May 18, 2017 @ 02:50 PM 901 The Startup That Went Down Under: The Rise And Fall Of 1-Page
1-Page cofounder Joanna Riley took her San Francisco company public on the Australian Stock Exchange. Less than three years later, her board forced her out of the company. (Illustration by Bailey Brautigan/Forbes)
In November 2015, Joanna Riley stood in front of an audience at a Dublin technology event exuding confidence. Dressed in a vanilla tuxedo jacket and clutching a black remote to toggle between presentation slides, she paced back and forth on stage while delivering a speech about ignoring rejection, a skill she employed many times during the course of starting her company.
“I started 1-Page in my pajamas in my apartment three-and-a-half years ago, and today it’s public for over half-a-billion dollars,” she said.
For Riley, it was a moment of pride. A year earlier, 1-Page had used a little-known financial maneuver to become the first Silicon Valley technology company to go public in Australia, turning a no-name recruiting software startup into an Australian Stock Exchange (ASX) darling. In the 12 months after its initial offering, 1-Page’s stock would rocket up more than 2,700% from its public debut price, propelled by an investor frenzy that would provide validation for its cofounder and chief executive. Riley’s appearance at Web Summit, one of the most well-attended tech events in the world, was just deserts. She thought she had made it.
What Riley should have known was that San Francisco-based 1-Page was built on a combination of hot air, false promises and an unworkable product. In Silicon Valley, where fabulists and exaggerators sometimes call themselves entrepreneurs, Riley was the ultimate saleswoman who took 1-Page public and fed a dot-com-esque hype cycle that ended up destroying the company. On Monday its board voted to cease company operations after consistent quarters of unprofitability, missed targets and a dizzying drop in share price that erased more than 90% of the company’s value. The board also voted to remove Riley from the company she cofounded.
“I didn’t know anything going in,” Riley said about taking 1-Page public in an interview with Forbes three days after being unceremoniously dumped. “I see it now. After raising every dollar the company has ever had and building it with, you know, complete hope, it's been taken away by someone.”
1-Page’s tribulations barely registered with the U.S. business press, but the company’s tale is a familiar one in Silicon Valley: an entrepreneur with visions of success and stature starts a technology company in a field where they have little experience, overpromises to clients and investors, and then severely under-delivers. But unlike the hundreds of startups that are unable to find funding and fizzle out every year, 1-Page flourished by taking advantage of a reverse merger, acquiring the dormant shell of an ASX-listed mining company and going public despite having no profits and less than $1 million in revenue.
Initially, the financials didn’t seem to matter. 1-Page played up its Silicon Valley founding story, and Australian investors, whose economy is heavily linked to natural resources, suddenly had access to an American technology on the ASX. Enthusiasm created a bubble and turned 1-Page into one of the best-performing stocks on the ASX in 2015, allowing it to raise more than $43 million in two separate offerings and ballooning its market cap to a peak of about $512 million in September 2015.
Those who worked at the company had no idea what inflated the bubble. Forbes interviewed ten former employees, who spoke on the condition of anonymity due to confidentiality agreements with 1-Page, and most agreed that 1-Page lacked a coherent product. According to them, clients ranging from Starbucks to Under ArmourUA -0.40% were signed up on trial periods and promised software that could comb through social networks and diverse data sets to source hard-to-find candidates for job positions. The software couldn’t do what Riley and 1-Page’s sales team promised; most of the clients bailed after their free or discounted test runs were over.
In at least one all-hands meeting, according to two people who were in attendance, Riley told her employees to “fake it until you make it,” alluding to the idea that her salespeople could promise undeveloped features that might eventually be added to the software in order to close a deal. Riley told Forbes she was joking and was simply repeating a phrase that was often used by a now-departed board member.
“She was so disconnected from reality and from what the actual product was,” said one former staffer. “What they were selling was essentially vaporware.”
