Boxabl, a builder of factory-made tiny homes, has struggled to establish a profitable business model and could run out of funds by the end of the year.
As the company has sought a financial lifeline by inviting more investors in, its cofounders are cashing out.
Paola Tiramani, Boxabl's CEO, and his 36-year-old son Galiano, the company's director of marketing, plan to sell $10 million in shares they own in the privately held firm as part of a recently unveiled stock offering.
Experts in the startup world questioned the decision by the senior executives to sell shares that could otherwise be sold off by the company to provide it with more cash for its operations.
"It's an important consideration in this funding environment as to whether that money that's coming into the business should be used to help support the business operations, the product and all the growth opportunities or put in the hands of the founders," said Chad Cohen, a former chief financial officer at Zillow who recently launched his own business consulting firm, Scala Advisors, which will focus on startups. "$10 million is a lot of money."
The Tiramanis together previously sold off about $10 million of their shares in a 2022 fundraising round and have awarded themselves annual salaries of close to a million dollars each.
The two men have raked in millions of dollars while Boxabl has burned through tens of millions of dollars of investor cash and has succeeded in delivering its units to only a handful of customers.
Business Insider recently reported how customers who had placed deposits for Boxabl units had grown tired of waiting and had asked to be refunded.
According to the company's most recent financial information for the first three quarters of 2023, Boxabl's revenue sharply fell from the previous year. Its operations consume nearly $3 million a month.
Based on its current burn rate and its plans to spend millions of dollars on automation equipment, it could run out of cash by the end of the year if it isn't able to raise significant sums through the new funding round or by securing financing.
Experts on entrepreneurship and corporate governance saw an ominous sign in the decision by the Tirmanis to withdraw cash at such a tenuous moment in its business.
"They have less confidence in their company than they have in the cash they've raised," said Erik Gordon, a professor at the University of Michigan's Ross School of Business. "Maybe they're afraid that if they don't sell shares now they will walk away with nothing."
Boxabl did not return requests seeking comment for this article.
A spigot of cash running dry
Boxabl is seeking to raise $64 million in the share offering, an additional $10 million for the Tirmanis, and $1 million for other insiders at the company.
In recent years, the company became a social media sensation and crowdfunding star for its foldable, factory-made homes, called Casitas, that it has said will retail for $60,000 each. The firm, based in North Las Vegas, Nevada, says its assembly line production techniques and innovative design will revolutionize the homebuilding industry, allowing it to manufacture and install homes more cheaply and efficiently.
The company's mission and business prospects have resonated with the public, and it has raised more than $150 million, most of it from everyday investors. It has attracted a 175,000 person waiting list for its Casitas.
There are signs, however, that the spigot of cash may be running dry. A crowdfunding campaign on the platform Frontfundr in Canada was launched last year, seeking to raise as much as $300 million. But it managed to solicit only a few hundred thousand dollars.
Cohen said that raising funds in the startup world had become far more difficult amid higher interest rates.
"It's just one of those precarious environments you might be in if you're a growth stage company still burning significant amounts of money," Cohen said.
Former employees at Boxabl have raised concerns about its management and the company faces scrutiny by the Securities and Exchange Commission.
Among the insiders in the company seeking to sell shares in the funding round are Darryl and Lucille Maslak, the parents of Shawna Maslak, Galiano's wife. The pair are selling roughly $500,000 of stock they hold in the company and are the largest individual sellers after the Tirmanis in the round.
"Nobody knows more about the prospects for a company than its insiders, and nothing tells you more about what insiders know than what they do with their money," Gordon, the University of Michigan professor, said.
