The Big Read

Carrot and stick: As new owners prepare to relaunch one of Canada’s most popular apps, a who’s who of corporate Canada claims they’re owed millions

Illustration by Zachary Monteiro for The Logic
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Andreas Souvaliotis is pitching. Given the current pandemic, he is doing so over the phone, depriving the listener of the full Souvaliotis experience, as seen on morning gabfests, current affairs shows and the occasional TEDx talk: the loud blazer, the checkered shirts, the hands conducting the many words tumbling from his mouth.

“Think about how easy it would have been, had Carrot still been alive,” the 56-year-old self-described autistic, gay, immigrant changemaker says over the line from Toronto. “We could be talking to over a million Canadians, a huge percentage of the population that you could be directing so precisely. And not only that, we would be gathering data back from them. It would be so much easier for authorities to understand who may be sick, who may be exhibiting symptoms, who just came back from outside the country. All sorts of data that we don’t have.”

Souvaliotis is pushing a narrative about his former company, Carrot Rewards, and its erstwhile fitness app, one of the most popular ever developed in this country. Carrot, Souvaliotis says, could have saved lives during the COVID-19 epidemic had it not gone bankrupt in the summer of 2019, its assets sold off for a fraction of their value. 

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Talking Point

Carrot Rewards was one of Canada’s most popular apps, downloaded by more than a million people eager to be rewarded for exercising and living well. After its owner went bankrupt in 2019, Carrot’s assets changed hands three times. Their new owner, Optimity, plans to launch “Carrot 2.0” this month. But investors in the original company claim they’re out over $11 million—and now they’re trying to figure out exactly whom to go after to recoup it.

He’s even written a book on it, the title of which he recently changed to fit these trying times. Carrot Juice: How Canada Threw Away Its Special Weapon Just Before The Pandemic, which hits bookstores this month, details Carrot’s 2016 launch, the millions in funding the company harvested from various levels of government, convincing them its app—which tracked people’s activity and rewarded them for healthy behaviour with incentives like Aeroplan miles and Cineplex Scene Points—was the secret to getting an increasingly lethargic population off the couch. And the book speaks of its untimely death—“killed by a lethal mix of inertia, myopia and naïveté among those who created it.”

Though he doesn’t write about it in Carrot Juice, Souvaliotis still takes particular umbrage with the sale of Carrot’s key asset: the granular and often intimate data detailing the habits and personal details of over a million Canadians who used the app, including age, gender, residence, income and location, along with knowledge of and attitudes toward wellness, gleaned from quizzes that users regularly filled out. 

Last fall, those trillions of data points were uploaded to a hard drive and sold to Toronto-based personal finance startup Planswell for just $20,000.

When Planswell went bankrupt less than two months later, the Carrot assets ended up in the hands of Jane Wang, the CEO and co-founder of digital wellness startup Optimity—which  announced “Carrot 2.0” would launch this month, promising better rewards from new partners.

However, a group of well-heeled investors in the original Carrot believe they are owed millions of dollars—and they want their money back. Along with Souvaliotis, they include Rogers CEO Joe Natale, financier Samuel Duboc, Power Corporation’s Portag3 Ventures and former Sunnybrook Health Sciences Centre CEO Peter Ellis, along with Relay Ventures, Aeroplan, Aimia, Scene Limited Partnership, Scotia Capital and Suncor. 

“The language is quite clear. There were encumbrances on the sale of Carrot assets, and the obligation is for Wang to understand what those encumbrances were,” says Ellis, who served as executive adviser to the Carrot of yore, the bankruptcy of which left him owed a tidy $1,018,426 plus interest. All told, Carrot creditors are out over $11 million—not including millions more in unlisted debt.

The problem is they aren’t entirely sure who to go after. Is it Planswell, which has since relaunched? Is it a company called Mobd, owned by a former Planswell executive, which bought Carrot’s assets from Planswell and flipped them? Or is it Optimity and Wang, on the verge of relaunching the app? Wang has said she owes exactly nothing to Carrot’s creditors and shareholders. “We did not inherit any of the previous creditor liabilities,” she told The Logic in an email.