To Riley, constant product changes were acceptable as it was part of being an early startup. She told Forbes there was not enough time to test a beta product since the company was already in the public spotlight. “We were public, and we had to launch with our clients,” she said. “We said [to them], ‘We want you to be our beta.’”
But critics wondered, why was 1-Page public to begin with? It had no track record, little revenue and a pipe-dream product.
“There is no way a company like this should be listed on any stock market,” said Merchant Funds Management’s Andrew Chapman, an activist shareholder on 1-Page’s board who led the effort to shut down the company and remove Riley. “It was just hype at the end of the day.”
“Flaky Deals”
The Australian Stock Exchange is littered with the shell companies of inactive mining and natural resources operations. Some have reached the end of their lifespan, while others, due to the speculative nature of the industry, never uncovered any riches and were quickly shuttered. These shells, which sometimes are referred to in Aussie investment circles as “cash boxes,” typically sit on the exchange and trade at low volumes in line with the value of their remaining capital, adjusted for any leftover assets or liabilities.
Reverse mergers were not uncommon on the ASX, but they became more prevalent in 2014 when the exchange relaxed its rules on minimum share prices for listings. Foreign technology companies like 1-Page took notice, with at least 28 reverse takeovers taking place that year, up from 16 the year prior. In 2015, there were 59 backdoor listings on the ASX, the most since 2000.
Riley used 1-Page’s reverse merger as a branding exercise. Introduced to the idea by her then-husband who she has since divorced, she merged her startup with a nonfunctioning nickel-mining company called InterMet Resources and became the first Silicon Valley CEO to go public Down Under. In spite of the business’s short lifespan Riley had already achieved what many technology executives spend their careers chasing: an exit.
“The world tells you your valuation, not VCs, whose valuations are more art than science,” she told the San Francisco Chronicle in November 2014. “We’re a still very young company. An exit is a big deal.”
Skirting the traditional venture capital route in raising money for a tech company is typically not a good sign, according to Scott Dettmer, a partner and startup advisor at law firm Gunderson Dettmer. He noted that reverse mergers sometimes create companies that attract “fraudsters and bad actors,” where thin trading volumes can allow for heavy influence by a few traders and huge swings in stock price. If a company has a compelling story or news to publish, it can start trading up very fast, attracting retail investors into a buying frenzy.
“In the [information technology] space or basically across the board these are flaky deals for companies that could not raise money in any other fashion,” said Dettmer.
Riley disagreed. While she had raised about $3 million in angel investments, she said she did not look to raise additional cash from venture capitalists before engaging in the backdoor listing. She added that she’d do it again, as 1-Page provided an example for “the hundreds of companies that followed us.” (Forbes could not find evidence of “hundreds” of companies using backdoor listings on the ASX after 1-Page.)
“I would have done it differently,” she said. “I was the first-time CEO of a publicly listed company. There are differences between being a CEO of a private company and a public company. I wasn’t told about those.”
When Forbes reminded her that it was ultimately her decision to go public, she deflected attention away from herself and blamed her board and short sellers, who, she said, weighed heavily on the company. And when asked if she thought her company’s shares deserved to reach such lofty heights, she failed to provide a direct answer.
“We were pre-revenue anyway,” she said, despite the fact that her company had a sales team and had promised deals with major corporate players. She took a long pause before adding: “Buying market shares is a free thing to do. I don’t tell people to buy stock.”
From Business Book To Startup
Joanna Kidd Riley was born and raised in San Francisco as the youngest daughter of an international businessman and a film producer. She attended Bay Area private schools but had a special teacher to help with her dyslexia. In the 7th grade, her father recalled a meeting, organized by Joanna, where she told her teachers “I’m dyslexic, but I’m not stupid” and asked to be seated at the front of the class. She excelled, moving on to Kent, an elite Connecticut boarding school, where she became a junior national rower, and then the University of Virginia on a rowing scholarship.
“Joanna is super-competitive,” says her father, Patrick Riley, referencing her rowing background. “There was always a lot of competition to see who gets in the first boat.”
