Investors Seek Legal Recourse After Founder Trouble Kills Kloud Commerce
A year on from landing a USD 765 K pre-seed to build a multi-channel commerce solution for African businesses starting in Nigeria, Kloud Commerce has closed its doors following a protracted period of disputes that left the startup crippled for months.
A series of internal squabbles between the startup’s founder Dr Olumide “D.O” Olusanya and the executive team contributed to the demise, WeeTracker learned from interviews with 10 persons associated with the company, coupled with an impasse between the founder and investors who are now understood to be seeking the intervention of Nigeria’s anti-graft body against D.O over allegations of misleading investors and fraudulently obtaining money under false pretence.
In a petition drafted by the investors seen to be addressed to Nigeria’s Economic and Financial Crimes Commission, it is alleged that D.O misappropriated company funds, referencing an account audit that suggests the founder had diverted various sums of money invested into Kloud Commerce for personal ventures, put personal expenses on the company’s accounts, and burned investor money on expensive hotels and car rentals on dodgy trips outside Nigeria.
“He was and still is a massive disappointment,” said one of the investors who asked not to be identified at this time. “A former accountant left as a result of coming under pressure to do things that were unethical. I believe he mismanaged the funds that we invested and misled us as investors. It is very rare for a founder to spend almost USD 1 M without being able to produce even a minimum viable product.”
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D.O, a third-time founder with a storied career spanning over two decades who is among the pioneers of Nigeria’s digital payment system and also made early in-roads into retail e-commerce with the now-defunct Gloo.ng, launched what would be the latest venture Kloud Commerce (formerly PayPecker) last year.
A robust founding team that included co-founders David Umoh and Frank Atashili, as well as a few others wooed by D.O from notable companies such as Visa, d.Local, Andela, Flutterwave, and Socketworks, were good omens. Combined with the prospect of tapping a potentially lucrative opportunity in building offline-online commerce orchestration infrastructure and business process automation software for brands, retailers, restaurants, their suppliers and their customers, it was an attractive proposition for investors despite initial fears that the founder was not the easiest to work with, as one investor pointed out.
“D.O has great domain expertise and seemed to be on to something but I was never going to touch him with a ten-foot pole because he had a reputation for being super difficult,” said one investor who leads a prominent Lagos-based investment firm.
“But it looked like a strong play and many marquee investors – including prominent names in angel investing in Nigeria – were sold on its potential, as well as the profile and prowess of the team. “We thought we could overlook his character,” the same investor added.
Publicly available information shows that Kloud Commerce had raised USD 100 K from LoftyInc Capital Management and Ventures Platform by May 2021, and the startup would go on to receive a total of USD 765 K from 18 institutional and individual investors (including follow-on funding from some investors), as seen in documents obtained by WT. Vivazi, Flying Doctors, Niche Capital, KO Capital, and Afropreneur Angel Syndicate, among others, are notable investors. Idris Ayodeji Bello, Founding Partner at LoftyInc Capital, however, clarified that he wrote a personal angel cheque of USD 25 K through the Afroproneur Angel Syndicate and LoftyInc did not invest.
Some of the funders, including the one who spoke of some initial reservations, say they were encouraged to up their investments in Kloud Commerce by the periodic investor updates they received from D.O which painted a picture of impressive growth but turned out to be largely false.
In one such emailed update that went out in December 2021, D.O is observed to have told investors that one of the startup’s products, then known as PayPecker Omni, had gone live in 500 inventory locations across Nigeria and 300 locations across Ghana. “We presently have over 2,600 inventory locations signed up,” he had also written.
However, two persons who were executives at the company flatly called those claims lies while revealing that the startup was unable to deliver a basic product because of a series of questionable moves enforced by the founder.
“The progress he shared was deceptive, probably all lies, giving us make-believes just to unlock more money from investors,” said one of the lead investors.
