Arjun Thyagarajan and Raghav Lal, co-founders of the fintech startup SolidThey are rejecting Series B investor FTV Capital, which filed a lawsuit against the company to recover its $61 million investment.
Solid offers businesses a way to offer their own financial products, for example banking, payments and cards. At the time private equity firm FTV invested in 2022, Solid was also offering cryptocurrency products.
FTV Capital’s lawsuit, filed in the Delaware Court of Chancery and made public on October 2, claims, among other things, that Thyagarajan and Lal “lied to FTV regarding the company’s revenue, customer churn and the business as a whole and further deceived FTV.
The private equity firm also claimed that both co-founders not only tried to hide what they were doing, but also sent a cease-and-desist letter to their chief financial officer, who FTV said was sharing information with the firm. The firm also asked for the resignation of Thyagarajan and Lal.
FTV Capital did not respond to repeated attempts to comment.
Thyagarajan and Lal refused to resign and instead filed a countersuit on October 9 against FTV and its partner Robert Anderson. In it, they describe FTV as “an aggressive private equity firm” and claim that “the moment their investment became unprofitable, (the company) resorted to trumped-up allegations of fraud, threats and strong-arm tactics to try to get your money back.”
In an interview with TechCrunch, Thyagarajan and Lal say they opened Solid’s books for FTV to perform due diligence, which the private equity firm did for about two months. They admit that FTV came back saying Solid had weaker revenue and higher turnover than they originally thought. However, the company used that to renegotiate the terms of the investment, to which the co-founders agreed.
According to Thyagarajan and Lal, the relationship began to break down in November 2022, when the “crypto winter” was in full effect. With “a significant portion” of early-stage fintechs as clients, Solid was affected, Thyagarajan said.
“From November 2022 to approximately April or May 2023, there was not only a slowdown in the market, but also a significant drop in our revenue,” he said. “We knew it was a downturn, but we would come back strong and with a focus on medium-sized businesses and large businesses where we saw a clear need for fintech infrastructure.”
At the time TechCrunch reported on Solid’s Series B in August 2022, Thyagarajan said the company’s revenue grew 10x year-over-year. Additionally, he doubled his number of clients to 100 and became profitable. And so far this year it has processed more than $2 billion in transactions. All that has changed.
Now, more than a year later, the number of transactions processed has increased (up to $5.79 billion year-to-date in 2023); However, its revenue decreased by 70% compared to the same period last year, mainly due to the loss of customers, Thyagarajan confirmed.
Regarding the finance chief who FTV claimed was providing information, Thyagarajan and Lal told TechCrunch that they let that person go due to “incompetence.”
Thyagarajan and Lal say FTV’s claims are baseless because FTV’s own diligence report “shows that its allegations are completely baseless and incorrect.” They also insist that “there has been no crime” on their part.
Still, there’s a lot going on here and a lot of uncertainty ahead, so we’ll have to see how this plays out.