But Souvaliotis, for one, has already cast his vote. In his narrative, Wang has snapped up one of the most recognizable Canadian apps ever produced for “pennies on the dollar,” as he puts it.

“She literally seems to think that for $20,000, or whatever she paid, that she can end up owning 1.1 million people’s data,” Souvaliotis says, clearly gobsmacked by Wang’s chutzpah. “She just went in and did it.”

***

You can thank Canada’s 16th prime minister for Carrot’s name. In 2014, over breakfast with Joe Clark at Toronto’s Royal York hotel, Souvaliotis mused about his concept for a fitness app. What if, instead of telling people what they had to do to stay healthy and stave off obesity-related diseases, you reward them for doing so? “He looked at me with a big smile and said, ‘Young man, carrots always work better than sticks,’” Souvaliotis says.

At the time, Souvaliotis was the president of Air Miles for Social Change, which doled out points to its users for recycling and taking the bus. He figured he could similarly steer people into their sneakers by incentivizing sweat.

By employing nudge theory—a behavioral science concept that basically says humans are Pavlovian suckers for positive reinforcement—the Carrot app mated one’s desire to be more active with their desire for free stuff. Play enough ultimate frisbee and you could get free gas; a walk to the grocery store got you that much closer to Guardians of the Galaxy.

This model of app-enabled self-betterment was win-win-win: the user got healthier; the reward plans gained a customer; and Carrot bought bulk reward miles, then portioned them out in slivers that, cumulatively, cost significantly more than it paid for them. Bay Street came calling, to the tune of about $1 million in a funding round led by Relay Ventures, whose co-founder and managing partner John Albright gushed about Carrot’s “distinct social mission” and “uncompromising passion for finding new ways to build a healthier Canada.” (Relay Ventures is an investor in The Logic.)

Samuel Duboc was among those who liked Carrot. The co-founder of the Air Miles rewards program parent company liked the social mission behind the app. He liked the engagement plan, and how it attracted the 18 to 40 demographic. He liked it so much he sat on the board for a stretch and invested his own money. Asked how much, he says, “A gentleman never tells.”

Governments, too, tripped over themselves to get a piece of Carrot. For decades, Canadian public health agencies have tried to goad citizens into drinking less alcohol, eating better foods and exercising more. It manifestly hasn’t worked. Despite millions of dollars in advertising and initiatives, Canadians are more obese and diabetic than they were even a decade ago. 

Souvaliotis’s pitch to the federal government was simple: Carrot could nudge Canadians toward better lifestyle choices for far less money. And it would produce reams of data—upwards of two million data points per user, he says, tracking everything from hourly step count to junk food consumption—to prove it. 

In January 2015, then-health minister Rona Ambrose gave a $5-million green light to the project. British Columbia later threw in another $2.5 million. Over the next several years, the governments of Ontario, Newfoundland and Labrador and the Northwest Territories ponied up a cumulative $1.84 million.

“We built the approach around a pay-for-performance model,” says Rodney Ghali, who co-developed the Carrot concept with Souvaliotis and, as director general of the Public Health Agency of Canada, helped direct Ambrose’s eyeballs to the app. “Carrot would only get paid when points were consumed, and users would only get these points when they did certain things like hitting step-count milestones or consuming the health information we were looking for them to internalize.”

It worked. According to a 2018 study published in the Journal of Internet Research, the app spurred a 21 per cent increase in step count among physically inactive users—and did so for less than five cents a day per user.

In 2017, MobileSyrup’s Readers’ Choice Awards named Carrot the best Canadian-developed app. Big-name investments brought cash and legitimacy to Carrot’s cause. “We thought if Power Corp. is involved, it would be worthwhile for us to be involved,” says Charles Harboun, director of finance at Montreal-based Globe International Investments, whose client Valeria Rosenbloom invested $106,483 in the company. “If there hadn’t been a big name, we wouldn’t have invested.”

