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[Update] Behind Acko’s IP Theft Case Against Nexus-Backed Insurance Tech Startup Onsurity

[Update] Behind Acko’s IP Theft Case Against Nexus-Backed Insurance Tech Startup Onsurity

A newly incorporated insurance tech startup raises nearly $2.5 Mn from Tier 1 VCs, but it's immediately sued by the market leader, where the founders worked just weeks ago

The startup seemingly pivoted away from a competing product just a few weeks before named in the police complaint in Bengaluru

This incident raises the question of whether VCs are turning a blind eye towards compliance and due diligence as they compete to woo startups by serial entrepreneurs

Update: June 13, 2020| 21:10 PM

After the story was published, Onsurity founders spoke to Inc42 about the allegations levelled by Acko. You can read the story here.

This story is about former colleagues turned co-founders, their newly formed company which raised nearly $2.5 Mn from Tier 1 investors as well as getting sued by their former employer for IP theft and the breach of the employment contract. A story, we might add, quite similar to another we’ve seen unfold on Twitter recently. But that’s a story for some other day. 

On to this story, for now. 

On May 8, 2020, Amazon-backed insurance tech startup Acko filed an FIR in Bengaluru at the Cyber Crime Police Station alleging that two former employees colluded and stole the company’s confidential data to create competing businesses — Onsurity Services and Onsurity Technologies registered in Kolkata and Bengaluru respectively. 

While this might look like a run-of-the-mill case, this story raises the question about the very common, yet little-utilised non-compete baked into most of our contracts. And more importantly, are VCs turning a blind eye towards compliance and due diligence as they compete to woo startups by serial entrepreneurs, the hottest commodity in India’s venture capital world.

Interestingly, Onsurity’s fundraising deck, which helped it secure funding from Nexus Venture Partners, Whiteboard Capital and others, seems to be more than a little inspired by Acko’s fundraising deck. More on this later, but here is how this story came to light. 

The Allegations And The FIR

In an FIR dated May 8, 2020, Acko accused five people under Section 66 and 72 of the Information Technology Act, and sections 403, 406, 408, 426, 120B and 34 of the Indian Penal Code, which includes dishonest misappropriation of property, punishment for criminal breach of trust, criminal breach of trust by clerk or servant, punishment for mischief, punishment for criminal conspiracy.

Kulin Shah, a former VP at Acko, and Yogesh Agarwal, a former part-time consultant at Acko, have been named in the FIR along with the latter’s family members, Bhagwati Prasad, Uma Agarwal and Sunita Poddar, for allegedly stealing Acko’s confidential data resulting in damages to Acko Group to the tune of INR 20 Cr – just a little more than what their new startup raised. 

Founded in 2017 by Varun Dua, Mumbai-based Acko is a digital general insurance company, which primarily offers consumer-facing insurance products for cars and two-wheelers. The company has raised a total of $143 Mn from investors such as Binny Bansal, Amazon, Catamaran Ventures, RPS Ventures, Intact Ventures Inc, Accel, SAIF Partners, TechPro Ventures among others. 

As per the FIR allegations:

  • Kulin Shah and Yogesh Agarwal along with the latter’s family members, his wife and parents, colluded with the “intention to defraud and cheat the company” and stole “confidential information” entrusted with them during the term of employment. 
  • During their engagement with the company, Kulin Shah and Yogesh Agarwal disclosed confidential information to Onsurity Services and Onsurity Technologies and made financial gains for themselves.
  • During his notice period in the company, Kulin Shah (who resigned on January 14, 2020) allegedly downloaded Acko’s confidential information (between February 14 and 24) without permission and deleted the operating system from the laptop assigned to him by Acko. 

As key senior personnel, Kulin Shah and Yogesh Agarwal allegedly had access to critical sensitive data on strategy, pricing, underwriting, claims, technology, product, business roadmap etc. And the duo was also bound by a non-compete agreement, non-solicit agreement and the privacy policy of Acko, a source close to the development told Inc42

The two companies — Onsurity Technology and Onsurity Services — have different directors, however, both operate the same business, which is a standard practice in the industry. Many companies including the likes of Flipkart, Policybazaar, Netmeds have multiple business entities registered for different purposes including fundraising, business transactions or different business units. 

Seemingly, in a bid to avoid legal trouble, as they were still employed or engaged with Acko, Kulin Shah and Yogesh Agarwal decided not to be named in the incorporation documents of Onsurity Services, which was registered in May 2019 seemingly to kickstart operations and gain initial traction.

The second company — Onsurity Technology which got incorporated in February 2020 — later became the main entity where both Kulin Shah and Yogesh Agarwal joined after their stint with Acko. Thus, the two seemed to have avoided the conflict of interest that could have risen from being named on paper for Onsurity Services. 