D.O did not respond to multiple requests for comments on specific questions around his alleged mismanagement of company funds and the circumstances that saw Kloud Commerce shutter under a cloud. He did however suggest to WT in a couple of WhatsApp messages that the allegations are “wild and misleading.”
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Nevertheless, former executives and employees at Kloud Commerce paint a picture of a founder in a hurry who was painting a rosy picture to investors while continuously shattering the motivation of the team he had assembled. Insiders say D.O’s abrasive manner, aggressive cussing and swearing, and constant yelling and condescension was a jarring daily routine, combined with a tendency to be erratic, duplicitous, and cantankerous.
It was common for D.O to go into a tirade and disrespect co-founders openly, and he made a point to emphasise hierarchical superiority by reiterating from time to time that he is the “Founder” while the others are “Co-Founders”, according to one source. Another source, a software engineer who had joined the startup while D.O was out of town, said he was willing to quit the company after meeting D.O for the first time and experiencing shock.
In an interview with WT, three former executives at the now-shuttered Kloud Commerce shared that the veteran founder seemed to be in a rush.
D.O was often setting unrealistic goals, according to them, including a target of launching in 24 African countries and hitting 150 M in gross merchandise value by the end of 2022, as well as championing a target he called “BINTU” or “B in 2” – coined from “billion in 2 years” – which was hammered into company-speak and communicated in investor updates. This reflected the goal of pushing Kloud Commerce to a billion-dollar valuation in two years, which investors say they found to be disturbing and bizarre.
“We the investors expressed concerns and warned that this was a red flag as it demonstrated a lack of focus on the real business,” said Adedayo Amzat, Group Managing Director of Zedcrest Capital Group, which had invested in the startup.
The inexplicable, chaotic rush led to a series of questionable, misaligned decisions enforced by D.O despite the protests of co-founders and executives, one source told WT. “He would have his constant outbursts, basically bully everyone from employees to co-founders and just never listen to any second opinion. It was his way or the highway,” the former employee said.
An office space quoted at NGN 100 M (~USD 230 K) that was sanctioned by D.O was an early flashpoint, as was the decision to greenlight a hiring spree that grew the team to more than 30 employees (including a sales team that did little more than occasional prospecting) even though the startup hadn’t figured a direction.
And we essentially have our early team in place now, except the digital marketing role atm.
Yesterday’s Monthly Culture Refresh👇🏻 pic.twitter.com/MIOV8T88Jt
— D.O (@docolumide) July 2, 2021
With a further half a dozen executives drawing substantial salaries, payroll was quite bloated from the start, and insiders say D.O routinely batted away concerns of out-of-control spending. In an update shared in September 2021, the founder declared Kloud Commerce’s burn rate to be USD 50 K a month.
“You can’t run a pre-seed startup like you are running a Flutterwave,” a former manager at Kloud Commerce shared on the condition of anonymity.
“He had built a business before having an actual product. When someone talks about cutting spending or the state of runway, D.O would basically turn it into a fight, barking that he is the CEO and money is his business and no one else’s. He would tell us to focus on building the product which itself was difficult because he kept getting in the way.”
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Two former executives said the founder often disrupted the build by destabilising the team with continuously altered briefs and sudden requests for additional complex features that deviated from plans and timelines agreed upon prior.
“D.O is brilliant and energetic, and I joined because I believed in the idea, but it didn’t help that he was very erratic and unreasonable, and he didn’t care for actionable details – just high-sounding language and power quotes,” shared one former executive who says he rues quitting his comfortable job and taking a significant pay cut to join the startup, after D.O relentlessly sold what seemed like a compelling proposition that was later found to be laden with half-truths.
“He would make demand after demand with impossible timelines and pursue it with aggression saying it came from investors, that startups are messy and we must find a way. But we would find out much later after things fell apart that investors had nothing to do with it. He was able to have his way at all times because he had made sure he had absolute control of finances and investor relations,” the source added.