After graduating from college, Joanna had a brief stint as an FBI trainee (her Facebook profile still reads, “When other girls wanted to be ballerinas I wanted to be a secret agent") before she left to take a few sales gigs. While working at one of these jobs, she met with her father to discuss the idea of building a company around a somewhat successful business book that he had published in 2002. “The One-Page Proposal” sought to help anyone with an idea succinctly explain it in a one-page pitch. The pair hatched a company that supposedly would build a software tool to help people curate and field one-page proposals, and they named the company after the book: 1-Page.
A video uploaded to YouTube in 2011 showed father and daughter reading scripted lines about the company’s vision to end résumés and replace them with their proposals. The video promised a free book and offered a link where users could subscribe for $11.11 for three months to get access to an online word processing tool to develop their pitches.
By the spring of 2013, a Web cache of the 1-page.com site shows that the company had shifted focus. With Riley as CEO and her father listed as chairman, 1-Page was now offering a software-as-a-service product to recruiters, billing it as a platform for potential hires to pitch why they would be ideal for a certain position. Early employees didn’t recall much traction. In the 13 months beginning Jan. 1, 2014, the company recorded operating revenue of about $105,000 and a loss of about $9.3 million.
The shaky financial situation didn’t stop Riley from cashing in on her new entrepreneurial currency. After taking 1-Page public in October 2014, she was profiled in business publications like Fortune and Fast Company, given business awards and invited to speak at tech conferences. As the spotlight and stock price increased, former employees say it increased pressure on them to perform, whether that was closing deals to generate meaningful sales or delivering new product features.
And that’s when it started to fall apart as Riley did everything she could to prop up the stock price. “For Joanna, it was not a desire to deceive,” said Patrick Riley, who eventually became dismayed with the direction of the company and was fired as an employee late last year. He abstained from voting in Monday’s referendum on whether to keep or remove his daughter from the company they created together.
“It was the desire of an overambitious person to perform,” he added.
Inside 1-Page's San Francisco office. (Photo via 1-Page)
Kangaroos And Unicorns
1-Page’s fundamental problem was its dysfunctional product. A year after its reverse takeover, the company pivoted to focus on a product called Source, a software interface that was supposed to create pools of candidates for customers that were looking to fill open jobs. Source was initially built on top of a database compiled by BranchOut, a formerly high-flying startup that raised $49 million on the idea that it could comb Facebook and map out personal connections for the purposes of professional networking.
After Facebook changed its terms of service and cut off BranchOut’s access—effectively forcing it out of business— Riley scooped up the company’s database in a fire sale for $2 million and 7.5 million 1-Page shares, hoping it would give her company a proprietary edge for Source. At least two former employees, however, said the database was useless. Facebook sent 1-Page a cease-and-desist letter threatening legal action if the company employed the BranchOut data, which had been improperly collected. LinkedInLNKD +% would also later block 1-Page’s IP address, preventing the company from crawling its website for employee information.
Former workers also cited Riley’s lack of technical background as a major problem. She wanted things that simply couldn’t be done, and promised features that were impossible for a small engineering team to build. According to one former worker, Riley told one client that her team could develop facial recognition software to help identify diverse job candidates.
In pitches to prospective customers, Riley drilled her sales team to say that the company had powerful algorithms powering the candidate search on Source. “This was entirely a lie,” said one employee, pointing to the fact that workers at the company were manually searching databases and putting together candidate pools after obtaining the job criteria from clients. A former sales staffer recalled one all-hands meeting during which Riley declared that if Amazon.comAMZN +1.48% had started by delivering books manually, then 1-Page could also start by doing tasks in Mechanical Turk fashion with human labor.
