Inside the lobby of Vicis‘ headquarters in Seattle this week, floor-to-ceiling images on the walls showed young football players wearing the company’s high-tech helmet. A portrait of former Seattle Seahawks star Doug Baldwin loomed behind a reception desk. The slogan “Protect the Athlete, Elevate the Game” was stenciled next to a lighted display case with two helmets.
But it was unusually quiet. Not much work was getting done.
That’s because Vicis recently furloughed a majority of its 110-person team, leaving a skeleton crew of 12 employees this week.
Now the fate of the company is in the air.
The one-time Seattle startup darling, which raised in excess of $85 million from more than 400 investors since spinning out of the University of Washington in 2014, suddenly finds itself on the verge of a shutdown, with no money in the bank and limited options on the table.
The New York Times reported on the company’s condition on Monday. Vicis held several board meetings this week to determine its fate, weighing dueling offers from investors that would keep the company alive. A decision is expected early next week.
But how did Vicis even reach this point? Interviews with people close to the company, and internal Vicis documents, reveal what happened behind the scenes.
- Market: Vicis was a startup trying to enter a complicated football helmet industry dominated by decades-old giants Riddell and Schutt.
- Capital: As the company’s cash balance approached zero, it tried to raise more investment in recent months, but all options fell through.
- Transparency: Vicis’ troubles came as a surprise to some shareholders. Former CEO Dave Marver says he talked about the company’s cash situation with shareholders this summer and fall, but some people involved with the company say it was too late.
- Profitability: A longtime board member said the company put too much focus on grabbing market share rather than turning a profit.
“This remains very personal,” co-founder Samuel Browd, a neurosurgeon at Seattle Children’s Hospital, said on a Nov. 26 webinar with investors, a recording of which was viewed by GeekWire. “It’s very tough that we’re in this situation. I would just say to everybody out there that I’m very sorry that we are here, and that we’re all in this situation together.”
To outsiders, Vicis was a startup success story, a gem of the football world that attracted big-name supporters such as current and former players, spine doctors, military experts, members of the Seattle business community, and the NFL itself.
Vicis had ambitious goals from inception. The company aimed to commercialize technology developed at the University of Washington’s engineering department and sell a state-of-the-art football helmet designed to mitigate the impact of bone-crushing hits that cause concussions and put the health of professional football players in jeopardy.
Football safety is a huge issue threatening the future of a 150-year old sport, as more research pairs on-field blows to the head to long-term brain damage. The NFL agreed to a $765 million concussion settlement lawsuit with former players and their families in 2013, and has changed its rules to make the game safer.
Meanwhile, participation in boys 11-player football has declined in recent years, and head injuries are a contributing factor. Nearly half of parents say they would dissuade their kids from playing football due to concerns over concussions, according to a poll last year from NBC News and The Wall Street Journal.
Vicis wanted to be part of the solution. Unlike traditional helmets, the outer shell on its ZERO1 model is deformable and yields much like a car bumper upon impact. A layer of flexible columns in the helmet absorbs impact before it reaches the head.
The helmet, manufactured at a facility in Seattle, was the result of more than three years of research and development.
Browd, medical director of Seattle Children’s Hospital Sports Concussion Program, helped get Vicis off the ground after seeing too many young athletes affected by concussions. He reached out to Per Reinhall, chair of the UW’s mechanical engineering department, for his technical expertise and later rounded out the team. Marver, a medical device industry veteran, came on as CEO. Jonathan Posner, a UW professor who heads up the Posner Research Group, is another co-founder but left in 2015.
The founders originally referred to their startup as Spark Medical when it spun out of the UW. They went with Vicis for an official title because the word means “change” in Latin.
The helmet was pricey, initially debuting for $1,500. A handful of NFL and NCAA players began wearing the ZERO1 in 2017. Baldwin used the helmet during games, along with his teammate Russell Wilson — both became Vicis investors, in addition to Aaron Rodgers, the Green Bay Packers star quarterback and two-time MVP.
This season, more than three-quarters of all NFL teams have a starter who wears a Vicis helmet. At the college level, 180 programs have deals with Vicis, up from 125 last year.
The company also made inroads with youth football. Its $495 youth helmet ranked first in Virginia Tech’s inaugural youth football helmet safety ratings by a significant margin and was recently named to Time Magazine’s 100 Best Inventions of 2019.
But off the field, there were major problems with Vicis’ operations. Its cash balance was getting low. And investors weren’t ready to write additional checks.
Out of cash
Vicis raised millions in the latter half of 2018 from backers including Rodgers; former NFL quarterback Roger Staubach; media, auto, and sports magnate Red McCombs; and Cincinnati Reds minority owner Harry Fath. But soon after, it still needed more cash. The company generated $14 million in revenue this year, but spent $26 million, according to information provided on the Nov. 26 webinar.
