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Amid layoffs and allegations of fraud, the FBI has arrested NS8’s CEO following its $100+ million summer financing

The tagline from today’s announcement from the United States Attorney’s office for the Southern District of New York says it all: “Adam Rogas Allegedly Raised $123 Million from Investors Using Financial Statements that Showed Tens of Millions of Dollars of Revenue and Assets that Did Not Exist”.

Rogas, the co-founder and former chief executive and chief financial officer and board member of the Las Vegas-based fraud prevention company, NS8, was arrested by the Federal Bureau of Investigation and charged in Manhattan court with securities fraud, fraud in the offer of sale of securities, and wire fraud earlier today.

Last week, the company laid off hundreds of staff as reports of an investigation by the Securities and Exchange Commission surfaced, according to a report in Forbes.

“This is a rapidly evolving situation,” Lightspeed Ventures told Forbes in a statement. “We are shocked by the news and have taken steps to inform our LPs. It would be premature to comment further at this time.” Lightspeed Ventures helped lead NS8’s $123 million Series A this June. Other investors include Edison Partners, Lytical Ventures, Sorenson Ventures, Arbor Ventures, Hillcrest Venture Partners, Blu Venture Investors, and Bloomberg Beta, per Crunchbase data.

The allegations are, indeed, shocking.

“As alleged, Adam Rogas was the proverbial fox guarding the henhouse,” said Audrey Strauss, the acting U.S. Attorney for the Southern District of New York, in a statement. “While raising over $100 million from investors for his fraud prevention company, Rogas himself allegedly was engaging in a brazen fraud.  Today’s arrest of Rogas ensures that he will be held accountable for his alleged scheme.”

Allegedly, while Rogas was in control of the bank accounts and spreadsheets that detailed its transactions with customers, he cooked the books to show millions in transactions that did not exist.

From January 2019 through February 2020, the FBI alleges that somewhere between 40 percent and 95 percent of the purported total assets on NS8’s balance sheet were fictitious, according to the statement. Over the same period bank Rogas altered bank statements to reflect $40 million in revenue that simply were not there, according to the Justice Department’s allegations.

On the back of that fake financial data, NS8 was able to raise over $120 million from some top tier investment firms including Lightspeed Venture Partners and AXA Ventures. 

Rogas managed to hoodwink not just the investment firms, but the auditors who were conducting due diligence on their behalf. After the round was completed, NS8 did a secondary offering which let Rogas cash out of $17.5 million through personal sales and through a company he controlled, according to the statement from the DOJ.

“It seems ironic that the co-founder of a company designed to prevent online fraud would engage in fraudulent activity himself, but today that’s exactly what we allege Adam Rogas did. Rogas allegedly raised millions of dollars from investors based on fictitious financial affirmations, and in the end, walked away with nearly $17.5 million worth of that money,” said FBI Assistant Director William F. Sweeney Jr. “Within our complex financial crimes branch, securities fraud cases remain among our top priorities. We’ve seen far too many examples of unscrupulous actors engaging in this type of criminal activity, and we continue to work diligently to weed out this behavior whenever and wherever we find it.”

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Lightspeed raises $275 million fund for India

Lightspeed India Partners on Tuesday announced it has closed $275 million from LPs for its third fund as the top American venture firm looks to ramp up its investments in the world’s second-largest internet market.

The new fund, its biggest for India, will enable Lightspeed India Partners to make early stage bets on more than two dozen startups in the region, said Hemant Mohapatra, a partner at the firm, in an interview with TechCrunch.

The announcement comes as the firm, which began investing in India in 2007, has made two high-profile partial exits in the past year from budget-lodging startup Oyo and edtech giant Byju’s that together delivered cash returns of more than $900 million.

Some of its other major bets including backing business-to-business marketplace Udaan, which was valued at more than $2.75 billion last year, local social media platform ShareChat, which is in advanced stages of discussions to raise capital at more than $1 billion valuation, and SaaS startups DarwinBox, Yellow Messenger, and OkCredit.

