Milwaukee startup Frontdesk lays off dozens, eyes receivership filing after failed capital raise

Milwaukee-based short-term rental startup Frontdesk Inc. laid off most of its workforce Tuesday, impacting dozens of employees, after failing to raise additional capital to keep the business afloat. It plans to seek state receivership, a bankruptcy alternative, according to multiple people familiar with the situation.

Founded in 2017, Frontdesk manages furnished, short-term rental properties in multiple U.S. markets including Milwaukee. It was among the fastest-growing private U.S. firms in 2021 and is backed by investors with Wisconsin ties including William La Macchia, former Milwaukee Bucks co-owner Marc Lasry and local angel investors.

The exact number of impacted workers isn't clear. The widespread layoffs come less than a year after Frontdesk acquired Chicago-based competitor Zencity. At that time, Frontdesk CEO Jesse DePinto said the company had more than 200 employees and contractors.

Frontdesk appears to be winding down its short-term rental business. A voicemail at the company phone number says, “Currently, Frontdesk is unavailable. If you have a reservation, please seek alternative accommodations and expect to be contacted within the next two weeks.”

The Milwaukee Business Journal and Wisconsin Inno spoke with multiple people connected to Frontdesk. Many of them declined to comment on the record due to the sensitive and evolving nature of the situation.

Staff layoffs

The company laid off around 60 employees Tuesday but did not fire its entire staff, according to one person familiar with the situation.

A separate individual, who was among the laid-off employees, said DePinto informed staff of the layoffs Tuesday during a video call that included at least 160 people. DePinto told employees the company's recent fundraising efforts didn't pan out and that everyone on the call was laid off effective immediately, according to the former employee.

A third person familiar with the situation said Frontdesk laid off "the vast majority" of its staff, in the ballpark of 200 people.

TechCrunch first reported the layoffs Tuesday evening, saying Frontdesk laid off its entire 200-person workforce. It attributed the information to a former employee who attended the virtual meeting. The former employee who spoke with the Milwaukee Business Journal said they were not the individual who spoke with TechCrunch.

Frontdesk and DePinto did not respond to the Milwaukee Business Journal's requests for comment.

In a Tuesday, Jan. 2 termination letter sent to multiple employees and obtained by the Milwaukee Business Journal, DePinto said employees would be paid through Jan. 2 and health benefits would end Jan. 31. The letter instructed employees to return Frontdesk-owned property to a Milwaukee P.O. box by Jan. 9.

Recent fundraising efforts

Frontdesk has raised at least $22 million in equity financing, including a Series B round announced in September 2022 involving the venture capital arm of JetBlue Airways.

In late December, Frontdesk was attempting to raise a bridge round of additional capital. It sought funds from investors including Matthew Friedel in Milwaukee, who previously invested in Frontdesk through the angel investment group Silicon Pastures. Friedel, now with the Milwaukee Venture Partners angel group, chose not to make an additional investment because the short-term rental market has slowed, he said

Other previous Wisconsin-based Frontdesk investors include Golden Angels Investors in Milwaukee, as well as Lancaster Investments and Wisconsin Investment Partners in Madison. Other investors are Stormbreaker Ventures in San Francisco and Motivate Venture Capital in Chicago.

Financial challenges

Frontdesk plans to seek state receivership, according to multiple people familiar with the situation. In receiverships, a court appoints a receiver to take control of a business's assets to repay creditors.

Frontdesk owes money to parties including Washbnb, a startup founded in Milwaukee that offers laundry services for short-term rental operators. Frontdesk was a Washbnb customer until May 2023 and owes Washbnb around $7,000, Washbnb CEO Daniel Cruz estimated. Washbnb hasn't heard from Frontdesk in around a month, Cruz said.

In the short-term rental industry, which has seen multiple companies go under in recent years, Frontdesk's fate likely wasn't a surprise, Cruz said. The company's business model is challenging due to high upfront costs, and it likely was difficult to raise funding because venture investors "are falling out of love" with the model, Cruz said.

Frontdesk competitors including WanderJaunt, Stay Alfred and Domio have folded in recent years, and Frontdesk seized the opportunity by buying units from those companies.

In Milwaukee, Frontdesk partnered with apartment owners including New Land Enterprises, a developer best known for building the mass timber Ascent tower in downtown Milwaukee. New Land Enterprises managing director Tim Gokhman said in an email that the full impact of Frontdesk's current situation "is not yet clear."

"Our focus is on communicating with all the residents in the apartments where Frontdesk operated to make sure they have a home and continue to have that option," Gokhman said. "I can say that Frontdesk was a good partner and I’m saddened to see this happen."