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The Big One: VC firm sues startup, alleges securities fraud
It's not unusual for a company to eventually find itself in litigation against a competitor, client, employee or business partner. Less common, however, is when a startup is sued by its own investor.
There have been high profile examples. Disgraced blood testing startup Theranos was sued by its investors. Venture firms are reportedly considering doing the same with crypto firm FTX. Chicago startup Outcome Health was sued by its investors, including Alphabet Inc. and Goldman Sachs, for fraud in 2017.
One of the latest cases of a venture capital firm alleging wrongdoing against one of its portfolio companies is Cincinnati VC Refinery Ventures, which filed a complaint in late November against laundry-delivery startup Rumby, accusing its founder and former CEO Ben Cantey of securities fraud. Refinery said Cantey made multiple “materially false and misleading statements and omissions" in connection with Refinery’s $3 million investment into the company in August.
Among its many allegations, according to Cincy Inno, the suit claims Cantey paid himself large commissions; fabricated financial data to investors; and failed to disclose similar pending litigation indicating past potential fraud.
The lawsuit also claims Cantey wired $1 million, then another $695,000 from Rumby to a trust account which he used to buy a home.
The filing claims another $1 million in transfers were made in August from Rumby’s account – nearly $200,000 toward a multi-year, multimillion-dollar Cincinnati Bengals sponsorship that included a 16-seat suite; $365,000 in two separate transfers to Cantey himself; and $18,000 on a purchase from luxury jewelry brand Cartier.
Cantey did not respond to messages from Cincy Inno seeking comment.
Read the full story in Cincy Inno here.
Startups to Watch
- Unless Collective, a Portland, Oregon-bases plant-based streetwear brand founded by a former Adidas exec, announced what it’s calling the world’s first fully biodegradable shoe line. Its founder, Eric Liedtke, became a senior vice president of sport brand marketing for Adidas in 2006 and eventually brand president in 2014.
- Seattle-based biotech Cajal Neuroscience recently launched out of stealth with a $96 million Series A round. Cajal is focused on neurodegenerative diseases like Alzheimer's and Parkinson's, and the biotech aims to better understand the rate of progression around these diseases and develop treatments.
- Netail, a spinout company from Google Brain co-founder Andrew Ng's Landing AI group, is expanding to Pittsburgh and will establish the city as its headquarters following the raise of a $5 million seed round. The startup specializes in tracking consumer products across the internet using AI to then allow its retail customers to better optimize their prices against competitors in real time.
- Speaking of consumer startups, Philadelphia startup Invent Analytics uses artificial intelligence to help retailers plan inventory and pricing. It announced it has closed a $7.5 million Series A fundraising round. The startup helps retailers forecast, set prices and manage their supply chain with the goals of optimizing profit.
- R.Cup, a Minneapolis startup that offers a reusable cup system for live event venues, has raised over $3.6 million. R.Cup has worked with over 100 venues across 75 cities, touring with artists like Bon Jovi and the Rolling Stones.
- Saltbox, an Atlanta-based co-working and warehousing startup, raised a $35 million Series B round. Saltbox provides small and midsized businesses with warehouse space to store and ship products.
- Fount, a Los Angeles startup, has built a product to help with jet lag. It created a kit with supplements to manage flight-induced inflammation, circadian shifts and sleep deprivation. Those supplements include Vitamin C, highly concentrated omega-3 fatty acids and melatonin. It raised $1.75 million in a seed round led by Founders Fund, Champion Hill Ventures and Ault Krug Ventures.
- Chicago-based medical video game studio Level Ex will soon be going up in a future SpaceX mission. Level Ex creates interactive gaming solutions for physicians, and its gaming platform will be used to train astronauts in space to do ultrasounds in zero gravity.
Startup gift guide
In American Inno's inaugural national startup gift guide, we asked our reporters from across the U.S. to identify some unique offerings from promising upstarts. In this list you'll find an Oregon jacket startup that's good enough for astronauts and a countertop cocktail maker in Chicago that whips up restaurant-quality drinks at home.
Startup says no to Shark Tank
Despite Cary, North Carolina, startup The Woobles making headlines for scoring a handshake deal from investors Mark Cuban and Lori Greiner on “Shark Tank,” the investment never happened, according to Triangle Inno. Despite agreeing to a deal for $450,000 in exchange for a 6% equity stake in the company, which makes crochet training kits, the deal failed to close. Cuban told Triangle Inno that "it was “their choice.”
“We wanted to close the deal,” Cuban said. “I think once they aired, they got what they wanted from Shark Tank.”
Weird and wired
Loveland, Colorado-based startup HummViewer has created a wearable hummingbird feeder. Its product, a plastic shield with three hummingbird feeder tubes on the outside, is worn over a user's face to offer a close-up view of hummingbirds. It appeared on a recent episode of Shark Tank, landing a deal with Daniel Lubetzky, the billionaire founder of KIND Snacks.