A cybersecurity startup that won funding in 2021 from Arch Grants has filed a lawsuit against the St. Louis-based nonprofit startup backer after Arch Grants cut off payments to the startup, alleging it didn’t meet contractual requirements of its grant program for startups.
The startup, Kansas City-based Erkios Systems Inc., filed the suit in June in the circuit court of Jackson, Missouri, pursuing the remaining $30,000 of its $50,000 Arch Grants award, $25,000 in damages and attorneys fees. The lawsuit, which seeks a jury trial, includes two counts: One to render the contract between Arch Grants and Erkios as unenforceable, and an alternative count of breach of contract if the contract is deemed enforceable.
Erkios’ lawsuit was first reported by local startup news publication Bizblip.
In a motion to dismiss, Arch Grants said Erkios’ lawsuit is a "shameful attempt to harass Arch Grants with baseless claims” and that the startup “failed to comply with many of its contractual obligations,” including relocating to St. Louis and attending mandatory programming.
Erkios was one of more than 30 startups awarded $50,000 grants as part of Arch Grants’ annual startup competition last year. Founded in 2017 and focused on cybersecurity, Erkios’ hardware technology aims to provide safety against data leaks.
The Arch Grants program requires grant recipients to relocate to St. Louis for at least a year.
According to emails provided by Erkios CEO and co-founder Sean Null, the dispute began to surface in early April, when an Arch Grants official requested that Erkios update its LinkedIn profile to show that St. Louis was its headquarters, and not Kansas City. The company complied, and its LinkedIn page still says it is based in St. Louis.
On April 30, Null and fellow co-founder Philip Vanderstraeten received an email from Arch Grants Executive Director Gabe Angieri notifying them that the nonprofit was suspending grants payments because it received "no confirmation" that it had relocated to St. Louis, according the emails provided by Null. At that point, Arch Grants had given Erkios two $10,000 installments toward the $50,000 grant.
Null replied on May 2, saying in an email to Angieri that the suspension was based on "unfounded suspicions."
In an interview with St. Louis Inno this week, Null claims Erkios relocated to St. Louis and rented an office at the WeWork co-working facility inside One Metropolitan Square in downtown St. Louis. He said he had provided his lease agreement and address to former Arch Grants Executive Director Emily Lohse-Busch, who departed the organization in February and was replaced by Angieri.
After receiving notice of the payment suspension, Null on May 7 requested to speak with Arch Grants founder and chairman Jerry Schlichter to “start a dispute resolution process.” Replying to Null’s request, Angieri said he had discussed the dispute with Schlichter and the Arch Grants board of directors and that the group declined the invitation to meet. “We have made repeated requests of you to submit residency documentation (as clearly stipulated in the Comprehensive Grant Agreement you and Philip both signed) which you have refused to provide,” Angieri said in the email.
But in one of his emails to Arch Grants, Null argued that he did send the required documentation, and the fact that his company received two disbursements of the grant was evidence to the point. He then accused Arch Grants of disorganized record keeping, and said "this is no fault of Erkios Systems."
Reached this week, Angieri declined to comment specifically on the lawsuit, but said in a written statement that "Arch Grants is transforming the local economy by attracting and retaining extraordinary entrepreneurs through non-dilutive funding awards in exchange for a commitment to headquarter in St. Louis for at least one year. We are very clear on our program's residency requirements."
