Clarification from the Scaale Group
This is a clarification from the Scaale Group and its management regarding a report from one media house in India based on malicious and inaccurate accusations from a former investor member of Cross Border Angles (CBA), a part of the Scaale Group. Since the matter is subjudice, we’ll restrict our comments to our position on this matter.
We categorically deny all accusations made against us by this individual. CBA, like most managed angel networks around the world, is a managed angel group based on membership of entrepreneurs and investors. The key objective of the platform is to allow like-minded entrepreneurs and investors from around the world to discuss synergies that may or may not lead to an investment. As is the standard practice of most angel groups, CBA relies on the data points provided by the entrepreneurs and conducts limited preliminary due diligence before presenting the same to investors for an investment consideration. Angel investors are expected to be aware of the high risk associated with this asset class and are expected to conduct stringent due diligence, hence taking an informed investment decision. Of course, despite ensuring multiple layers of risk mitigation, the investments may still fail due to multiple reasons including mismanagement of the business, industry dynamics, heavy competition, limited execution abilities and many more.
The individual making the accusations, published in an Indian daily, had approached the CBA team in Mumbai in 2015 to avail membership and claimed to be an experienced angel investor. After being on-boarded as a member, he was showcased start-up investment opportunities as per preferences provided by him and he invested directly in two international companies simultaneously. One such company announced its failure by early 2016 and multiple investors from around the world, including the founder of the Scaale Group who had also invested, had to write-off the investment. This is the first and only start-up that has declared failure from the decorated and global portfolio CBA investors have built over the last few years. Almost all the investors in the start-up that failed unanimously agreed that one key reason for failure was due to mismanagement of the business by the start-up CEO. There have also been accusations on the start-up CEO of misrepresentation of business related facts and data points to existing and new investors. Most investors decided to report this situation to the regulators in the country where the start-up was registered in, except for this one individual from India who decided to extort money from CBA and the Scaale management because CBA is a seemingly soft target as it has operations in India and the cost of litigation in an international jurisdiction would have meant him spending much more than his actual angel investment in the start-up! The individual should have ideally filed a lawsuit against the start-up founders in the country of registration but we aren’t aware of any such action that the individual has undertaken. Without going into further details, it is very clear that the individual has a malicious intent of extortion and is targeting CBA, the Scaale Group and its management by threatening defamation of our brand and our management reputation.
This situation has much larger ramifications for the Indian start-up ecosystem, much beyond CBA. India has the third largest start-up ecosystem in the world. Based on a research publication by Your Story, Indian start-ups received about $4 Billion of risk capital across 1040 start-ups in 2016. Many new investors are jumping on the angel investment bandwagon in India hoping for exponentially high returns without understanding the nuances of the investment process or the associated risks and high probability of failure. In some cases, such new investors self-certify and claim to be accredited with the minimum required net worth but are really playing the market without having the requisite expertise to take sound investment decisions or the ability to ride high failure rates. Such investors are a big threat to entrepreneurs and angel groups, especially when they have to cope up with a failure of such investments. In the scenario of a failure, such investors, as in the case of what CBA is facing, threaten entrepreneurs and the associated angel groups with grave consequences by claiming access to high ranking officials in the police, the political establishment and judiciary. They try all possible arm twisting tactics; one such being using the media with inaccurate facts about the case and using the publication for defaming the groups involved. It is also surprising and extremely disheartening to see how credible media houses publish such falsified and distorted facts without proper verification or understanding the position of the other side! Such cases will not only harm the inflow of international investments into Indian start-ups due to fear of co-investing with a few potentially immature and malicious angel investors but also discourage international high quality start-ups to provide investment opportunities to legitimate Indian investors who can truly add value to such companies beyond capital. We encourage the Indian authorities to create strict norms for existing and aspirational angel investors to participate in this high-risk asset class. As more cases like these emerge, it may start eroding all the hard work the Honorable Prime Minister of India and his team have been doing to make India an investment destination and allow Indians to assimilate seamlessly both as entrepreneurs and investors in the global innovation ecosystem. CBA would like to caution all entrepreneurs and angel groups against dealing with such malicious individuals whose only intention is to find opportunities to extort money from unsuspecting stakeholders.
The Scaale Group is committed to follow the due legal process, cooperate completely with the investigating authorities and have absolute faith in the Indian judiciary. We become more confident each day as the case progresses and our position, entirely based on actual facts and not concoction of events, lies & malice, as is the case of the other party, unfolds in front of the authorities. To all those that have bestowed their faith in us and our teams across Scaale & CBA, we are grateful and humbled by your continued trust in us and are committed even stronger to our principles of honesty, integrity and dedication to our stakeholders. A lot of well-wishers have written to us and extending their support. We promise all our stakeholders that not only will we come out stronger but also do our bit to ensure such malicious individuals do not succeed in denting the ever-dynamic start-up ecosystem that we’re all an integral part of. Our belief on this matter is that “Wise men put their trust on pedigree and ability…not on circumstances!”.