Behind Sequoia’s unusual warning letter, a law firm facing allegations

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    Matters came to a head only after a forensic audit revealed a financial trail in one of its portfolio companies in May, but the issue had been simmering at least since mid-December, when the founders of a Bengaluru-based unicorn told its board members, including a Sequoia representative, that the law firm’s founder had solicited business in an aggressive manner.

    As a consequence of that complaint and related discussions, which were escalated to the firm’s headquarters in the US and its then global managing partner, the billionaire venture capitalist Douglas Leone, the company severed ties with the law firm and informally cautioned a limited circle of founders in its portfolio in February, multiple people familiar with the development said.

    This was significant as the firm, Algo Legal, did substantial legal work for Sequoia.

    Algo Legal was founded in 2019 by Sandeep Kapoor, who was the first lawyer hired by Sequoia when the venture capital firm appointed him as general counsel for India in June 2010.

    Up until his departure in March 2019, Kapoor oversaw over 1,500 rounds of investments made by Sequoia in startups across India and South East Asia. Before joining Sequoia, Kapoor was the general counsel in South Asia at Intel Technology and senior attorney at Intel Capital.

    In the letter last week, Sequoia named Algo Legal and four entities it termed related, of which one is incorporated in Singapore—Themis, Quant Legal Tech India Pvt. Ltd, One Delta Technology Solutions Pvt. Ltd and One Delta Synergies Singapore Pte—when it cautioned portfolio companies.

    According to multiple people with knowledge of developments who asked not to be named, the related entities are among a clutch of firms at the heart of troubles at Zilingo, a Sequoia portfolio company that sacked its founder and chief executive officer Ankiti Bose over alleged financial misconduct following an investigation by forensic audit specialist Kroll.

    Bloomberg reported on 27 May that the probe involves payments to the tune of $7 million that were made to five information technology and consulting firms during an 18-month period beginning late 2020.

    The investigations have revealed, according to the Bloomberg report, that the payments were made by Bose without the knowledge of other senior executives. Bose has contested this in interviews.

    A person close to Algo Legal, who spoke on the condition of anonymity, said payments from Zilingo were in line with contractual obligations.

    In its letter last week to portfolio firms, Sequoia alludes to a probe at an unnamed portfolio firm. “A recently concluded investigation in a portfolio company has also brought concerning details to light regarding such entities.”

    Algo Legal did not respond to detailed queries about these allegations sent on Saturday as well as previously on 27 April.

    In an emailed statement, Kapoor said: “Algo Legal is a law-abiding entity and has never conducted itself in contravention of any law(s). We refrain from being dragged into a trial by media and reserve our right to seek legal remedies as may be available to us to defend our reputation and seek justice.”

    For those part of the growing circle of start-up insiders who have been aware of recent developments, the turn of events has come as a shocker. Among trusted circles, discussions have focussed on how young and relatively inexperienced start-up founders, linked to astronomical sums in media coverage over funding rounds, can be protected from the rough edges around doing business in India.

    In many ways, the most important question is to determine if such demands have been made of other startups and if, indeed, others have obliged.

    It is also hard for those who might have obliged to admit doing so as they become legally liable, too, then. In its letter, Sequoia has encouraged portfolio companies that have engaged Algo Legal or related entities to report the matter to them or to their legal adviser in the matter, AZB & Partners.

    The episode raises questions about whether Sequoia and other VC firms made aware of the demand to the Bangalore-based startup in mid-December took adequate measures to safeguard investee companies or investigate or blow the whistle on a practice that might have impacted several others as well.

    An email sent on 27 April to a representative of Light Speed Ventures, Kae-Capital and Accel Partners, all of whom were on the board of the Bengaluru-based startup, asking if the venture capital firms will ask their portfolio companies to relook on their ties with Algo Legal went unanswered.

    “Accel has never used this firm,” said Prayank Swaroop, a partner at Accel.

    An email dated 22 April sent to Bose’s lawyer Abraham Vergis of Providence Law Asia LLC seeking comment went unanswered.

    Zilingo has three board members, including Sandeep Kher of Sequoia, Tee Suraphongchai, a nominee of Koru Partners, and Yuan Lee Chung of Susquehanna Group. A questionnaire dated 20 May sent to Suraphongchai and Chung went unanswered. An email sent on the day to Sequoia, too, went unanswered.

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