Investors, however, never heard about that internal strife. Instead, they were fed a narrative that extolled Riley’s merits as a Silicon Valley CEO and underscored the potential for 1-Page to be a massive business. In one report entitled “An American unicorn in kangaroo's clothing?” two analysts for Vancouver-headquartered investment bank Canaccord Genuity initiated coverage on the company by setting the expectation that it could be a billion-dollar business. The two analysts based their research on the company’s own projections that it would have 125 paying clients by the end of 2015. Revenue for that year was estimated at $4.1 million, but was expected to jump to $55.8 million in 2016 and $138 million in 2017.
When asked about these projections by Forbes, Riley said she had no responsibility for the opinions of analysts and that 1-Page never made revenue projections, despite the report noting that the company guided Canaccord with its numbers. She added the document “was not a published report” and was not widely distributed, despite the fact it is still available for download from the ASX website.
“I don’t think she deliberately misguided,” said one person, who met Riley during an investor meeting but declined to be named. “She was just delusional about how easy it would be to capture these customers.”
With reports like Canaccord’s, however, investors, including large institutions, took those projections at face value and bought into the company. In October 2015, 1-Page held a secondary offering, selling about $36 million of shares to institutional investors like Fidelity, which amassed a 6.7% position in the company by the end of November 2015.
A year later, those the $36 million worth of shares that were sold to investors were worth less than $3.5 million.
A Hostile Takeover
When 1-Page’s shares were rising, Riley would use the stock price as an internal validation metric. She would remind her employees in meetings that they had one of the fastest rising stocks in the history of the ASX, and she took pride in running a company that the market valued in the hundreds of millions of dollars, said two former employees.
1-Page’s decline brought out a different response from its CEO. As the stock price fell in the latter half of 2015, Riley told her staff to ignore the fluctuations, dismissing them with excuses, including that the holiday season was bad for sales and for stocks or that Australian investors didn’t understand software-as-a-service, she said according to one source.
As the irrationality that propelled 1-Page up the ASX subsided, gravity set in, as did the realization that the company could not live up to the lofty sales expectations it had set for itself. While it displayed plenty of logos on its site and issued press releases for relationships with companies like Starbucks and Amazon, those familiar with the company’s sale process said that most clients never signed up beyond a brief trial period. Among them was Under Armour, whose logo is still on 1-Page’s site to this day, despite ending their brief relationship in early 2016.
The sports apparel company agreed to a $10,000, 30-day trial and gave the company multiple “at-bats” to find candidates for certain positions, said Chris Hong, Under Armour’s vice president of talent. Others at Under Armour who worked directly with 1-Page’s sales team, said they got “zero return” on their investment and that the candidates they received could have easily been found on LinkedIn. Spokespeople for Pandora, Amazon, BuzzFeed and Starbucks—all companies that have been featured as customers on 1-Page’s site--did not respond to a request for comment when asked if they were ever paying customers of the service.
Sales for the 12 months ending January 31, 2016, while improved, were just $290,000, compared to Canaccord’s earlier expectation of $4.1 million. 1-Page’s net loss escalated to about $10 million, up from $9.3 million in the previous year.
As the stock continued to fall through 2016, Riley could do nothing. Executives and board members left, the company attempted to downsize to save costs and an activist shareholder vacuumed up shares to mount a hostile takeover. On Dec. 23, Riley resigned as CEO, but kept her board seat, hoping that a new executive could appease the markets.
The move did not quell the negative sentiment. After the activist, Merchant’s Andrew Chapman, was allowed onto the board, he soon convinced its other members, sans Riley, that the best way to proceed would be to save the company’s remaining cash by shuttering operations and turning it into a shell. Perhaps another company would come along and find it an attractive option for a backdoor listing. Riley objected, but faced with a hostile board that agreed with Chapman, she found herself powerless. After going public two-and-a-half years previously, she was now facing the consequences of her decision.
On Monday, that decision came full circle. Public investors voted more than two-to-one in favor of removing Riley from the 1-Page board. Two days ahead of her 35th birthday, she boarded a plane from Sydney to San Francisco. Her Australian adventure was over.
