(Bloomberg) -- Neighborly, a startup that once sought to upend the way securities are sold in the $3.8 trillion municipal-bond market, idled its employees after an unsuccessful effort to raise money to stay afloat, according to a memo obtained by Bloomberg News.
Jase Wilson, chief executive officer of the San Francisco-based company, told employees on Sunday that its funding did not close last week. He asked employees to stop working.
“As of tonight, we are not in a position to compensate you,” he said.
Neighborly, which was started in 2012 and and lists Ashton Kutcher at Sound Ventures, Maven Ventures and Stanford University among its investors, sought to shake up the way state and local government debt is sold so residents would invest in their own communities. To allow for small-scale investments, the company broke with prevailing practice by selling bonds in tiny increments, rather than the typical lots of $5,000 or more aimed at bigger buyers or mutual funds.
While cities including Cambridge, Massachusetts, hired Neighborly, the company failed to gain a foothold and ended up only having a limited impact. It was only credited as senior manager on 12 municipal-bond transactions, most of which were under $20 million, according to data compiled by Bloomberg.
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Wilson said in July that the company was moving away from state and local government bonds as a focus and cutting 25% of its workforce. In an August blog post on Medium, he said the market was “less reliable” as a funding source for smaller infrastructure projects.The company then shifted focus to fiber-optic broadband networks, intending to bring faster internet service to some communities without it.
When reached by phone on Monday night, Wilson said the payroll stop was needed while the company restructures itself away from municipal bonds to its new focus. He said he doesn’t think Neighborly will have to shut down and declined to comment when asked if the company would file for bankruptcy protection.
In the memo, Wilson said investors are “excited” about the opportunity to close the digital divide.
“We are all aligned on what we need to do, but this still comes with another difficult period of reorganization,” he said.
(Updates with Medium blog post in sixth paragraph.)
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