Vicis raised an additional $6 million through a variety of notes earlier this year, Marver confirmed to GeekWire. But he was unable to convince investors to put more money into the company in recent months.
On Nov. 22, Marver resigned and stepped down from the board.
When he left the company, Marver cited the need to take a break “after years of withering hard work.”
“I have felt such a profound obligation to VICIS’ employees and investors, and all of our customers, that I have worked too much … beyond what’s reasonable,” Marver told GeekWire last month. “It’s time for a pause.”
Vicis board member and ex-Nike executive Ralph Greene took over as interim CEO, and on Nov. 24 the company furloughed more than 100 workers.
Two days later, Vicis held the webinar with hundreds of investors, going into detail about its financial position and making a plea for help. It had two options, according to Browd: go into bankruptcy, or try to keep the company alive with more investment at a paltry $5 million valuation.
“These are people we have a tremendous amount of respect and love for,” Browd said on the call, speaking about furloughing employees. “Many came out of the university and instead of working at Boeing, they came to work for us. That was an awful moment for me personally and for the company.”
Others in the room for the call were Baldwin; longtime board member Bruce Montgomery, who had just been appointed chairman; and Seattle-area lawyer Richard Adler, an early Vicis investor.
“Obviously, all of us are pissed to be in this situation,” Baldwin said on the call. “I think all of us would have put in more work and more due diligence to make sure that we weren’t in this predicament right now.”
Baldwin added, “From a human element, I know the frustration is there. I want to reiterate to everybody that we are working diligently to make sure that this does not happen again and that the process from here on out is being taken care of in a very transparent manner. We will get this turned around.”
Adler echoed Baldwin’s sentiment.
“If we had a little bit more runway and a little bit more notice and more transparency — six weeks? — we wouldn’t be sitting here,” Adler said. “We would have had the ability to think proactively and do what we need to do and what we’re kind of doing now.”
In an email sent to shareholders on Oct. 15 and reviewed by GeekWire, Marver told investors that the company’s Series C round may take longer than anticipated to raise. “We need funds to support the company in the interim,” Marver wrote. “Cash is tight. I’m coming to you to please continue your support of Vicis so we can realize our important vision.”
Asked about his transparency with investors about the company’s financial situation, Marver told GeekWire, “Though we had discussions with our largest shareholders throughout the summer and fall, all shareholders were informed the company was tight on cash by mid-October and a webinar for shareholders was held October 24th, more than a month prior to my departure and the Board’s decision to furlough employees.”
Marver previously spent 14 years as a sales, marketing, and strategy leader at medical devices companies Medtronic and Cardiac.
“This is a disappointing situation for everyone,” Marver said in an email this week. “In retrospect, there are things we could have done differently but on balance I’m proud of what we achieved. We invested a lot of capital because we were trying to achieve something important and meaningful, and we wanted to be first-mover with new and better helmets in multiple categories.”
He added, “I travelled and worked to exhaustion over the past several months in an all-out effort to generate investor interest and raise money for the company. As anyone who has raised money knows, fundraising requires a lot of calls and meetings and it’s difficult to know in advance which will bear fruit. I would have loved to have travelled less and spent more time with my family, but that was not an option.”
Greene has already been replaced by Bill Shadle, a former Kymeta and HP exec who joined in September as chief operating officer and is now acting as interim CEO.
In recent weeks, Vicis asked Steve Singh, former CEO of Concur who invested in the startup three years ago, to help analyze its financials and come up with a recovery plan toward profitability. Speaking on the webinar last month, he recommended that Vicis focus on fewer products and reduce the cost of sales.
Singh spoke on the Nov. 26 webinar via phone. He said he wouldn’t serve as a board member but wanted to remain close to the company. Singh lauded Vicis’ market opportunity and product, but said on the webinar that “the company was run without a lot of rigor in how you allocate capital and measure metrics around that investment.”
Montgomery added, “One of our mistakes was probably chasing market share and not profitability.”
Later on the webinar, Adler pointed to the company’s tagline. “There’s an expression here on the wall that says, ‘Protect the Athlete; Elevate the Game’ — that’s external,” Adler said. “Internally, it needs to be: ‘Protect Vicis, and Elevate the Operation.’ Right now the operation needs a lot of help.”
Two groups have emerged in recent weeks as a potential rescue syndicate for Vicis. One includes a small set of existing shareholders from the Seattle region. An alternative group with connections to Marver is also in the mix, according to sources familiar with the discussions.
Here’s what Marver said in response to an inquiry about his continued involvement with the company’s fundraising activities:
“Given the company’s cash shortage I continued to work to find sources of capital even after my departure, acting in my capacity as a shareholder. I felt a responsibility to the shareholders, employees, and customers to do everything I could to help the company. There was one group that was very interested, but they couldn’t move fast enough to put forward a proposal to the company in December. Now that I’ve been gone several weeks, I am no longer connected to any of these activities.”
