Essential Products

Essential Products, a consumer electronics startup founded by Andy Rubin, ceased operations in February 2020.^123456781014 The company had raised $330 million in outside funding and was once valued at $1 billion.¹¹³¹⁴ Essential released a premium smartphone in 2017 that did not sell well, and it later scrapped plans to develop a smart speaker.¹¹⁴

Timeline

Money raised

Essential Products raised a $30 million seed round in 2015 from Andy Rubin, Redpoint Ventures, and Altimeter Capital.¹² Essential Products raised a $100 million Series A round in 2016 from Tencent, Access Technology Ventures, Redpoint Ventures, and Altimeter Capital.¹² Essential Products raised a $200 million Series B round in 2017 at a $1 billion valuation from Amazon Alexa Fund, Tencent, Foxconn, and Redpoint Ventures.¹² In August 2017, Essential Products confirmed a $300 million funding round led by Access Technology Ventures, with participation from Amazon, Tencent, Foxconn, Redpoint Ventures, Altimeter Capital, Vy Capital, and others.¹³¹⁵ The $300 million round gave Essential a valuation of about $900 million to $1 billion.¹⁵ All told, the company raised $330 million in outside funding.¹¹³¹⁴ Essential Products was once valued at $1 billion.¹¹⁴ Essential Products shut down with around $30 million in cash remaining, and investors were expected to get 'pennies on the dollar' back.¹

Investors named in the sources: Access Technology Ventures^1131415, Redpoint Ventures^1131415, Tencent^1131415, Amazon¹¹⁴¹⁵, Hon Hai Precision Industry Co. (Foxconn)¹¹⁴¹⁵, Altimeter Capital¹³¹⁵, Vy Capital¹³¹⁵, Playground Global¹⁴¹⁵, Amazon Alexa Fund¹³¹⁵.

What happened

Essential Products was a consumer electronics startup founded by Andy Rubin, the former Google executive widely credited with creating Google's Android smartphone software.^123456781014 The company was founded in 2015 and headquartered in Palo Alto, California.¹²¹³ Essential Products raised $330 million in outside funding because of the track record of Andy Rubin.¹¹³¹⁴ The company was once valued at $1 billion.¹¹⁴ In 2017, Essential released a premium smartphone, the Essential Phone, but demand for the device was low.¹¹⁴

The Essential Phone was sold unlocked on Amazon and Best Buy, and through Sprint in the US, Telus in Canada, and on Essential.com.¹⁵ Essential also planned to develop a smart speaker, but later scrapped those plans.¹¹⁴ The company was developing a smart home hub, and Amazon invested in Essential via its Alexa Fund.¹⁵ In 2017, The Information reported that Andy Rubin had departed Google after an inappropriate relationship with a subordinate, prompting him to take a leave of absence from Essential to deal with 'personal matters.'¹ Essential was dogged by news about Rubin and the circumstances of his departure from Google.¹

In 2018, Essential received buyout interest from larger companies like Amazon, Walmart, and several telecom carriers, according to a person familiar with the situation.¹ Any potential buyout would have valued the company below its $1 billion valuation, the person said.¹ Interest in a buyout evaporated, in part because of the risk associated with Rubin's workplace scandals.¹ By the time the Times investigation into Rubin's departure from Google was published in October 2018, Essential was already experiencing difficulties.¹ The company slashed the price of its first phone after disappointing sales.¹

Essential dropped plans to build a home device and laid off a large number of employees, reducing its workforce by the end of 2018 to fewer than 50 from around 120.¹ The Project Gem phone had a long, thin screen resembling a candy bar and was intended to be a companion phone, according to former employees.¹ The company spent at least $50 million developing the Project Gem device, a person familiar with the company's effort said.¹ None of the major U.S. mobile carriers expressed interest in offering the Project Gem phone, according to people familiar with those talks.¹ Plans for an early 2020 release of Project Gem were dropped.¹

On February 12, 2020, Essential Products announced it was ceasing operations and shutting down.^123456781014 In a blog post, Essential said it had developed a new handset but that there was 'no clear path to deliver it to customers.'¹³ Essential said it had taken its Gem concept as far as it could and made the difficult decision to cease operations and shutdown.³ Essential shut down with around $30 million in cash remaining, according to a person familiar with the situation.¹ Investors, some of whom had written off the investment after Rubin's scandals, were expected to get 'pennies on the dollar' back, the person said.¹

As part of the wind down, the security update for PH-1 released on February 3, 2020 was the last update from the Essential software team.¹⁴ Essential stated that PH-1 phones would continue to work but no additional updates or customer support would be provided.¹⁴ Current Newton Mail users were to have access to the service through April 30, 2020.¹⁴ Essential hosted a prebuilt vendor image and other resources on GitHub for developer fans to keep hacking on PH-1.¹⁴ The company did not say what would happen to its existing assets.³

Essential's decision to shut down illustrated the challenges facing consumer electronics startups, which need more capital to buy components and maintain inventory compared to software companies.¹ Some hardware startups like Nest and Fitbit broke through with hit products but were eventually sold to Alphabet, Google's parent company, partly because of the challenges of running a fledgling hardware business.¹

Where the founders are now

Andy Rubin founded Essential Products and served as its CEO.¹³ Before founding Essential, Rubin co-founded Danger in 1999, which was acquired by Microsoft in 2008, and he launched Android in 2003, which was acquired by Google in 2005.¹⁴ Rubin took a leave of absence from Essential in 2017 to deal with 'personal matters' after reports of an inappropriate relationship at Google.¹

Sources

1. Andy Rubin’s Startup, Essential Products, Shuts Down, Reading Eagle, 2020-02-12
2. Andy Rubin smartphone startup Essential Products shuts ..., techxplore.com, Feb 13, 20
3. Andy Rubin's Startup, Essential Products, is Shutting Down, How-To Geek, 2020-02-12
4. Android creator shuts down Palo Alto smartphone startup ..., bizjournals.com, Feb 12, 20
5. Andy Rubin's Start-Up, Essential Products, Shuts Down, nytimes.com, Feb 12, 20
6. Phone Startup Led by Android's Creator Shuts Down, finance.yahoo.com
7. Essential Tried to Upend Smartphones. Now It Is Shutting ..., wsj.com, Feb 12, 20
8. Essential Startup Led by Android Creator Shuts Down, bloomberg.com
10. Client Challenge, houstonchronicle.com, Feb 12, 20
12. Essential Products Valuation, Funding & IPO Status 2026 — WOWLS, wowls.com
13. Access Technology Ventures Leads $300 Million Investment Round for Essential Products Inc., Venturebeat, 2017-08-09
14. Essential Products Is Shutting Down, Pulse 2.0, 2020-02-16
15. Andy Rubin's Essential gets backing from Amazon, Tencent, CNET, 2017-08-09

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