L.A. Startup Kandela Sues Seattle’s Porch for $11.5M, Alleging Fraud One Year After Acquisition

Taylor Soper, GeekWire
Taylor Soper is GeekWire's managing editor, responsible for coordinating the newsroom, planning coverage, and editing stories. A native of Portland, Ore., and graduate of the University of Washington, he was previously a GeekWire staff reporter, covering beats including startups and sports technology. Follow him @taylor_soper and email taylor@geekwire.com.
L.A. Startup Kandela Sues Seattle’s Porch for $11.5M, Alleging Fraud One Year After Acquisition

Home improvement startup Porch acquired moving concierge startup Kandela in April 2019, describing it as a strong complement to its existing slate of services. But a little more than a year later, Kandela is suing its new Seattle-based owner, alleging that Porch purposefully sought to reduce the long-term payout under the deal.


Kandela filed the lawsuit in Los Angeles County Superior Court on Monday, accusing Porch of fraud and breach of contract. The company alleges that Porch and its CEO Matt Ehrlichman "have engaged in a stunning and systematic pattern of fraud designed to prevent Kandela from achieving any earnout" for hitting certain milestones, to according to the complaint.

The Los Angeles-based startup is seeking $11.5 million plus punitive damages.

Here's a statement from Ehrlichman, shared with GeekWire via email:

"Porch acquired Kandela and the acquisition included an earnout. Unfortunately, when selling its business, Kandela oversold their ability to hit its own objectives. We strongly dispute all claims related to this lawsuit and we will defend ourselves vigorously. Porch as a company has grown rapidly and we will continue to work in partnership with utilities and other partners across the country to help make the homeownership experience better and we are excited about what is ahead."

Porch helps match home service professionals with homeowners for improvement projects. Founded in 2012, Kandela aimed to simplify the moving experience by setting up installation of home services like TV, internet and security systems. It employed 100 people when Porch acquired the company.

"Kandela's mission closely aligns with Porch's — to make tasks related to the home easier, faster, and simpler," Ehrlichman said in a statement after the acquisition in April 2019. "Kandela's suite of services are a natural extension of the work Porch is already undertaking."

The all-stock acquisition was valued at approximately $11.5 million, according to the complaint, which notes that Kandela would "earnout" more than $6 million by achieving certain revenue and profitability milestones.

But Kandela alleges that Porch was "hell-bent on ensuring that Kandela did not achieve any earnout" by withholding resources from Kandela, refusing to sell Porch products and services to Kandela customers, and instructing Kandela to "sell products and services that did not exist."

"Porch and Ehrlichman's misconduct was designed to suppress Kandela's business so that Kandela could not achieve any of the earnout targets set forth in the parties' agreement," the lawsuit reads.

This is the latest chapter in a tumultuous startup journey for Porch and Ehrlichman.

The high-profile Seattle startup grew rapidly and raised $100 million less than two years after it came out of stealth mode in 2013, inking partnerships with Lowe's, Facebook, and others.

But just months later, Porch reduced its headcount from 500 to 250 as the company was forced to repair the business. Porch emerged from a two-year quiet period in April 2018, and said it had resumed growth.

Porch originally made money by matching homeowners with home services professionals. It has since evolved into a "vertical software-as-a-service company" that sells CRM products to moving companies, large utility providers, home inspectors, and more, helping their customers with maintenance projects and moves. Porch says its software platform grew revenue by 10X between 2017 and 2019.

Porch raised more than $20 million as part of a Series C round in January of this year. It was the first equity round for Porch since the company landed a $65 million investment in 2015. The company's investors include Battery Ventures, Capricorn Investment Group, Founders Fund, Valor Equity Partners, Lowe's, Black River Ventures, Moderne Ventures, HVAC distributor Watsco, and others.

This story first appeared on GeekWire.

Subscribe to our newsletter to catch every headline.

The Impact of Authentic Storytelling. LA Latino/a Founders and Funders Tell All

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

The Impact of Authentic Storytelling. LA Latino/a Founders and Funders Tell All
Decerry Donato

As one of the most diverse cities in the world, Los Angeles is home to almost 5 million people who identify as Hispanic or Latinx. Yet, many feel they still lack representation in the city’s tech space.