The firm, which has six partners in the region, closed its first dedicated fund for India, of $135 million, in 2015. In 2018, it closed its second fund for the region, which was $175 million in size. But the venture firm has invested more than $750 million to date.

The Indian arm, which typically invests at early stages of a startup, continues to work with its global mothership for writing bigger checks to support some portfolio startups at later phases. (More than 80% of its investments have been committed to firms at Seed or Series A stages in India.)

“That’s one of the strongest points of differentiation we have. There are not many venture firms that have such a global presence. Our synergy with the global fund will continue,” said Mohapatra. (Lightspeed also has a big presence in China. Last year, its China arm announced a $560 million fund.)

Lightspeed partners in India. From left: Bejul Somaia, Akshay Bhushan, Harsha Kumar, Dev Khare, Vaibhav Agrawal, and Hemant Mohapatra. (Photo credit: Lightspeed)

Lightspeed, which earlier this year closed a $4 billion fund globally, is one of the handful of American venture firms that aggressively scouts for deals in India. Sequoia, its global peer, announced two venture funds, of $1.35 billion in size, last month for India and Southeast Asia. 11 of its early-stage bets have grown to become unicorns in the last 14 years in this region.

Mohapatra said the Indian startup ecosystem has matured in recent years, demonstrating high-scale growth and delivering big outcomes. It’s also seeing more exits than ever before. Earlier this month, Byju’s acquired WhiteHat Jr., an 18-month-old startup that teaches coding to children, for $300 million in an all-cash deal.

Indian startups raised more than $14.5 billion last year — a record for the local community. The coronavirus has decelerated the funding spree in India, like in any other market.

Mohapatra said a fraction of the firm’s portfolio startups has been disrupted by the virus, but noted that most startups are marching ahead unfazed and some have accelerated in recent months.

“Lightspeed believes this is when the best entrepreneurs and companies of the future will emerge. Strong founders are utilizing the tailwinds of India’s digital ecosystem growth to build out a new future and Lightspeed is strongly committed to backing these founders,” the firm said in a statement.

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India’s Khatabook raises $60 million to help merchants digitize bookkeeping and accept payments online

Khatabook, a startup that is helping small businesses in India record financial transactions digitally and accept payments online with an app, has raised $60 million in a new financing round as it looks to gain more ground in the world’s second most populous nation.

The new financing round, Series B, was led by Facebook co-founder Eduardo Saverin’s B Capital. A range of other new and existing investors, including Sequoia India, Partners of DST Global, Tencent, GGV Capital, RTP Global, Hummingbird Ventures, Falcon Edge Capital, Rocketship.vc and Unilever Ventures, also participated in the round, as did Facebook’s Kevin Weil, Calm’s Alexander Will, CRED’s Kunal Shah and Snapdeal co-founders Kunal Bahl and Rohit Bansal.

The one-and-a-half-year-old startup, which closed its Series A financing round in October last year and has raised $87 million to date, is now valued between $275 million to $300 million, a person familiar with the matter told TechCrunch.

Hundreds of millions of Indians came online in the last decade, but most merchants — think of neighborhood stores — are still offline in the country. They continue to rely on long notebooks to keep a log of their financial transactions. The process is also time-consuming and prone to errors, which could result in substantial losses.

Khatabook, as well as a handful of young and established players in the country, is attempting to change that by using apps to allow merchants to digitize their bookkeeping and also accept payments.

Today more than 8 million merchants from over 700 districts use Khatabook, its co-founder and chief executive Ravish Naresh told TechCrunch in an interview.

“We spent most of last year growing our user base,” said Naresh. And that bet has worked for Khatabook, which today competes with Lightspeed -backed OkCredit, Ribbit Capital-backed BharatPe, Walmart’s PhonePe and Paytm, all of which have raised more money.

The Khatabook team poses for a picture (Khatabook)

According to mobile insight firm AppAnnie, Khatabook had more than 910,000 daily active users as of earlier this month, ahead of Paytm’s merchant app, which is used each day by about 520,000 users, OkCredit with 352,000 users, PhonePe with 231,000 users and BharatPe, with some 120,000 users.