Brian Felesky, father of Portag3’s CEO, thought the same thing. Portag3’s involvement “was good housekeeping,” he says, “and as a result, a number of us jumped in.” According to bankruptcy documents, the Adam Felesky Spousal Trust invested just under $185,000.

By 2018, the app had tracked one trillion steps, though earning those freebies was quite a slog. One Torontonian calculated that it would take a Carrot user 34 years and 120 million steps to earn a return airline ticket to Los Angeles. Nevertheless, 1.1 million people were using the app, Souvaliotis says—including, as the postal codes in Carrot’s data suggested, 12 per cent of the roughly three million people living in Toronto. 

“It’s exactly why the loyalty-points game works so well, because we can give you a completely insignificant monetary value and get you to jump through hoops. But if you tried to offer people a cash equivalent, they’re going to be insulted,” Souvaliotis says.

Yet the numbers, not to mention Souvaliotis’s Machiavellian cynicism, belied the reality. By 2019, less than a year after it partnered with the British government and won the OECD’s Edge of Government Award for innovation, Carrot was in trouble.

Peter Ellis, the largest non-corporate Carrot creditor, says some investors were warm to Carrot, but cold on Souvaliotis. “Portag3 was going to make another significant investment, but they wanted some changes in structure and management, and it dragged on for quite a while, which didn’t help us,” he says. (Portag3 declined to comment on its Carrot investment.)

As it happens, Souvaliotis agrees with his former investor. In fact, his failure at Carrot’s helm is one of the main themes of his book. “We went too far down the road by having big governments as our clients, and naively believed that when you have these multibillion-dollar government departments as your clients, you’re nice and safe,” he says. 

A big part of the problem was those 300,000-odd Torontonians, who, along with their cousins in the rest of the province, made up the majority of Carrot’s users. “It created a giant exposure for us, because 70 per cent of our revenue was dependent on the Ontario government,” Souvaliotis says. The bottom fell out when the province elected a Progressive Conservative government in 2018 after 15 years of Liberal rule, and the province’s health ministry ended its relationship with Carrot. 

Carrot Rewards shut down in June 2019 and declared bankruptcy in July. By the end of the year, Carrot’s creditors were still owed more than $11 million—but they found themselves vexed as to whom they should go after to recoup it. 

***

In the wake of Carrot’s collapse, Planswell pitched an alluring lifeline to creditors. It would buy all of Carrot’s assets, including the profiles and trillions of data points extracted from over one million users, for $20,000, with the stipulation that it would pay an additional $50 for every Carrot user it convinced to convert to its financial planning platform. 

In theory, Planswell would need to convert less than a quarter of Carrot’s existing users to pay back the more than $11 million owed to its creditors. In practice, those assets sat in Planswell’s office for two months before that company, too, went belly up.

Souvaliotis maintains that former Planswell executive Harry McLaughlin called him shortly before Planswell’s demise, telling him the company was likely going to file for bankruptcy. According to Souvaliotis, McLaughlin offered to sell the Carrot assets for $340,000. McLaughlin denies the allegation. 

On Nov. 28, 2019, bankruptcy trustee Harris & Partners published Planswell’s notice of bankruptcy listing three properties, including the Carrot assets. There is no mention of the $50-a-client stipulation in the documents; the Carrot assets, including those trillions of data points gathered during its pomp as one of the most popular Canadian-made apps, were listed at a value of $20,000—$10,000 less than the TVs, rugs, desks and servers in Planswell’s office.

“Although we received offers for each lot separately, the winner made an offer for everything, including Carrot,” says Harris & Partners estate manager Joshua Harris.

Harris confirmed the buyer was Mobd, a company founded in 2012 by Planswell co-founder and former CTO Eric Rogness as “a developer of an application software that facilitates group decision making and purchasing for ticketed events,” according to Crunchbase. (Rogness didn’t respond to an interview request, while Planswell co-founder and CEO Eric Arnold didn’t respond to a list of questions.)

