How a Budding Startup that Raised $5 Million Imploded and Fired 400 Workers Overnight

Imagine putting years of your life into a job for a company that seems promising and reports that it’s doing well only to one day receive an email saying the company has shut down followed by an “Oops, sorry ‘bout it” message from the CEO days later.

That’s what happened to about 400 employees who used to work for the virtual assistant firm Zirtual. On Monday, employees received an email at 1:34 a.m. that their company had ceased all operations effective immediately — no severance, no benefits.

Zirtual CEO Maren Kate Donovan responded nearly 48 hours later when she emerged to apologize and announce that the company had been acquired by another firm, Startups.co. In a Medium essay posted on Wednesday explaining what went wrong, Donovan wrote:

“I cannot express my deep sorrow at letting down our employees, our clients and our investors. I’ve read notes from people calling me stoic as this shit storm has hailed down on us. But in reality every time I am alone I cry like someone whose child has been ripped from her arms.

“I cry for all the employees we hurt. I cry for all the clients we infuriated. And I cry for the investors we let down.”

Zirtual, which was founded in 2011, raised $5.5 million in the last three years up until July, yet all the rounds after their seed round were debt rounds. Donovan’s company was burning through more cash than they had and blamed their outsourced CFO for the mistake in burn rate projections. “The numbers were just completely fucked,” Donovan said. However, the outsourced CFO, Ryan Keating, told Fortune his firm wasn’t to blame at all.

In an attempt to save the company, which was burning through $400,000 a month, Donovan asked investors for $3 million to stay afloat but was denied. “We thought we were going to pull through until Sunday because things kept lining up,” Donovan said. Zirtual’s HR chief resigned because she knew the company would have to abruptly halt operations and let go of all their employees.

Between blaming their outsourced CFO and not having a proper board, Donovan called herself “penny wise and pound foolish.” She told Fortune:

“I blame myself on a lot of this, in not hiring more experienced people, but it wasn’t any maliciousness beyond just naivete.”

Zirtual will be acquired by Startups.co under CEO Wil Schroter. While the deal is still being worked out, part of the deal includes that anyone who owned significant percentages of Zirtual will own stock in Startups.co. This is good for Donovan and Zirtual’s investors, but clearly not her employees.

The deal, however, does cover employees’ final paychecks, which were mailed out on Wednesday, though medical benefits and paid-time off are still up in the air.

A scathing Medium post from an anonymous “EX ZA,” a former Zirtual assistant, served as the voice of all employees upset with the way things were handled:

“I am even less happy with your comparison to having this experience be one to make you ‘cry like someone whose child has been ripped from her arms.’ As someone who actually had this happen I dare to say you have no clue what it is like to have a child ripped from your arms.

“Now you collectively come out and try to take credit of the way the ZA’s have pulled together, supporting each other, and say it’s the Zirtual culture. No it isn’t. It is the ZA culture. WE nurtured that. WE built that. WE did that.

“Shame on you! Shame, shame, shame.

“You knew long ago it was not going to be able to be sustained and you did nothing morally and ethically responsible toward fixing it … If you had only been fair and honest with us all along, as you said you were being, things could have been so much different.”

Employees have now filed a class action lawsuit against virtual for violating the WARN (Worker Adjustment and Retraining Notification) act, which gives workers the right to 60 days notice of a shutdown if it is reasonably forseeable. If the court sides with employees, according to Business Insider, Zirtual will be held responsible for 60 days of backpay and benefits for 400 employees.

Source: Fortune

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