"It's like taking money and throwing it into a barbecue and burning it as fast as you can burn it," said Dean Rotchin, founder and former CEO of BlackJet, which folded in 2016. "The operating cost of these aircrafts is very expensive."
Former employees say JetSmarter was losing up to $5 million a month in 2016 and 2017. It was also spending heavily on marketing and events. It enlisted an army of celebrities, from Kardashian and supermodel Emily Ratajkowski to baseball legend David Ortiz and celebrity chef Robert Irvine, to tout the company as "brand ambassadors." It hosted champagne-filled parties in New York, Los Angeles and Miami to attract wealthy new members. And it sponsored booths and VIP lounges at yacht shows, art fairs and other gatherings of the rich.
Petrossov never disclosed or discussed the company's losses in his many press interviews and articles about the JetSmarter. Privately, he told investors and employees that JetSmarter was like Amazon or Uber, which lost money for years to build scale. He also said JetSmarter was creating a "community" of wealthy consumers that it could eventually monetize through sponsorships, partnerships and other sales.
But even as JetSmarter was bleeding cash, Petrossov's family continued to profit. His wife, Lolita, was the company's chief operating officer and ran the day-to-day business, according to court documents and former employees. Petrossov's brother was also employed by the company. The Petrossovs live in a $2 million house in a gated community in Boca Raton.
To fund its losses, JetSmarter raised cash through three investment rounds. It said its third round, in 2016, raised $105 million and valued the company at $1.5 billion. A year later, however, JetSmarter needed more cash. Former employees said paychecks were delayed by four to five weeks when JetSmarter couldn't meet payroll. A shuttle-experience manager, Grace Lamey, sued the company alleging that she and other employees weren't being paid for overtime. (Lamey and JetSmarter settled and neither side would comment). JetSmarter said "all of our employees have always been paid."
In early 2017, JetSmarter's president, Gennady Barsky, was arrested and charged with five counts of grand theft stemming from an earlier business that had no connection to JetSmarter. Barsky pleaded not guilty to all of the counts and left the company. The case is pending.
But Barsky was a key link to the company's investors, and his departure made fundraising more challenging, former employees say.
JetSmarter put together an investor presentation filled with optimistic projections to raise funds. It forecast revenue growing from $124 million in 2016 to more than $2 billion in 2019. It said membership would surge from 5,839 in 2016 to over 100,000 in 2020. Today, JetSmarter has about 8,000 members, according to people close to the company. The company declined to comment on any financials or its current membership numbers.
JetSmarter finally found an investor in Santa Monica, California-based Clearlake Capital, which invested alongside Leucadia National, now called Jefferies Financial Group. Neither Clearlake nor JetSmarter would disclose the amount. But people familiar with the deal said Clearlake and Leucadia invested around $75 million for ownership of about a third of the company. Clearlake also got priority in the event of a bankruptcy or liquidation as well as other considerations.
Jefferies declined to comment.
It's unclear how much Clearlake — which has become actively involved in running the company — has invested since the funding round. But its investment implied a valuation for JetSmarter of less than $250 million — a drop of more than 80 percent.
After Clearlake's investment, JetSmarter's salespeople were pushed even harder to recruit new members and raise cash, according to former employees. Andrew Pressler, a former salesperson at JetSmarter who was fired, said the sales team would conduct what they called "money grabs," using special deals, multiyear agreements or incentives to sign up members and bring in cash.
"We had to show our investors we were making money," Pressler said.