What was already a difficult situation deteriorated further in the middle of last year when, according to two software engineers, D.O forced most of the company’s engineers to a new project without involving the CTO, Umoh, who had held firm that they stick to laid-out plans of finishing work on the flagship business-facing product, GoDigital, that had interested a big, cornerstone retail client to the extent that pre-contract agreements had been worked out. This would ultimately fall through as D.O forced the deprioritisation of the product in favour of a new project, according to former executives.
Engineers who spoke to WT say that working on the new project – a B2B2C product known as Omni which was being developed to enable retailers to deliver an omnichannel/omni-commerce experience to their own customers – put the technical team which, until then had been largely shielded from the rancour upstairs, directly under pressure from D.O.
This sparked a wave of resignations, one developer claims the team shrunk to just four engineers from 14 over a 3-month period. An executive said the attrition rate for Kloud Commerce’s engineering team was consistently over 60 percent.
Sources say the situation worsened when in August 2021, the CEO declared that Kloud Commerce would be showcasing the new product – which was quite complex and yet to see a single line of code – at the Food & Beverage West Africa event, which was less than three weeks away at the time. This was part of what D.O christened “Events-based DistroStrategy”, as seen in investor updates and a deck that went out last December seeking to raise USD 4 M seed for Kloud Commerce at a USD 20 M valuation, albeit with the product apparently still pending.
“It all makes sense now that he was optimising for a huge valuation and a quick cashout but we didn’t see it at the time,” one executive said. “The rush, the events, the premature expansion – it was to signal to investors and inflate valuation in the midst of the VC boom, so as to make a killing.”
According to one manager who would quit a few months later, all the protests of co-founders and executives to sit out the event fell on deaf ears as D.O overruled everyone. And engineers would bear the brunt of the frantic rush, overworked as they held on to assurances of bonuses and rewards that later went unfulfilled.
“Ten engineers were camped in a hotel working round the clock for a week, living on take-out and energy drinks,” one engineer told WT. “One guy fainted at one point, and I fell sick afterwards with test results showing my blood pressure was high.”
“Those guys did in less than 3 weeks what would take most organisations six months to a year to pull off and it took its toll, affecting their health and personal lives,” one manager said. “When they complained, D.O dismissed them saying they are not kids, that they can’t expect him to teach them how to manage their time.”
Two executives who worked at Kloud Commerce noted that the startup got mostly nothing from the event after paying thousands of dollars to participate, and two other costly events would follow on D.O’s command: Beauty West Africa in Lagos last November and Accra Fashion Week in December which cost the startup a significant sum as headline sponsor.
We are using the occasion of our 1-Year Anniversary to kickoff our…
“Africa Expansion Plan: 24-ACD-22.”
Launchpad: @PayPeckerHQ Accra Fashion Week
Dateline: 9th Dec 2021
1/24 pic.twitter.com/8idS6ZwerL
— KloudCommerce (@KloudCommerceHQ) December 1, 2021
“That Ghana dabble was particularly bizarre because we hadn’t even gotten on our feet in Nigeria and despite our protests, he went there and set up a team that was drawing USD 5 K in salaries every month without doing anything of note,” one executive claimed. “He stayed in Ghana for nearly three months living out of a hotel that cost USD 100.00 a night, which he put on the company’s tab.”
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Money problems would eventually surface at Kloud Commerce as salaries became delayed. Investors say they were taken aback when D.O wrote them just before Christmas declaring the startup had less than a month of runway and seeking a USD 100 K bridge round, having given no prior indication of the impending crunch.
“It’s crazy that he knew the company was short on funds, yet he kept promising huge bonuses that were never going to be fulfilled and demanding new hires, some of whom never got paid as he had swiftly demanded their termination on the grounds of economic downturn,” one source remarked.
Having been kept in the dark, the dire picture would become clear to investors between April and May this year when a board was constituted to address the issues.
“It was a shitshow. We found that the relationship between the co-founders had completely deteriorated due to D.O’s attitude, staff morale was on the floor, salaries and benefits were owed, money had been wasted, and the company had more than one hundred million naira in liabilities,” one of the investors told WT.
