Onramp Invest, a platform that financial advisors use to manage cryptocurrency portfolios for clients, is running out of cash and asking investors for $5 million to stabilize the startup after the departure of co-founder and CEO Tyrone Ross Jr. last week. In the meantime, the company has laid off more than a third of its employees and is severing ties with some vendors.
“Our immediate need is working capital and reducing our burn rate. As part of this effort, I am also executing a plan to stabilize the business and set it up for growth success,” Eric Ervin, co-founder and CEO at Onramp, said in an email to investors on Friday that was reviewed by RIA Intel.
Onramp only has enough cash to support it for four or five weeks but it is not in danger of becoming insolvent, Ervin told RIA Intel in an interview. The startup is growing rapidly and “I’ve never feared for the viability of the business,” he said.
Ervin wanted to give current investors an opportunity to invest more in Onramp and help the startup with its cash crunch. But he’s confident that, if necessary, new investors could step in, too. Blockforce Capital, Ervin’s cryptocurrency investment firm formerly called Reality Shares, could also support the startup, if necessary, he said.
To conserve cash, Onramp also laid off 18 of its 53 full-time employees on Tuesday, or more than a third of its staff. Ervin said in his email about the layoffs: “The company was over-staffed. This reduction was difficult but necessary, and I’m inspired by the energy that has immediately spread through the remaining team.”
The staff cuts lowered Onramp’s payroll costs alone by about 46 percent, but it retained its core employees focused on product, development, and a newly hired sales and marketing team, Ervin explained to investors.
The startup also plans to sever relationships with some unidentified service providers, a move that will “quickly” and “significantly” lower monthly costs.
“I’m confident we have cut burn [rate] by at least 50 percent without sacrificing core talent and focus. In my experience, you can get a lot more done with a smaller team that is more focused. Unnecessary items and distractions fall away because the team is too focused on the one thing in front of them,” Ervin wrote.
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An additional $5 million in new capital and lower costs will create a clearer path for Onramp in the coming 12 to 18 months after a tumultuous week at the company, Ervin said in the letter.
Ervin became Onramp’s CEO after Ross resigned February 25. Ross, a high-profile executive in the wealth management industry, surprised many people when he publicly announced he was leaving the company in a Medium post on Tuesday.
Ross told RIA Intel that he chose to leave Onramp and that Ervin did not ask him to step down. The co-founders clashed primarily over “one decision that had a bunch of parts,” Ross said, without offering any specifics. In his own blog post about Ross leaving the company, Ervin said the startup had “hit a wrinkle.”
Ervin’s email to investors said that decisions by Ross were the reason the startup is financially struggling.
“Tyrone…led our substantial hiring efforts over the past 18 months, which frankly resulted in our hiring too many people, too quickly. Unfortunately, the result is that we have had to make some necessary but difficult decisions, as we are now left with approximately 4-5 weeks of cash,” Ervin wrote.
The letter also says that Ross was responsible for raising new capital for Onramp. For its Series A round, the startup initially tried to raise $50 million at a valuation between $200 and $250 million. Onramp eventually lowered the amount of capital it wanted to raise because investors told the company that “the valuation was too high and our burn rate was excessive given the current stage of the business. I agree on both counts,” Ervin said in his email. (In August 2021, Onramp raised $6 million in seed funding from Ritholtz Wealth Management, Gemini, and Coinbase Ventures.)
“Anyone who knows me, knows I’m a go-getter. My valuation was rich. [Ervin's] valuation was less rich,” Ross told RIA Intel in an interview.
Both Ross and Ervin said they expect Onramp will be valued more in its eventual Series A round of funding. Although, the startup has not raised capital tied to a valuation yet, Ervin said. It has only raised money using simple agreements for future equity (SAFEs) that convert to equity at the next financing round or a liquidation event, such as an acquisition. Onramp’s SAFEs have valuation caps — a maximum price that they convert at, effectively guaranteeing earlier investors a better share price than new ones when a company raises capital again.
Ervin declined to share what valuation Onramp would seek in its next round of funding. “We’re not a unicorn yet, we’re a healthy thoroughbred getting ready to take off,” he said.
The value of Onramp was not the disagreement that caused Ross to leave the company, even if the letter to investors made it seem that way, the former CEO said. Ross is no longer a stakeholder in Onramp or a member of its board. Right now, Ross said he is focused on helping laid-off Onramp employees find new jobs.
Two of Onramp’s advisory board members — Dani Fava, head of strategic development at Envestnet and Kyle Van Pelt, executive vice president of sales at Skience — stepped down from the board shortly after Ross publicly announced his resignation. But his departure did not lead to an exodus of users. Only two wealth management firms have left Onramp since Ross left the company, Ervin said. About 50 wealth managers use the platform and that number is almost doubling every month.
“The early calls I’ve had with new investors so far are positive. Those I’ve spoken to appreciate the fact that I stepped in, quickly assessed the situation, and didn't waste any time in executing what needed to be done,” Ervin said in his email.
Due to the short timeline to close deals and get cash in the bank, Ervin asked to personally speak with investors on Monday and Tuesday. “I appreciate you and your consideration for the speed at which we need to move,” he said. No potential terms for deals were shared in the email to investors sent Friday, but there are “several potential deal conversations in progress.”
“Longer term, we are changing the cultural mindset from ‘Build it and they will come because of our brand’ to ‘Show, don't tell.’ The market doesn’t owe us anything,” Ervin wrote “We have to show them how great our product is.”
Onramp was founded in 2020 and has garnered the attention of wealth managers through social media savvy, research (such as a paper about crypto and advisors’ fiduciary duty), and its capabilities. Using Onramp, advisors can invest in a cryptocurrency index created by WisdomTree Investments and Ritholtz Wealth Management, one of the most high-profile RIAs.
Michael Thrasher (@Mike_Thrasher) is the editor of RIA Intel and based in New York City.