBrew attracted consumers with equipment sized roughly between a toaster and a microwave oven that brewed coffee-pod-like PicoPaks to produce beer within three hours that was drinkable in 10 days.
But court documents show that by last month, PicoBrew owed its former bridge lender more than $18.6 million after prior efforts to sell the company fell through. That same lender, Bellevue-based PB Funding Group, on April 22 agreed to purchase PicoBrew through a $7.5 million credit bid — the group didn’t put up new money, but deducted that amount from the loan debt owed in order to gain the company’s assets. The deal was court-approved and finalized May 8.
PB Funding Group is managed by former Microsoft software developer Greg Whitten, 67, who said in an interview Thursday he’ll keep PicoBrew’s website running for “some period of time’’ while seeking buyers for company patents and other intellectual property. That will enable the brewing monitors and other technology on PicoBrew devices to keep functioning for customers.
“I’m trying to keep the PicoBrew website live so machines can continue to operate,’’ Whitten said, adding that machines built before the Pico Model C from 2017 “do require the website for a certain amount of what they do.… There’s some intrinsic value to keeping it alive for previous customers. They’re not customers of PB Funding Group, but we’ll try to keep the system alive.’’
Whitten wouldn’t speculate how long the website will stay online. He said it will take several weeks for his group to survey the landscape for potential investors in some of the technology and ideas behind PicoBrew machinery.
There are no plans to “open source” the technology so users can keep running machines on their own. The technology is too complex for that, Whitten said.
What won’t continue are the PicoPak ingredient pods placed inside the machines to produce the eventual beer. Instead, users will have to find ingredients from dozens of PicoBrew-developed recipes on the company’s site.
Thousands of PicoBrew customers had been kept in the dark about future plans, scrambling to online user forums to swap rumors about what might become of equipment already purchased.
Whitten worked as a chief software architect at Microsoft from 1979 to 1998 and was instrumental in upgrading the company’s initial BASIC computer language. An avid car collector, he was profiled in The Seattle Times two years ago after selling his Ferrari 250 GTO for $48 million.
PicoBrew’s former CEO, Bill Mitchell, who co-founded the company with his brother, Jim, and Avi Geiger – they were all let go last month — did not return phone calls. Mitchell was initially hired at Microsoft by Whitten in the 1990s and became a vice president there before forming PicoBrew.
In fact, PB Funding Group comprises a group of lenders Mitchell personally recruited in 2018 to keep his company afloat while he sought potential buyers through investment banker D.A. Davidson. The “PB” stands for PicoBrew — PB Funding Group’s only borrower client. The appointed receiver, Elliott Bay Asset Solutions, disclosed in court documents that Mitchell has a 3% stake in the lending company and other PicoBrew officers or insiders “may hold minority positions” as well.
Nonetheless, the receiver recommended approving the sale as a good faith transaction negotiated “at arm’s length” for a fair price. The sale was approved in King County Superior Court, freeing PB Funding Group from PicoBrew liabilities and responsibility to past customers.
Mitchell recruited his former Microsoft boss, Whitten, to become the main financier of PB Funding Group shortly after the company’s May 2018 incorporation. Washington state incorporation records for the company show PB Funding Group initially listed PicoBrew minority owner Karl Leaverton as its agent and governor before Whitten assumed that role two weeks later.
Whitten confirmed Mitchell and other PicoBrew officials within PB Funding Group stand to “get some money back” from future sales of the company’s assets. But he insisted the arrangement was “not atypical” and that he isn’t thrilled with an outcome now requiring substantial work to recover losses.
Whitten said his group had already extended PicoBrew’s loan last year in hopes the company would be bought, but it became obvious by December that wouldn’t happen. He said PicoBrew was bleeding money, bloated by too much product diversification, and unable to demonstrate sufficient sales volume to would-be buyers.
“They weren’t able to size the business down,’’ Whitten said. “They didn’t know how to do that. They didn’t adequately try to do that.’’
The company in recent years had expanded into coffee, tea and spirit-making, but found those markets tough to penetrate on a large scale. Whitten said the additional lines of business also made it difficult to find buyers willing to take on all of them.
“PicoBrew made innovative products,’’ Whitten said. “They had some successful Kickstarter crowdsourcing. But that doesn’t automatically turn into a sustainable business.’’
By February, court documents show, PicoBrew was losing $500,000 a month and owed roughly $15.2 million to PB Funding Group in loan principal and nearly $2 million in interest. That’s when PB Funding Group triggered a non-payment clause in the deal to place the company into court-mandated receivership – a process somewhat like bankruptcy protection, but which makes it easier for creditors to recover money owed and avoids bankruptcy for companies hoping to restructure.
Tom Nault, founder of the Kirkland-based Middlerock Partners consulting company, was hired late last year by Whitten to help determine the best route for recovering the loan money.
“This was the last alternative,’’ Nault said of the receivership, first reported on in February by The Spoon daily food tech website. “This wasn’t a planned situation at all. For a while, they were anticipating somebody would be interested in buying the company. We would have loved to see that happen. This just became the only option that was viable.’’
Beyond the loan money owed, the receiver’s report states PicoBrew had run up outstanding debts of more than $16 million with two beer conglomerates and various service providers. When the company was put up for sale, Whitten said his group acted as a “stalking horse’’ by submitting a bid hoping to attract more buyers that could settle the outstanding loan amount.
Court records indicate bidding procedures were sent to more than 250 potential buyers; 13 undertook due diligence inspections. But PB Funding Group wound up as the only bidder and is now “stuck with’’ a company Whitten says his partners never wanted to own.
The company has started laying off workers and clearing out PicoBrew’s warehouse in Renton so it can exit a lease there and two others at adjacent office buildings in Fremont. Nault said PB Funding Group is “burning money’’ on the spaces and wants out quickly.
At the Renton warehouse last week, cranes jettisoned wooden crates filled with biodegradable sugar cane pulp — used for making the casing on PicoPak pods — into trash bins.
Heavy equipment and hardware will be auctioned online next month, including forklifts, conveyer belts, drill presses, grinders, sanders, a powder packing machine, more than 100 PicoBrew machines, 150-plus beer serving kegs and 200-plus accessories used with the company’s beer- and coffee-making devices.
PB Funding Group is keeping five 53-foot trailers filled with other equipment it hopes to sell to a future intellectual property buyer. Nault helped PB Funding Group separate the PicoBrew business into five asset classes – none of which the group figured would make it as a standalone company.
Instead, PB Funding Group hopes buyers purchase some business lines to integrate within an existing company. Each trailer is filled with equipment meant for a specific line.
“If we can find a buyer for one of the business lines, they can be able to get up and get going,’’ Whitten said. “If it doesn’t happen, then we’ll stop storing that equipment, too.’’