In their petition, investors referenced supporting documents showing D.O had drawn several millions of naira in salary payments to himself in advance, even while employees at Kloud Commerce had gone unpaid or had their salaries delayed. Two executives claim D.O had led them to believe he had gone unpaid for months, causing them to forfeit some salaries to sort of match his sacrifice.
Audits of Kloud Commerce accounts, according to the petition, also show D.O drawing NGN 4 M (~USD 9 K) as entertainment allowance between August and September 2021, the investors claim, as well as NGN 22 M (~USD 50 K) expended in questionable publicity events and the trip to Ghana.
They also allege that D.O had between June and August 2021 diverted NGN 25 M (~USD 57 K) meant for Kloud Commerce to Paymente Ltd., a company he controls, while another USD 15 K from an angel investor ended up in his pockets and never reached the company’s accounts.
Former executives further claim that taxes and pension deducted from employee salaries never got remitted, and that D.O routinely put personal expenses on the company’s accounts. As earlier mentioned, D.O did not respond to WT’s request for comments on these allegations.
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Nevertheless, to salvage the situation, investors were willing to put in a further USD 250 K on the condition of restructuring the company such that D.O would leave the CEO role and the co-founders would take over.
One investor said a recapitalisation exercise was also done to reallocate shares with D.O said to have agreed to the new terms, only to drag his feet and pull out at the last moment before reinstating himself as CEO and eventually making himself chairman of the board after frustrating other board members to the point of resignation.
“An investor had committed USD 50 K with which we kept the lights on and more was on the way, but D.O essentially killed the deal by being uncooperative,” said one executive. “There was a way to make sure all the effort and sweat of people who had given a lot didn’t go to waste, but the ego of one founder was apparently more important.”
Zedcrest’s Amzat told WT that they got a term sheet for USD 200 K from Zrosk, after the USD 50 K that was provided to keep the company afloat, but “the founder thoroughly sabotaged the deal.”
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In an email dated September 2 seen by WT, D.O addressed Kloud Commerce employees (who by then had gone several months without pay) explaining that a “demon investor” had attempted to stage a hostile takeover using abusive methods and threatening legal action on “cooked-up allegations of financial impropriety.” He also added that he was stressed to the point of suffering a health emergency.
But disgruntled employees lashed out, describing his explanation as deceptive and manipulative in their responses, and the embattled founder later tried to enforce mass termination of employees who did not attend a physical meeting he called at the company’s offices in Lekki in the middle of last month.
“People invested in him and in the company in good faith, and if he had delivered even close to what he had promised, there wouldn’t be any issues today,” one of the lead investors volunteered while asking to not be identified.
“When investors lost confidence in him, there was an agreement, which he signed, that he would step down as CEO, but still keep his vested shares. After signing he reneged on that agreement. There was no hostile takeover.”
Kloud Commerce, which had been in limbo since May due to the intractable disagreements and unending back-and-forths, eventually ground to a halt. At a virtual all-hands meeting that took place around noon on Friday, September 30, D.O addressed the few employees who showed up, for what would be the last time, informing them that the company would permanently cease operations effective immediately.
D.O had also requested that all company assets (IDs, laptops, etc.) in their possession be returned by October 15 as he aimed to settle outstanding salaries and benefits from the proceeds of liquidation. However, employees who spoke to WT maintain a defiant stance, holding on to the properties as leverage as they are not convinced he can be trusted.
“There’s nothing to suggest he will do right by the people,” said a former engineer at Kloud Commerce who has now landed a remote job at a foreign tech company.
“It does feel like a needlessly very expensive class on how not to run a business. I think it’s easier to accept it when a startup fails because of a flawed idea or a poor team. What makes this especially painful for me is that we had those things going for us and went at it with genuine belief, only to be deliberately sabotaged by the person in charge,” he added.
UPDATE: An update was made to this article at 12:54 WAT on 20/10/2020 to clarify that LoftyInc Capital did not invest in Kloud Commerce.
