First Stage Investor

NowRx Is Going Out of Business

NowRx Is Going Out of Business
By Andy Gordon
Date December 5, 2022

As many of you know, NowRx is going out of business. NowRx issued an email yesterday detailing some of the asset sales of the company that have recently taken place, including a link to the company’s announcement last Wednesday that Alto Pharmacy has acquired the rights to NowRx’s patients in California. 

NowRx is selling off other pieces of its business as well. Capsule has acquired the company’s patient files for Arizona. We can expect other assets of the company to be sold off in the next few weeks. 

First Stage Investor members should be familiar with NowRx, an on-demand pharmacy that promises same-day free delivery of their medicines without the hassle of having to visit a drugstore. It was (and still is) a potent and promising disruptive idea. 

And NowRx seemed to be making it work, using its approach to expand from California to several other states. Investors were impressed. During its last raise (which ended in June), NowRx successfully raised $27 million at a $275 million valuation. While we did not recommend the startup at that time, we saw the raise as validation of its impressive progress. We did recommend the company in 2018 at a $20 million valuation and in 2019 at a $65 million valuation.

NowRx’s sudden (or so it seems to us) demise caught investors by surprise. Until yesterday, the company had shed little light as to what happened. In Sunday’s email, NowRx provided a brief explanation that listed some of the external developments that accelerated the company’s downfall:

Unfortunately, the current economic climate (war in Ukraine, high inflation, continued supply chain issues, Fed rate hikes, substantial loss of value in NASDAQ, etc.) significantly impacted NowRx’s performance and ability to raise additional capital to support its business, ultimately requiring NowRx to take steps to ensure that the needs of its customers would continue to be served without disruption.

We caught up with founder and CEO Cary Breese earlier today to learn more about what happened. Cary told us the investment climate did an abrupt about-face about nine months ago. Previously, investors had wanted to maximize growth and expansion, which meant startups were encouraged to spend as much as possible. When the economy began to struggle, that sentiment shifted to the other end of the spectrum. Startups, including NowRx, were strongly encouraged to spend as little as possible. And companies with big operational and marketing budgets became pariahs. 

Beginning early this year — as a cautionary step only (Cary did not know what the future held for him) — Cary engaged with a prominent investment banking firm to reach out to all kinds of capital sources, including hedge funds, venture capital firms and bridge financing outfits. But it was all for naught. Investors were more interested in startups conserving cash. But the nature of the pharmacy business is that startups have to spend cash to become viable. Raising money — a difficult challenge in the best of times — became impossible.

In response, NowRx closed four of its eight locations (while maintaining more than 90% of its revenue) in August and September. It also found new revenue streams — like delivery charges on orders of less than $25. But that just delayed the inevitable. And last week the company began selling off its assets.

There’s a lot we still don’t know. Among other things, the exact impact on current investors in the company is still up in the air. The company is presumably getting some money for its remaining assets. NowRx spent millions developing its technology. Presumably, that technology will have value in the open market. But how much is also unknown. It’s a distressed asset sale. 

Once NowRx finishes selling its assets, there might not be any money left for people who invested. NowRx first has to pay off its bills and debts to creditors. If there is any money left after that, it will be returned to preferred shareholders (which includes crowdfunders). We hope there will be money left for shareholders, but the odds of that happening are likely long.

In our conversation, Cary did promise to keep us informed as he takes the remaining steps in what will be the final days of the company. Your next update from NowRx is probably a few weeks away. I’ll keep you informed as well. 

For investors, I’m sure there are lessons here to be learned. But one lesson we already know is that startups fail. And sometimes very promising and well-run startups fail. This is the space we’re in. If NowRx was not a bad investment decision three years ago, we should not consider it a bad one now. The journey for startups is hard and fraught with challenges — some expected and some totally unexpected. 

NowRx had its run and now that run is over. Cary asked us to send his heartfelt thanks for your support. But as investors, we need to move on.

And to help you do that, I plan to do a more in-depth post-mortem of what happened (including what happened to the money NowRx raised this year) and why in the near future.

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