Once high-flying Curalate caught in retail decline; Philadelphia Federal Credit Union loses millions on Trevose hotel deal

It’s no secret that U.S. retail has been in trouble, with store chains going bankrupt even before coronavirus closings sped up the pace.

And now the retailing-software business, where smart engineers, polished marketers, and Silicon Valley investors sought to use social-media data and cool new platforms to boost smartphone-based retail sales, is turning out to be another tough place to make money.

Founded in 2011 by Apu Gupta and Nick Shiftan, Curalate offered retailers social-media “influencer” marketing, social-media management, user-generated product promotions, and other software tools. It became an aspiring star in Philadelphia’s modest software industry, helping old and new retailers use shopping data to match users of Pinterest and other social media with client products.

Former Mayor Michael Nutter and Mayor Jim Kenney joined tech promotion events at Curalate’s naturally lit offices upstairs at 2401 Walnut, the refurbished B&O terminal. The politicians said it showed that the city economy was more than apartment rehabs and hospitals, colleges and Comcast.

In 2014, Curalate told the Securities and Exchange Commission it raised $8.6 million from Maryland-based New Era Associates, Philadelphia-based FirstRound Capital and MentorTech, and others, then $20 million more from the same backers two years later. The founders told reporters they eventually raised a total of $40 million.

But investors tell me Curalate backers got back half or less of the money they put into the company, when it was sold to California-based Marlin Equity Partners last week.

Marlin said it would put Curalate under the wing of its larger, Texas-based retailing software platform, Bazaarvoice, whose clients include Target. (Marlin’s previous local investments include Conshohocken-based ListenLogic, and Blue Bell-based Anexinet, now owned by Mill Point Capital.) Bazaarvoice and Gupta, Curalate’s CEO, declined to comment on the price.

What happened? Competition, and tight retailer marketing budgets were factors. The staff peaked at more than 150 in 2017. The next year the firm moved into smaller quarters at 1640 JFK (Eight Penn Center). For the last two years, insiders say, it was a struggle to keep from running low on cash. Last year Monetate, another local retailing-software firm, sold out to Kibo, also for less than the $46 million that investors paid.

Along the way, Curalate qualified for Keystone Innovation Zone tax credits and, this spring, a federal PPP loan that it said would keep its remaining 100 employees employed. (Sidecar, a Center City digital advertising agency whose clients include Boscov’s, also got a PPP loan.)

The good news is that Curalate staffers will keep their jobs. Gupta and Shiftan will also stay on under the new owner (at least for now — founders tend to leave and start something else after the deal dust settles).

The sale sparked second-guessing by insiders. An early employee who left and one of the local investors who took a pass on backing the company both praised Curalate managers, telling me they set high standards, pored over innovative ideas for keeping the business afloat, and drove their people hard in hopes of boosting sales.

Venture capitalists are used to failure. A rare Amazon or Facebook scores fat profits, inspiring many. Failure, partial payback, and modest profits are a lot more common. In venture capital centers such as San Francisco and Boston, the deal volume is so great that there’s been enough success — in jobs and profits — to keep the game growing. Philadelphia needs more start-ups and more big-dollar paydays before each low-priced sale feels like just another rung in a long ladder.

The former Wyndham Hotel in Trevose was appraised at $24.5 million in 2018, according to lawyers for its owner, Hermani Hotels, which is owned by the father-and-son team of Niranjan and Mayur “Mike” Khatiwala.

That would have been enough to pay the $12 million-plus the hotelkeepers owed Philadelphia Federal Credit Union, with more left over for the owners’ many other creditors.

But the winning bidder in that auction, Deepak Patel, was able to buy the now-closed hotel for just $7 million — which leaves the credit union more than $5 million in the hole even after it collects on the sale.

The credit union, owned by City of Philadelphia employees who form its customer base, is the lender that gave the Khatiwalas a mortgage five years ago.

The owners lost the Wyndham brand and filed for bankruptcy protection last winter after falling behind on Bucks County tax and utility and state tax payments, failing to pay workers and contractors, and losing their restaurant.

You or I might be in serious trouble if we stopped paying our taxes and utilities. But businesses are another matter, and Bucks County’s lawyers have so far been content to see whether they can still get something back in U.S. Bankruptcy Court. Despite the negative math.

The sale should close later this month, says Ronald Gellert, the owners’ bankruptcy lawyer.

The credit union and its lawyer declined to talk about its loss. “PFCU remains financially strong and continues to serve the best interests of its members,” and has enough money to delay loan payments for the 600 members who have claimed hardship in the current economy, said Aimee Harmon, associate general counsel.