Business / Corporate

SoftBank's lame dog: Wag Labs sale talks may take bite out of valuation

Bloomberg

Wag Labs Inc., one of SoftBank Group Corp.’s high-profile venture investments, is seeking to sell itself for a knock-down price after growth stalled, according to two people familiar with the situation.

The Los Angeles-based pet-care startup is in discussions with several potential strategic buyers. But Wag’s business is losing ground to rival Rover.com, so the Wag price tag will likely fall short of once lofty expectations, the people said. They asked not to be identified discussing private negotiations.

SoftBank invested $300 million in Wag in January 2018 via its $100 billion Vision Fund. The deal drew attention because it valued the startup at about $650 million, even though the business was relatively small and had been criticized for occasionally losing pets.

Now, Wag is discussing a potential sale for less than $300 million, the people familiar with the situation said. That would mark another blow for SoftBank’s Vision Fund, which is already reeling from a giant investment in office-rental startup WeWork that went awry. The Vision Fund declined to comment.

SoftBank’s outsize investment in Wag was supposed to fund international expansion and deter competitors. Instead, the company grappled with a handful of U.S. markets and has yet to venture overseas. The executive brought on as part of the Vision Fund investment, former Lifelock Inc. boss Hilary Schneider, cut back on lavish promotions and marketing, and growth stalled. Wag’s sales fell 12 percent in the second quarter, while competitor Rover saw a 24 percent surge, even with revenue more than five times the level of Wag, according to consumer-spending tracker Second Measure.

Wag declined to comment on any potential acquisition.

Wag still has around $100 million in cash, while annual net sales are less than $50 million, one of the people familiar with the situation said.

When the Vision Fund invested in Wag, it was a few months after PetSmart bought online pet-supplies retailer Chewy for $3.35 billion. That acquisition sparked more investor interest in pet-related startups. This June, PetSmart sold shares of Chewy in an initial public offering that valued the unit at about $14 billion.