AppHarbor Status Update

November 1, 2012.

Some of you may already have read that the Danish subsidiary of AppHarbor (AppHarbor ApS) was recently shut down. AppHarbor ApS, which employed 3 developers in Copenhagen, effectively stopped delivering services to AppHarbor Inc, the American parent company in early September. Some have already written about this, and we take this as a sign that a lot of you care about and are interested the future of AppHarbor. With this statement we'd like to explain why the Danish office was shut down and what the future holds for AppHarbor.

First of all: The good news is that AppHarbor Inc is still running and will continue to do so. No customers or applications are affected by the shutdown of the Danish entity and we'll continue to deliver the same high quality of service that we always have. We're fast on track to become a profitable and sustainable company - this time without relying on an outside money injection. Our revenue has increased over 20% month-over-month for the past 7 months, and we're very happy with that - even though it wasn't fast enough to save the Danish entity. The forecast for the future is very positive.

Background

We want to say that we are incredible sorry that we had to let our awesome Danish employees go. Since late 2011 they have contributed to the continued development of the AppHarbor platform and they've helped develop some of the cool stuff we've come up with during this period. A big thanks to these guys for their contributions and we wish them all the best in their new jobs.

Why did we do it then? We didn't really have any choice. As a venture-backed startup we quickly grew the organization to a point that wasn't sustainable without further investments. We've been hard at work trying to raise more money for our startup, but so far without any luck. When it became clear that we were not going to raise money in time it was too late to simply lay off the employees.

Different country, different rules

When a company in the US faces a liquidity crisis it's relatively easy to lay off employees with short notice. In Denmark the rules are different and the law provides much greater protection of employees. All our Danish employees were legally entitled to a three month notice period with pay, an obligation which neither the Danish subsidiary or the American parent company could honor.

Ironically, the bankruptcy of the Danish entity was the best thing that could happen for the employees. In Denmark there's a fund, Employees' Guarantee Fund (Lønmodtagernes Garantifond), which guarantees that employees can get their salary and severance pay in case their employer is declared bankrupt. All privately held companies in Denmark pay to this fund.

When we informed the Danish employees about the situation in the middle of August they were very supportive - some even considered to offer us to work for free and receive more stock options as compensation. After consulting with our Danish lawyer we found out that this was likely not in the best interest of the employees: If they accepted to work without salary they could loose their right to file a claim for salary with the fund mentioned. We informed the employees about this and recommended them to seek advise from their labor unions about what they should do.

The end result is that the employees will likely not be suffering loss as a result of this situation. They're eligible for claiming their severance pay from Lønmodtagernes Garantifond. And all of them have found new jobs since the September layoffs.

This is of course no excuse and it is very obviously not the situation we hoped for. But we've tried to handle it as responsibly as possible and pay back our Danish creditors to the extend that we were able to. There's nothing we wanted more than to ensure a clean shut down of the Danish subsidiary, but that simply wasn't an option on the short term. We hope you'll trust that we have done and are doing all of this in good faith and we're doing the best we can under these unfortunate circumstances.

Future

Finally, we hope we'll continue to see the support of the many developers and customers who have trusted AppHarbor so far. We couldn't have made it this far without you and with your support we're actually on track to make it through this storm. If you have any concerns or questions that we can help answering we're also happy to do so. As mentioned in the beginning we'll continue to run AppHarbor as usual and we're committed to do everything in our power to turn this around and come out stronger on the other side.

On behalf of the AppHarbor founders

Rune Sørensen, CEO