South African Blockchain Startup Custos Media Sued For $4.45 Million Backtrack on Investment Agreement.
South African blockchain startup Custos Media Technologies has been sued for US$4.45 million in the Western Cape High Court by local VC firm HAVAÍC.
HAVAÍC claims that Custos retraced back on an investment agreement.
Custos is a tunkey protection technology service provider using blockchain. It offers digital piracy protection by embedding bitcoin bounties as watermarks within movies and videos.
The digital piracy protection service provider has raised about US$1.5 million in total in funding from some investors including: South Africa’s Technology Innovation Agency (TIA), Digital Currency Group and Innovus.
The company entered into discussions with HAVAÍC this year following plans to raise funds in a Series A round funding.
Following the report from Disrupt Africa, Lessem Lan the managing partner at HAVAÍC said that
“HAVAÍC signed a termsheet with Custos Media Technologies to conclude an investment by HAVAIC and its investors in Custos by way of a convertible loan. All the terms of the investment were agreed and confirmation given by Custos that the terms were approved by their board,”
“Subsequently, Custos reneged on this agreement and decided not to proceed with HAVAÍC’s investment. Despite several attempts to resolve this matter amicably, having consulted with our investors, and in order to protect their rights, HAVAÍC instituted legal proceedings against Custos for the damages suffered by HAVAÍC and its investors as a result of their repudiation of the agreement.”
In contrary to the story, G-J van Rooyen, chief executive officer (CEO) at Custos said that Custos did not sign any agreement with HAVAÍC and that it still remains within its rights to choose between accepting the offer or not to accept it.
Since the case was filled at the court, Custos has lost most of its Series A investors putting the company into jeopardy. This has forced them to lay off most of their workers to be able to take care of the company’s finance.
“Unfortunately, it’s dragged the company down quite badly, and we’re clinging to dear life to continue servicing our current clients,” van Rooyen said.
Meanwhile, It is left for the court to decide whether Custos backtracked on their agreement with HAVAÍC. Though its already a bad news on the reputation of the company towards its investors. However, both parties still have the court to clear their issues or settle them amicably.
Speaking further on the issue, Lessem Lan said;
“As a VC we have an important role to play in creating an environment where investors trust and believe in investing in VC as an asset class. VCs and their investors need to trust and believe in the entrepreneurs they invest in. A breakdown of this trust is not in the interest of managers looking to invest, grow and support the ecosystem,”
“While our decision to institute legal proceedings against Custos was not taken lightly, we see this repudiation of an agreement as very serious, as such, and after numerous attempts to settle this matter amicably, we proceeded with this action in order to ensure that the trust investors have in us and other managers is not eroded.”
HAVAÍC is an active investor in African tech startups. HAVAÍC also backed the likes of Tanda, AURA and Sortd in the last nine months alone. Recently, it claims Custos agreed in writing to take on ZAR3.5 million (US$186,000) investment from them as part of the funding.