All of these firms have seen a decline in their daily active users base in recent months as India enforced a stay-at-home order for all its citizens and shut most stores and public places. But most of the aforementioned firms have only seen about 10-20% decline in their usage, according to AppAnnie.

Because most of Khatabook’s merchants stay in smaller cities and towns that are away from large cities and operate in grocery stores or work in agritech — areas that are exempted from New Delhi’s stay-at-home orders, they have been less impacted by the coronavirus outbreak, said Naresh.

Naresh declined to comment on AppAnnie’s data, but said merchants on the platform were adding $200 million worth of transactions on the Khatabook app each day.

In a statement, Kabir Narang, a general partner at B Capital who also co-heads the firm’s Asia business, said, “we expect the number of digitally sophisticated MSMEs to double over the next three to five years. Small and medium-sized businesses will drive the Indian economy in the era of COVID-19 and they need digital tools to make their businesses efficient and to grow.”

Khatabook will deploy the new capital to expand the size of its technology team as it looks to build more products. One such product could be online lending for these merchants, Naresh said, with some others exploring to solve other challenges these small businesses face.

Amit Jain, former head of Uber in India and now a partner at Sequoia Capital, said more than 50% of these small businesses are yet to get online. According to government data, there are more than 60 million small and micro-sized businesses in India.

India’s payments market could reach $1 trillion by 2023, according to a report by Credit Suisse .

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Venture Highway announces $78.6M second fund to invest in early-stage startups in India

Venture Highway, a VC firm in India founded by former Google executive Samir Sood, said on Thursday it has raised $78.6 million for its second fund as it looks to double down on investing in early-stage startups.

The firm, founded in 2015, has invested in more than two dozen startups to date, including social network ShareChat, which last year raised $100 million in a financing round led by Twitter; social commerce Meesho, which has since grown to be backed by Facebook and Prosus Ventures; and Lightspeed-backed OkCredit, which provides a bookkeeping app for small merchants.

Moving forward, Venture Highway aims to lead pre-seed and seed financing rounds and cut checks between $1 million to $1.5 million on each investment (up from its earlier investment range of $100,000 to $1 million), said Sood in an interview with TechCrunch.

Venture Highway counts Neeraj Arora, former business head of WhatsApp who played an instrumental role in selling the messaging app to Facebook, as a founding “anchor of LPs” and advisor. Arora and Sood worked together at Google more than a decade ago and helped the Silicon Valley giant explore merger and acquisition deals in Asia and other regions.

Samir Sood, the founder of Venture Highway

The VC firm said it has already made a number of investments through its second fund. Some of those deals include investments in OkCredit, mobile esports platform MPL, Gurgaon-based supply chain SaaS platform O4S, social commerce startup WMall, online rental platform CityFurnish, community platform MyScoot and online gasoline delivery platform MyPetrolPump.

As apparent from the aforementioned names, Venture Highway focuses on investing in startups that are using technology to address problems that have not been previously tackled.

Last year Venture Highway also participated in a funding round of Marsplay, a New Delhi-based startup that operates a social app where influencers showcase beauty and apparel content to sell to consumers.

“It’s very rare to have investors who keep their calm, get into an entrepreneurial mindset and help founders achieve their dreams. Throughout the journey, Venture Highway has been extremely helpful, emotionally available (super important to founders) and very resourceful,” said Misbah Ashraf, 26-year-old co-founder and chief executive of Marsplay, in an interview with TechCrunch.

There is no “theme” or category that Venture Highway is particularly interested in, said Sood. “As long as there is a tech layer; and the startup is doing something where we or our network of LPs, advisors and investors can add value, we are open to discussions,” he said.

This is the first time Venture Highway has raised money from LPs. The firm’s first fund was bankrolled by Sood and Arora.

Dozens of local and international VC funds are today active in India, where startups raised a record $14.5 billion last year. But a significant number of them focus on late-stage deals.

Source: TechCrunch