For venture capitalists looking for the next gig economy success story, the dog-walking app Wag seems like a good bet. After all, Americans spend a lot of money on their pets — an estimated $70 billion last year alone — and the three-year-old startup is growing fast and looking to raise at least $100 million to fund its expansion.
Several investors were getting ready to ante up last month, according to three people familiar with the situation, when social media began to surface outrage about Buddy, a Beagle-Labrador mix who went missing while under the care of a Wag contractor. Buddy’s owner, a Long Island retired nurse named MaryEllen Humphrey, accused the company of misrepresenting its rescue efforts and trying to buy her silence with $2,500 and by offering to pay for a planned trip to Disney World when a local news station inquired about the missing pup.
Wag Labs Inc., the app’s parent company, did something unusual for a tech company: fired off a cease and desist letter to one of its own customers. “If your retraction and apology to Wag! are not publicly posted to each and every social media platform that you have used to libel Wag! within 24 hours of the time of this email, this office has been authorized to use all available means to bring as swift as possible an end to your lies,” company attorney Mark Warren Moody wrote.
Wag disputed Humphrey’s accusation that it offered her money to keep quiet. Company spokeswoman Marcy Simon said that in the case of Buddy, Wag hired a professional dog rescuer, issued a Pet Amber Alert (which texts or emails neighbors that a pet is missing) and set up a $1,000 reward. Simon said the company spent about $1,000 per day searching for Buddy. Humphrey disputes Wag’s assertions.
On Saturday, a woman out walking her own dog discovered the Humphreys’ pooch standing near a “Find Buddy” poster. He’d suffered a few cuts and was covered with ticks but was otherwise unharmed. That same day, the family had been out looking for Buddy with professional trackers they’d hired themselves after Wag failed to recover the dog. Despite the positive outcome, the damage to the start-up’s reputation was already spooking potential investors, including one who said his venture firm got cold feet after hearing about Wag walkers losing dogs.
Inspired by Uber, pet-care startups want to revolutionize an industry that has long relied on word-of-mouth referrals and lamp-post advertisements. The best known of these are Wag and Rover.com, which offers a broader assortment of services including boarding. But Wag’s experience is a reminder that technological disruption rarely goes smoothly — especially when it involves a four-legged family member. Even as Wag and Rover compete for customers with easy-to-use apps and celebrity endorsements, they’re battling many of the same issues that have bedeviled other gig economy players: regulatory scrutiny, complaints about shoddy service provided by people they don’t directly employ, high marketing costs and heavy losses.
Wag, which put one of Uber’s most outspoken investors, Shervin Pishevar, on its board, grew quickly after Jason Meltzer, Josh Viner and his brother Jon co-founded the company three years ago. Rover was launched in 2011 by venture capitalist Greg Gottesman, who envisioned an in-home boarding experience after his lab Ruby Tuesday was injured at a Seattle kennel.
Wag and Rover charge about $25 for a half-hour dog walk in San Francisco; about $20 for the same amount of time in New York, Chicago, Austin and Seattle. Wag and Rover take a commission — about 20 percent per transaction for Rover, 40 percent for Wag.
Despite the high commission, Wag is burning about $4 million a month, said three people who recently reviewed the start-up’s financials. The older, more established Rover, said it’s also losing money but expects to become profitable next year. Both Wag and Rover, which are privately held, declined to provide specifics of their financials.
Wag’s expenses are especially high because the startup relies on celebrity endorsements and costly marketing campaigns, said the three people, who asked not to be identified discussing a private matter.
Fashion model Kendall Jenner, singer Mariah Carey and actress Chloe Grace Moretz have praised Wag on their social media accounts. Wag’s spokeswoman says, “We have not paid our celebrity fans but we have offered them free walks for life.” In June, Jenner disclosed on Instagram that she was compensated to publish a paparazzi-style photograph with her Italian greyhound, Mew.
Despite the red ink, venture capitalists have poured more than $200 million into Wag and Rover combined. In March, Wag secured about $40 million after previously raising at least $19 million from tech-focused venture firms including General Catalyst and Sherpa Capital, according to two people familiar with Wag’s finances.
The start-up has been pitching investors in recent weeks, hoping to secure $100 million in funding, according to three people familiar with the matter. Rover said it has raised about $156 million, $65 million of which was raised in July, much of it from Spark Capital.
One of the greatest challenges for Wag and Rover is persuading owners to entrust pets to people they don’t know. Both say contractors go through a grueling screening process. Rover says about 1 percent of people who apply to be on-demand dog walkers make the cut. Both apps feature Uber-style rating systems.
Every time a pet dies or goes missing, however, Wag and Rover take a public-relations hit. The three-week disappearance of Buddy is one of several incidents that have left the companies with explaining to do.
Despite the legal threats, Buddy’s owner Humphrey has continued to criticize Wag “Wag has tried to bully me repeatedly,” she said after Buddy turned up safe. “I didn’t want to be bullied or bribed. I just wanted them to help me find my dog.”