British startup Infogrid, known for helping the U.K.’s National Health Service during the pandemic, had ambitious plans for growth, including acquiring American rival Aquicore to expand to the U.S. However, a lawsuit filed by an Aquicore investor, K Street Capital, alleges that Infogrid misled investors about its financial performance and was unable to finance the $43 million takeover as promised. K Street Capital claims that Infogrid’s true revenues were only a third of what was promised, and the company was actually smaller than Aquicore.
The lawsuit, filed in March at the District Court for the District of Delaware, accuses Infogrid of providing false and misleading information about its performance to induce Aquicore into exclusive negotiations. K Street Capital claims that after the merger closed, it was offered illiquid equity in Infogrid worth a fraction of what was initially promised. Despite eventually raising a reported $90 million in Series B funding in April 2023, Infogrid had to lay off around 80 staff in January 2023.
Infogrid, under the leadership of CEO William Cowell de Gruchy, claimed significant growth in 2022 but declined to disclose revenue figures. However, K Street Capital alleges that Cowell de Gruchy later revealed to investors that the company had generated just $15.1 million in revenue in 2022, significantly lower than the $55.8 million claimed during takeover talks. Projections for 2023 revenue were also off track, with Cowell de Gruchy resigning as CEO of Infogrid in 2023 and stepping down as a director in February 2024.
K Street Capital further alleges that Aquicore CEO Cleve Adams pushed for the Infogrid deal despite knowing that Infogrid’s revenues were inflated. Adams reportedly wanted to receive millions of dollars of bonuses that were dependent on the deal’s closure. Despite the legal battle, Infogrid has yet to file a defense but has stated that it will contest the case. The lawsuit, which has not been previously reported, reveals the challenges faced by startups seeking rapid growth through acquisitions and the potential pitfalls of misrepresenting financial information.
Infogrid’s experience highlights the importance of accurate financial reporting in the startup world, particularly when seeking investment or acquisition opportunities. The case also sheds light on the complexities and risks involved in expanding operations to new markets, such as the U.S. The outcome of this lawsuit could have significant implications for both Infogrid and Aquicore, as well as for the broader startup ecosystem in terms of investor confidence, due diligence practices, and corporate governance standards. As the legal battle unfolds, the tech industry will be closely watching to see how it impacts future business practices and investor relations.
