Relationships can be messy, including between startup founders and their venture investors. But in a case that takes messy to an indecent, an insurtech company in Santa Monica, Calif. called Definite is alleging that its Sequence A investor passe privileged information to launch a very similar, Contemporary York-based startup called Increase.
Definite additional assets that the venture agency — 29-year-customary IA Capital Staff of Contemporary York — has persevered to “harass” Definite over information rights that it’s now now not entitled to obtain, given its conflicts of pastime.
As why he thinks there’s calm pastime in his company, Definite’s founder and CEO, Wayne Slavin, suggests that it’s because Definite’s negate is outpacing that of Increase. “We’ve grown headcount almost 50% thru COVID,” says Slavin. Definite now has annual ordinary revenue within the “double digit hundreds of thousands” and is profitable, he adds, hinting that Increase has now not fared as well.
Andy Lerner, a managing partner with IA Capital who has been with the agency since 1995, disputes Definite’s characterization of events. “It’s very important [to note] that we didn’t invest knowingly in two companies that were swear rivals,” he said earlier today when asked about Definite’s claims.
Alex Maffeo, a feeble investor with IA Capital Staff who sat on Definite’s board earlier than incubating Increase within the venture agency, then leaving to change into its CEO, said in line with Definite’s claims: “We have no information of the situation between Definite and IA Capital, nor can we obtain any information about any of the companies in IA’s portfolio. I haven’t worked at the agency for almost four years now, and Increase has been all in favour of the same mission to energy insurtech startups and other digital distribution partners from the start. We have always and continue to want Wayne and his team nothing nonetheless the most attention-grabbing as both of our companies thrive in our respective lanes.”
So what went so awry here? The battle between the two aspects dates back to nearly 2017, when IA Capital led an $8 million Sequence A round for Definite. Extra specifically, it wrote the company a $2 million check from a fund whose sole exiguous parter is the insurance giant Prudential.
Lerner says that at the time, Definite was a “cellular insurance distributor,” one that was all in favour of things in transit, including, “flight insurance, smart phone insurance, baggage insurance.” Slavin says that is false, on the opposite hand. He says Definite — which sells its software as a carrier to large companies care for Tesla, Intuit, Mastercard, and other customers that exercise its technology to accelerate their digital insurance programs — had already begun working instead on an embedded insurance API strategy quickly after its seed round closed in 2015.
That Increase provides the same carrier today will be twist of fate, nonetheless Slavin doesn’t deem so. In fact, according to all aspects, a rift began to emerge quickly after IA Capital, which invests entirely in insuretech startups, began working on an internal program called “Project Increase” led by Maffeo. The original idea, says Slavin, was for this company to give insurtech startups the capital wished to like a flash ship contemporary insurance products to market, and for it to raise $40 million toward this stay. When a ample round didn’t materialize, IA Capital and Maffeo pivoted and with seed funding from IA Capital, Maffeo resigned as an investor and joined what became Increase Insurance as CEO.
The crux of the area, says Slavin, is that with out discussing these moves with Definite, Increase like a flash began to “drift in our lane.”
To Slavin, this was especially worrisome given that Maffeo had spent almost a tubby year on the Definite board and understood its potentialities, a few of the intricacies of its tech, and what was on its roadmap. In doubt of how you can battle back, it decided with its board to invoke a provision of its funding documents with IA Capital that at least enabled it to halt providing IA Capital with the same level of information to which it was entitled earlier. By late 2019, it stopped sending IA Capital anything at all.
That hasn’t sat so well with Lerner, who maintains that Definite and Increase “are now not that similar,” and that, in any case, because “as soon as in a while they overlap,” his agency hopped off the board when Definite closed its Sequence B round in 2018, a $12.5 million financing led by the publicly traded insurance preserving company W. R. Berkley.
Extra, says Lerner, after some “back and forth,” IA Capital agreed to accept a extra bare-bones “earnings statement and balance sheet, so we [could] value and file on Definite to our LPs every quarter. We didn’t ask for any sensitive information or technical information or who its customers are. We basically apt wanted financial information to total our audit and value our stake . . . and Definite said they wanted to send us zero information.”
With some animus now on all aspects, what happens from here is the greatest quiz.
Slavin suggests he was willing to quietly bear the bad governance “nightmare that we’re residing and that [IA Capital] apt gained’t acknowledge,” he says. But a surprise letter from IA Capital’s attorneys a few days earlier than this past Christmas — one that asked for private shareholder information — went too far, he says.
Earlier this week, he wrote to all of Definite’s shareholders and told them about such these within the back of-the-scenes wranglings for the primary time. By way of Definite’s attorney, Evan Bienstock of Fenwick & West, the company also told IA Capital that if its investor, Prudential, wants extra information about Definite, Definite will provide it to the insurance giant without delay. (Prudential didn’t answer to a request for remark this afternoon.)
“I probably must have stood as much as the bully sooner,” says Slavin. “But it certainly’s really hard when, as the founder, you realize you probably can want that reference check. You may well probably want that gatekeeper to allow you to along, despite the fact that they’re now not necessarily taking a search for out for the pursuits of the company and the pursuits of the opposite shareholders.”
Lerner meanwhile suggests it’s all been a ample misunderstanding, that IA Capital didn’t realize there was a potential battle till Increase was “already well underway.”
He added that IA Capital wants to “have a great relationship with [Sure]. We remorse that there’s a dispute. We apt want them to send us the minimal information so we can audit and ruin our file to our LPs sooner or later.”
Said Lerner: “I deem we’re reasonable, and we wanted to work things out. They’re an insuretech that appears to be doing well, and we’re a large insuretech VC, and we may certainly be beneficial to them.”
Asked why IA Capital doesn’t simply promote its shares to existing shareholders, or let Definite grasp them back in uncover to resolve the situation, Lerner claimed his venture agency would be willing to promote its shares, nonetheless he said it may well first “want some information to evaluate what’s a fair value.”
Alas, Slavin, who says Definite has bumped up against Increase twice honest lately to assume latest deals, says he doesn’t look how that happens at this point. Too valuable damage has been completed. In addition to, he says, “Andy can discern revenue accelerate rates from a financial statement; he can figure out how ample our contracts are based on what he’s asking.”
And so it drags on for all parties.
Definite has raised $23.1 million in funding to date, including from Menlo Ventures and ff Venture Capital.
Increase has meanwhile raised $17 million, including from Coatue, Greycroft, and Tusk Venture Partners.
Slavin says that IA Capital owns much less than 5% of Definite. Lerner today declined to say how valuable of Increase that IA Capital owns.