SA venture capitalists shocked over Havaic’s bid to sue Custostech for $4.5m

SA venture capitalists have expressed shock and concern over local venture capital (VC) company HAVAIC‘s decision to sue Stellenbosch based startup Custostech for $4.45-million.

The VC alleges that the startup reneged on a R3.5-million investment agreement. This, while the startup revealed to Ventureburn last week that it had been forced to lay off most of its staff (see this story).

The latest to weigh in on the saga is venture capitalist and former FNB head Michael Jordaan, who Ventureburn contacted asking for comment.

“Don’t do business with people you don’t trust. Don’t do business with people who see legal agreements as an opportunity to litigate rather than as a means of ensuring consensus,” said Jordaan.

This, while Southern African Venture Capital and Private Equity Association (Savca) CEO Tania van Lill expressed concern over the matter.

“We don’t feel HAVAIC’s approach was in the best interest of the ecosystem, especially in South Africa where the VC sector is still nascent and we’re all trying to work towards growing this sector (the number of VC firms and investors investing into VCs) and grow companies (increase the number of entrepreneurs benefiting from VC funding and expertise),” she said.

Venture capitalists have expressed shock and concern over SA VC HAVAIC’s decision to sue startup Custostech for $4.45m

She said Savca would be publishing a statement about the HAVAIC and Custostech matter “soon” (since this story came out a statement has been released, see it here — Ed).

Earlier, venture capitalist and Knife Capital partner Keet van Zyl commented in a tweet on 4 April that: “Philosophically enforcing a VC deal where you’re not wanted (however things got there) is no way to start a relationship. Superior returns come from great partnerships built on trust. Very unfortunate for VC/ Startup ecosystem in SA. @CustosTech had legs.”

Fellow Cape Town venture capitalist, Hlayisani Capital investment principle Brett Commaille, agreed.

In a responding tweet Commaille says: “You can’t drag someone to the altar, and you shouldn’t sue them for your imaginary children’s future income. Was very sad to see this approach and demise of a cool SA tech company @CustosTech so unnecessarily.”

He then adds in another tweet: “Also, let’s be clear, suing a startup, for more that 15 times what you were going to invest – how exactly did you think that was going to end? Of course it will destroy them, where will this money come from. Huge own goal.”

Angel investor and Uber’s director of business development, Justin Spratt also weighed in, saying: “Don’t know the full story – even after reading that – but I know two things: 1. Gert & Fred (Custostech founders Gert-Jan van Rooyen and Fred Lutz — Ed) are stand-up people. Known them over 10 years since IS Labs days. 2. Suing a startup as a first step is never smart. Don’t understand why mediation wasn’t first? Or did I miss something?”

Entrepreneurs speak out

A number of tech founders and entrepreneurs also weighed in on Twitter.

Commented Sensor Networks founder Mark Allewell: “Still amazed that these guys actually sat at a table and decided to sue a startup for R100-million to teach them a lesson for not taking their deal. Clearly no understanding of being an investor.”

Adds Catherine Lückhoff, co-founder of “Let it be a lesson to anyone considering that VC in the future”.

Commented ThriftZA founder Thabiso Mongane: “I have said this before and I will say it again, the VC landscape in SA does very little to transcend SA startup culture. All you have is a bunch of vultures with money who do not give a hoot about impact and genuinely changing SA and the world through startup solutions.”

Tweeted Cape Town entrepreneur Nic Haralambous: “Suing a startup for lost future value of equity because you lost out on a deal is not a smart move for a venture capital firm. Do not raise money from investors who sue startups. Do not trust investors who sue startups. This is shocking.”

Read more: SA’s Custostech lays off staff after VC sues startup for $4.5m over failed investment bid

Featured image: Custostech team (Medium)



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