Harris says one of those unsuccessful bids came via an Optimity employee whose name he wouldn’t divulge. “That guy knows the Mobd guy. There’s no secrets here, everyone sort of knows everybody,” Harris says, though he was reluctant to say much else. “I reached out to Mobd after our last call, and there’s been some articles and stuff that have not been flattering to all these people, and they’ve asked me not to comment further.”

Optimity acquired the Carrot assets in December 2019, and on Christmas Eve, the app’s Twitter feed was resurrected. “Stay tuned,” read the neon orange tease.

Founded in 2014 as a “wellness rewards app” targeted to insurance carriers, Optimity “is the state of being best, it means that I’m at my best state at bringing the best of myself to others,” as co-founder Wang put it in a promotional video. (Optimity co-founder Nicholas Raditsis, in a more prosaic description of the app, said, “Optimity is kind of like your personal life coach.”)

Optimity’s app operates in much the same way as Carrot’s—though with Optimity points, in which exercise, proper diet and mindfulness can lead to, say, a discount on your groceries. “Optimity was interested in Carrot because we share the same vision of building a better world with healthier, happier people,” Wang says. “We saw the acquisition as a natural way to enhance the reach of great Canadian tech and create a healthier world.”

***

On January 29, Wang texted Souvaliotis. “Thank you for rooting for us,” she wrote. “We are being very diligent about the relaunch, your folks will be proud I’m sure.”

By then, Optimity had owned the Carrot assets for just over a month, and Souvaliotis had publicly expressed hope for Wang’s success. Yet his magnanimity only went so far. “Nobody has specifically declared an intent to fight this legally yet, but the rumours around the ‘creative’ ways in which the [Planswell] boys sold you this are persisting—and there is still some chatter about the legality of this,” Souvaliotis wrote in reply to Wang.

Souvaliotis is no longer magnanimous. He has seethed as Wang has gone ahead with Carrot’s relaunch, a beta version of which is slated for launch this month, complete with optimistic nods to “connection, compassion, and hope” and tips on staying productive at home. Gone are dedicated Aeroplan, Scene and Petro-Canada rewards; Carrot 2.0 users will instead walk, jog, bike and otherwise sweat for Optimity points. 

“It should be so obvious to somebody smart that unless you recreate the magic sauce of Carrot, unless you offer Canadians Scene Points or Aeroplan miles, they’re not going to engage. The fact that she keeps talking about recreating Carrot and having a huge mass of users is pure fantasy in my books,” Souvaliotis says. (Over 1.4 million people are signed up to the waitlist for Carrot 2.0.)

 In May, Ellis obtained a legal opinion from Toronto-based law firm Jaffe & Peritz saying that, yes, the $50-a-client stipulation followed the sale of the Carrot assets. The creditors need only to figure out where to direct their lawyers—not an easy task, as it turns out.

Wang, Ellis says, told him that she bought the Carrot assets directly from Harris & Partners, a claim Wang denied in an email to The Logic; Harris & Partners says it sold the Carrot assets to Mobd. Mobd CEO Rogness isn’t talking. And Arnold has since relaunched Planswell under a slightly different incorporated name.

Wang told The Logic she doesn’t think she and Optimity are on the hook. “We have a lot of respect for the great technology, research, and content the previous Carrot team have built; however, we are not in or plan to enter into any forms of working relationship or investor talks with the previous CEO or creditors/investors,” she says. (“I did not sell the assets to her, so I did not guarantee her anything,” Harris says.) 

Some of the creditors are still optimistic they’ll be made whole, including Souvaliotis, who is otherwise busy hawking his book. “Warning: contents may include stark or dark lessons for social impact dreamers,” reads the back cover. It’s difficult to read his words without thinking they’re going to be grist for another TEDX talk. 

Others have moved on. “I hope you’ll discover a way for us to get that 50 bucks, or whatever the number is,” says Duboc, who nonetheless doesn’t hold out much hope for the return of his investment. “I’m not going to see my money again. That, you can put on the record.”