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.
Coronavirus Updates: Trump Jumps Into Musk Tweetstorm; L.A. May Extend Lockdown Until August; UpKeep's $36M Raise
Here are the latest headlines regarding how the novel coronavirus is impacting the Los Angeles startup and tech communities. Sign up for our newsletter and follow dot.LA on Twitter for the latest updates.
- Now Trump weighs in on Elon Musk's defiant move to open a Tesla plant early
- Los Angeles may extend shelter-in-place directives until August, says county health official
- UpKeep raises $36 million Series B as maintenance services startup in demand amid COVID
UpKeep raises $36 million Series B as maintenance services startup in demand amid COVID
Ryan Chan, UpKeep founder and CEO, says the pandemic has only made UpKeep more attractive as companies put a greater emphasis on cleaning and maintenance.
UpKeep, a mobile platform that helps companies streamline maintenance requests, announced Tuesday it has raised $36 million in Series B funding. Though it is a difficult time for many companies to fundraise, Ryan Chan, UpKeep founder and CEO, says the pandemic has only made UpKeep more attractive as companies put a greater emphasis on cleaning and maintenance. "I feel fortunate that we are in a space that is growing because of this," Chan told dot.LA. "We were able to raise at very favorable terms, but for a lot of companies it's very difficult to raise right now."
Chan certainly does not want to be seen as gloating. "We got lucky, but through no fault of our own," he added. Though UpKeep is a Los Angeles company, it turned to New York-based Insight Capital to lead the round. Existing investors Emergence Capital, Battery Ventures, Y Combinator, Mucker Capital, and Fundersclub also participated.
"COVID-19 is bringing the importance of maintenance into the spotlight, underscoring UpKeep's mission," Deven Parekh, Managing Director at Insight Partners, said in a statement. Upkeep says it saw 206% revenue growth last year and has signed with notable brands including Unilever, Siemens, DHL, Thermo Fisher Scientific, McDonald's and Jet.com.
Los Angeles may extend shelter-in-place directives until August, says county health official
Los Angeles County may extend stay-at-home orders for the next three months, ending sometime in August, according to Public Health Director Barbara Ferrer during a Board of Supervisors meeting on Tuesday. California began loosening stay-at-home rules last week, reopening trails and providing retailers with the ability to sell merchandise through curbside services.
But Ferrer warned Tuesday that further loosening of the rules will be slow. And that would only change if there was a "dramatic change to the virus and tools at hand." "Our hope is that by using the data, we'd be able to slowly lift restrictions over the next three months," she said, according to the L.A. Times. But without widely available therapeutic testing for the coronavirus or rapid at-home tests that would allow people to test themselves daily, it seems unlikely that restrictions would be completely eased.
Now Trump weighs in on Elon Musk's defiant move to open a Tesla plant early
This won't come as a surprise: President Trump joined in on the Twitter debate about Elon Musk reopening his Tesla Inc. plant in Fremont, Calif. "California should let Tesla & @elonmusk open the plant, NOW," Trump wrote in a tweet Tuesday. "It can be done Fast & Safely!" Musk tweeted on Monday that Tesla would ramp up production at its only U.S. car plant, and risked being arrested after county officials ordered the company to stay closed. The billionaire entrepreneur has slammed California's strict reopening plan, saying his company has a right to manufacture cars and make money.
Musk wrote in an email to employees, in documents reviewed by Bloomberg News: "Just wanted to send you a note of appreciation for working hard to make Tesla successful. It is so cool seeing the factory come back to life and you are making it happen!!" Over the weekend, Musk stated he would move Tesla and his rocket company SpaceX out of the state unless restrictions were lifted, prompting one California lawmaker to tweet "F*ck Elon Musk."
- Elon Musk's Threat to Leave California ›
- California Unemployment Surges After Coronavirus Closure - dot.LA ›
- Coronavirus Updates: California Unemployment Claims at 1.9M ... ›
- Elon Musk Moves To Texas, Leaving Los Angeles - dot.LA ›