“I can safely say that last year’s LA tech week hosted all of the events on the west side, and very few were focused on telling Latino and Latina entrepreneurial stories,” said Valeria Martinez, investor at VamosVentures. “We wanted to change that this year.”

Read moreShow less
LA Tech Week Day 3: Social Highlights
Evan Xie

L.A. Tech Week has brought venture capitalists, founders and entrepreneurs from around the world to the California coast. With so many tech nerds in one place, it's easy to laugh, joke and reminisce about the future of tech in SoCal.

Here's what people are saying about day three of L.A. Tech Week on social:

Read moreShow less

LA Tech Week: Female Founders Provide Insights Into Their Startup Journeys

Decerry Donato

Decerry Donato is a reporter at dot.LA. Prior to that, she was an editorial fellow at the company. Decerry received her bachelor's degree in literary journalism from the University of California, Irvine. She continues to write stories to inform the community about issues or events that take place in the L.A. area. On the weekends, she can be found hiking in the Angeles National forest or sifting through racks at your local thrift store.

LA Tech Week: Female Founders Provide Insights Into Their Startup Journeys
Decerry Donato

Women remain a minority among startup founders. According to Pitchbook, even though women-led startups in the United States received a record $20.8 billion in funding during the first half of 2022, U.S. companies with one or more female founders received less than 20% of total venture funding in 2022. U.S. companies solely led by female founders received less than 2% of the total funding.

The panel, titled Female Founders: Planning, Pivoting, Profiting, was moderated by NYU law professor Shivani Honwad and featured Anjali Kundra, co-founder of bar inventory software Partender; Montré Moore, co-founder of the Black-owned beauty startup AMP Beauty LA; Mia Pokriefka, co-founder and CEO of the interactive social media tool Huxly; and Sunny Wu, founder and CEO of fashion company LE ORA.

The panelists shared their advice and insights on starting and growing a business as a woman. They all acknowledged feeling pressure to not appear weak among peers, especially as a female founder. But this added weight only causes more stress that may lead to burnout.

“The mental health aspect of being a founder should not be overshadowed,” said Kundra, who realized this during the early stages of building her company with her brother..

Growing up in Silicon Valley, Kundra was surrounded by the startup culture where, “everyone is crushing it!” But she said that no one really opened up about the challenges of starting your own company. .

“Once you grow up as a founder in that environment, it's pretty toxic,” Kundra said. “I felt like I really wanted to be open and be able to go to our investors and tell them about challenges because businesses go up and down, markets go up and down and no company is perfect.”

Honwad, who advocates for women’s rights, emphasized the value of aligning yourself with people with similar values in the tech ecosystem. “[Those people] can make your life better not just from an investment and money standpoint, but also a personal standpoint, because life happens,” she said.

Moore, who unexpectedly lost one of her co-founders at AMP Beauty, said that entrepreneurs “really have to learn how to adapt to [their] circumstances.”

“She was young, healthy, vibrant and we've been sorority sisters and friends over the past decade,” she said about her co-founder Phyllicia Phillips, who passed away in February. “So it was just one of those moments where you have to take a pause.”

Moore said this experience forced her to ask for help, which many founders hesitate to do. She encouraged the audience to try and share their issues out loud with their teams because there are always people who will offer help. When Moore shared her concerns with her investors, they jumped in to support her in ways she didn’t think was possible.

Kundra said that while it is important to have a support group and listen to mentors, it is very important for entrepreneurs to follow their own thinking and pick and choose what they want to implement within their strategy. “At the end of the day, you really have to own your own decisions,” she said.

Kundra also said that while it is easy to turn to your colleagues and competitors and do what they are doing, you shouldn’t always follow them because every business is different.

“When I was in the heat of it, I kind of became [a part of] this echo chamber and that was really challenging for us,” Kundra added, “but we were able to move beyond it and figure out what worked for us [as a company] and we're still on a journey. You're always going to be figuring it out, so just know you're not alone.”

RELATEDEDITOR'S PICKS
LA TECH JOBS
interchangeLA
Trending