More than 10 bids were submitted to the voluntary administrators of failed startup StrongRoom AI, hoping to snap up the value left in the business, despite it being mired in legal action over allegedly faked revenue figures and a VC investor wanting its $10 million back.
Final offers for what remains of StrongRoom are due next week alongside binding offers from administrator Todd Gammel from HLB Mann Judd, who will be working through the weekend to finalise potential deals.
In the meantime, more than 20 staff were let go this week, cutting the headcount in half, as the company’s assets remain frozen pending further Federal Court hearings.
Misha Saul, EVP’s Opportunities Fund boss
They won’t be paid unless Sydney VC EVP, which tipped in $10.4 million for a Series A earlier this year, ends its legal bid to get to the front of the queue for its cash, or the court agrees to unfreeze the funds to the administrator.
Gammel has been negotiating with all involved in a bid to get the staff paid as their top priority.
“We’re appreciative of everyone’s patience, particularly the staff, given the ride they’ve had over the last few weeks,” he said.
“There’s lots of complexity here. We’re trying to work through it with cooperation from all of the stakeholders.”
The seven-year-old medications management software looked a startup success story last month when it announced a $17 million Series A raise led by EVP. which invested $10.4m But less than a fortnight later, it all came crashing down, when EVP called in police and investor Misha Saul subsequently alleged that company’s revenue and debt figures were “wilful fraud”.
Within days, lender Paddington Street Finance called receivers to seize control of the banking assets, StrongRoom’s board placed the business in voluntary administration hours later. EVP then launched Federal Court legal action and successfully applied for an interim freeze on the company’s assets listing 13 defendants, including five directors – 2 of them cofounders – and the startup’s administrators and receivers.
Documents before Justice Roger Derrington in the Federal Court in Brisbane last week said that EVP was “profoundly misled” with the cofounders engaged in “false, misleading or deceptive conduct” and “deliberate fraud” to secure the investment from EVP’s $41 million Opportunities Fund.
EVP alleges the Melbourne startup claimed to be profitable, but was in fact losing $800,000 a month, and misled them on debt levels by more than $4 million.
Strongroom cofounders and directors Christopher Durre and Max Mito
An affidavit from Saul outlined a conversation he had with Mito about the company’s revenue and financials where the cofounder admitted to booking loans and other funds as customer revenue, and conceded the revenue figures “may be inaccurate”, but Mito told Saul he “didn’t intend to mislead you”.
Saul alleges he said to Mito, in the presence of fellow director and investor Rohan Gray, from Artesian Investments, that: “You faked the revenue and customer numbers across different product lines and just walked us through how much of each line is fake versus real. That is wilful fraud, isn’t it?”
He claims Mito replied “Yes”. Defendants have begun filing their own affidavits in response to the EVP allegations, including cofounder Christoper Durre and investor and director Peter Bruce-Clark, but those details have yet to be revealed
The matter is due to return to court next Thursday, April 17.
In the meantime, HLB Mann Judd partner Todd Gammel said they’re working through out process as fast as we can and are hopeful of clarity on the future of StrongRoom AI in the coming days
“We’re hopeful of a good outcome out of the sale process and continue to work with all of the stakeholders,” he said.
StrongRoom was founded in Melbourne 2017 by university colleagues Max Mito, Christopher Durre and Kieran Start. Its software streamlines medication tracking, dosage management, and patient adherence.
Start is not part of the legal action.
