Two co-founders of the credit card startup Petal are expected to give depositions this month in a lawsuit that alleges one of them stole the idea for the company from an acquaintance.
The suit was filed by an entrepreneur named Cassandra Shih who alleges that she developed the idea for a firm that would facilitate credit for immigrants with little or no credit history. In 2015, Shih worked with Petal co-founder Andrew Endicott, who took the idea, brought in other collaborators and then froze her out of what became a multimillion-dollar company, according to the lawsuit.
Petal, which declined to comment, has denied Shih’s allegations and is defending itself against the suit. On Wednesday, the company announced a $140 million funding round led by Tarsadia Investments, which reportedly values the company at $800 million.
Endicott and Petal CEO Jason Gross, who are also defendants in the case, did not comment. In court proceedings, lawyers for the defendants have argued that Shih’s idea was too vague and unformed to create any legal obligations.
“Like so many entrepreneurs, they bounced ideas around, failed to nail down anything concrete, and parted ways,” Petal’s lawyers wrote in a 2019 filing. “Shih’s assertion that this short-lived exchange entitles her to millions of dollars and half a company is baseless.”
Endicott and Gross are both expected to be deposed in the coming weeks.
Shih met Endicott, a former corporate lawyer and investment banker, when she moved from New Zealand to New York in 2014 for an internship, according to the suit, which is being litigated in federal court in Manhattan.
After the two messaged about starting a company together and how they would obtain financing, Shih shared her idea about providing credit to immigrants in April 2015, the suit alleges. Immigrants to the U.S. have traditionally had a hard time getting approved for credit because they often do not have credit scores.
Endicott replied that it was “an amazing idea” that was “worth trying,” and the pair got to work on refining the business model and preparing a presentation to investors, the lawsuit says.
In the meantime, Endicott was floating the project to a data scientist and to co-founder Jason Gross, the lawsuit states. In an email exchange with the data scientist, Endicott wrote that Shih “came up with the idea.”
In later communications, Endicott and Shih hashed out several details, including an agreement for the company to be a 50-50 venture and for it to be named CreditBridge, which was Shih’s suggestion, the lawsuit says. The two finalized a presentation in early June 2015 that Endicott would float to potential investors while Shih was on vacation.
At the end of June, Shih messaged Endicott, who did not respond. In July, the lawsuit says, Gross’s name started showing up in CreditBridge’s materials, which still used Shih’s research and ideas.
Shih attempted to contact Endicott and did not hear back, even as Endicott and Gross prepared to meet with investors and started searching for staff, the lawsuit says.
Shih, who was in New Zealand at the time, decided to allow Endicott to continue working on financing after hearing back from Endicott’s girlfriend that he was traveling and working to get investors’ interest, according to the complaint.
Endicott and Gross formally incorporated the company around February 2016, and Shih realized shortly afterwards that Gross’s LinkedIn profile listed him as a CreditBridge co-founder. Endicott eliminated Shih’s access to the shared Dropbox folder they had been working on, according to the lawsuit.
“After six months in the dark due to Endicott’s intentional silence, Shih finally learned, from the other side of the world, through her own investigation, that she had been frozen out of her own company by Endicott, the attorney she entrusted to organize and promote it, who himself admitted to at least one other ‘co-founder’ that it was borne out of her idea,” Shih’s lawsuit says.
Shih, who later became the CEO of a travel-related company called Tripsha, tried for several weeks to contact Endicott with her concerns, and heard back from Endicott in late March 2016, the lawsuit states.
Endicott told her the CreditBridge business he was working on “has no connection whatsoever to anything that you and I discussed in the past” and that it was “not based on any of your business ideas,” the lawsuit says.
“You’re an incredibly intelligent and capable person, and I think it’s a shame that we did not ever get the chance to work together,” he wrote, according to the lawsuit. “I really admire your passion and I encourage you to pursue your business ideas just as I’ve pursued mine.”
A few months later, Endicott and Gross changed the company’s name to Petal and issued stock to its early investors. The company has since raised funding from several investment firms and lenders, including Sand Hill Angels, Trinity Capital, Valar Ventures and Silicon Valley Bank, according to Crunchbase data.
At a hearing in 2020, a lawyer for Endicott argued that Shih’s idea was too preliminary and too tentative — and failed to produce a novel or concrete enough idea — to impose any legally binding obligations on Endicott. At the time that Shih and Endicott stopped discussing the idea, there were no employees, no product, no technology, no capital and no incorporation documents, according to the lawyer, Joshua Matz of Kaplan Hecker & Fink.
“She didn’t contribute time, money, or energy to the daunting task of transforming any idea into a business,” the company’s lawyers argued in a 2019 filing. “And she played no role in developing that fledgling business into a growing company that now provides access to a nationwide consumer financial product.”
New York-based Petal launched its first credit card in 2018 and has since moved beyond its original audience of consumers with thin credit files or no credit history to include those with blemished credit records.
More recently, the company started providing its cash-flow-based underwriting technology to banks and fintechs.
“Traditional credit scores have become less reliable in the COVID economy, forcing mainstream banks to significantly scale back access to credit at a time when many people need it most,” Gross said in a September 2020 press release. “Cash flow scoring allows Petal to continue making credit available even in these volatile economic conditions.”
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