It’s unclear which option will be chosen — if either, for that matter. Vicis could also go into receivership or get acquired by a competitor.
Meanwhile, outstanding deals such as providing helmets to the XFL are up in the air.
The company’s homepage has this message: “Vicis will be conducting internal year-end activities through January 2nd, 2020. We will resume accepting orders at that time.”
Here is the makeup of the board as of Nov. 29, according to a document sent to investors on that day.
- William S. Ayer, former chairman and CEO of Alaska Air Group; serves on the University of Washington Board of Regents
- Dr. Samuel Browd, co-founder of Vicis
- Lynnette Frank, CFO at Ben Bridge Jeweler
- Ralph Greene, former Nike exec and former Vicis interim CEO
- Bruce Montgomery, CEO of Avalyn Pharma
- Frank “Buz” Walters, former global investment banking chair at Bank of America Merrill Lynch
Despite the struggles, some are still optimistic about the future of Vicis.
“We’re sorry that we’re here. We think that we can live to fulfill the mission of the company,” Browd said on the Nov. 26 webinar. “We are committed to restructuring, bringing in different leadership, changing the board out, and moving forward. If we do that, I think we can fulfill the promise of the company.
“When [Per Reinhall] and I sat down together, we thought we could do something important. We thought we could potentially change a little slice of the world and do something that we both felt passionately about. We thought technology could bring something important to kids playing and participating safely.”
A complicated industry
In a recent story about the football helmet industry, Sports Illustrated called it the “most innovative and complicated corner of the sports world,” citing established contractual relationships between helmet companies and organizations that make it hard for a startup like Vicis to break through. Riddell and Schutt are the industry kingpins; Xenith is another main competitor.
“On any given day it is both the most challenging and most exciting space one can imagine — sometimes simultaneously,” Xenith CEO Ryan Sullivan told GeekWire. “You can create the most incredible products for the athlete from head to ankle, but that does not guarantee industry success.”
There’s also the debate over how much innovation is actually occuring — and whether any helmet can help to prevent brain damage. “While science can verify the reduction of impact forces on a helmet, no scientific study has yet shown that a helmet can reduce impact forces on the brain contained within,” SI’s Greg Bishop wrote in the story.
Last week, The New York Times profiled a Stanford researcher pursuing a fluid-based solution inside the helmet. The story cited overall skepticism from brain experts, including one who said “my fear is that a better helmet will give false reassurance,” likening it to a better cigarette filter.
Vicis repeatedly placed first in the NFL’s recent helmet safety test, though the top three helmets had no statistical difference in performance. There are questions about the reliability of such tests, which “can be gamed,” according to Marver, who was quoted in the SI story.
The football helmet market is estimated at around $140 million, according to 360 Research Reports, with projections to reach $150 million in 2024. That’s small for a startup like Vicis that raised more than $85 million. And more than 80 percent of demand in that market is from middle and high school players.
Vicis pursued other revenue streams. It debuted a soft helmet for use during practices, 7-on-7, and flag football in July. There were talks of making a hockey helmet. The company also has a military arm; it received a contract last year from the U.S. Army to develop technology for advanced combat helmets.
But according to the proposed plan Singh laid out on the webinar, Vicis needs to focus solely on its new ZERO2 helmet and the youth model in order to increase gross margins.
There are examples of successful helmet startups. LIGHT Helmets, based in Carlsbad, Calif., built an ultra-lightweight helmet using materials and technology proven in military and auto racing industries. The company has several top-rated helmets and raised just $3 million while keeping its R&D costs low, said CEO Nick Esayian.
“Our plans include a wide range of contact sports and commercial products — and we are on track,” he said. “Vicis’ lack of results doesn’t dim our enthusiasm for this space at all.”
Esayian added that while football is under the microscope, “the game is safer to play now than it has ever been.” He said the life lessons learned from playing youth football — teamwork, respect, bringing people together from all races, creeds, religions, and sexual orientations — are indispensable. “We cannot let it fade into history,” he said.
Vicis garnered praise and attention from the NFL, landing $1.1 million in grants from the league. NFL Commissioner Roger Goodell mentioned Vicis in 2016 while discussing the league’s equipment innovation.
In a statement sent to GeekWire this week, the NFL’s Jeff Miller, executive VP of Health and Safety Innovation, said Vicis has helped contribute to a “significant shift” in the helmet manufacturing industry.
“The team of engineers at VICIS have proven their ability to innovate to create better performing helmets,” Miller said. “Their ZERO1 helmet topped the list in the NFL and NFLPA’s joint laboratory tests the last three years running. They should be proud of the work they have done — it has contributed to a significant shift in the helmet manufacturing industry that benefits players at the professional level and beyond.”