The Murky Origins Of Onsurity 

While prima facie, it’s a case of IP theft, it’s also about how Shah and Agarwal allegedly used Acko’s resources, services and stole data and insights to venture out on their own while they were still employed at the company. Beyond the breach of trust, it also raises questions about enforcing clauses in contracts, the workarounds used to start new companies and using family members as shadow directors.

And while it’s not the first time that such practices might have been used, it’s worth noting that the new company raised funding from marquee investors, which makes it all the more dubious. 

According to the FIR filed by Acko, Yogesh Agarwal was engaged with Acko in a consulting role and signed a consultant contract in August 2018 and later renewed it in April 2019 and was working on several projects. Whereas Kulin Shah joined Acko in October 2017 as VP, new businesses and partnerships. 

While the duo was still employed or engaged with Acko, Onsurity Services was incorporated on May 15, 2019. Interestingly, this company had nothing to do with either Kulin Shah and Yogesh Agarwal directly, at least on paper. However, Yogesh Agarwal’s family members Bhagwati Prasad Agarwal and Uma Agarwal were listed as the directors of Onsurity Services. 

As per its ministry of corporate affairs filings, Onsurity Services was incorporated to conduct “business of consultancy services, technology services, outsourcing activities, ecommerce services, Facilitator Services”. The ploy of using family members as directors has been used in the past by businesses for various reasons such as protecting IP, tax reasons as well as to keep stakeholders confidential. 

While Yogesh Agarwal was still working at Acko, between May 2019 to November 2019, Onsurity had hired a few UI/UX designers and developers to work on the product, which is corroborated by the LinkedIn profiles of the employees. 

After ending his consulting role at Acko, Yogesh Agarwal started working full time on the Onsurity product and launched the app in October 2019, as indicated by its Google Play Store listing. 

The company positioned itself as a consumer insurance technology platform for gadgets, travel, health, social security and marine insurance — an earlier version of the app and Onsurity’s social media posts confirm the same, though some social media posts seem to have been deleted. 

The description on the Startup India website, InstaHyre and AngelList and even comments and reviews on Play Store also indicate that it was an insurance product offering similar services as Acko. Onsurity has a similar profile on Instahyre where its launch year has been mentioned as 2019 and even social media handles including Twitter have been operational since May 2019. 

Additionally, it is to be noted that Onsurity Services does not have any filing on the MCA website beyond the incorporation document filed in August 2019 and initial memorandum of association and the articles of association. 

However, the current version of the Onsurity website shows that the focus of the company has changed, as it is offering group wellness policies

Onsurity’s Pivot And The Fundraise

Tracing the turn of events in the new year, it’s clear that just a few days after Kulin Shah’s resignation from Acko, “Onsurity Technologies” was incorporated on February 5, 2020, with Yogesh Agarwal listed as a director along with Sunita Poddar. The company started full operations with an office on February 13 as indicated by its tweets. It must be noted that Kulin Shah was still serving his notice period at Acko during this time, and which is why he could not join Onsurity Technologies as a director at the time of incorporation. 

As per an extraordinary general meeting notice filed by Onsurity Technologies on April 9, however, Kulin Shah was classified as a promoter in the company. Marketing collateral posted by Onsurity confirms that Kulin Shah and Yogesh Agarwal are founders in the company. 

In addition to what Onsurity Services mentions as its main business, Onsurity Technologies’ memorandum of association shows that its main business includes “the business of Wellness / Healthcare products & services.” 

However, comments on the Onsurity app on the Google Play Store show that the company was offering consumer insurance products until March 2020. The company’s social media post on February 24 indicated that it was preparing to launch wellness and healthcare services for corporates in the near future. 

Interestingly, as per the Onsurity’s Android app changelogs available on App Annie, the app was updated on May 1, 2020, a week before the FIR filed by Acko on May 8. The update was for “Introduction of HealthSure plan providing wellness benefits for our members”. Since then the app has been updated twice in May, with the last update coming on May 18, 2020. 

Around the same time as it was preparing to pivot to corporate wellness, Onsurity secured INR 17 Cr from Nexus Venture Partners as indicated in MCA filings filed on March 20, 2020. 

Inc42 has seen some slides used by Onsurity in its pitch deck to investors, shared by sources close to the company, who did not want to be named. While we cannot corroborate the authenticity of the deck, since they were shared with us in parts, and not as a whole, they show that Onsurity was more than a little inspired by Acko’s pitch deck design and presentation of facts, which was also accessed by Inc42 through the same source. 

On the same day as the FIR — May 8, 2020 — Onsurity Technologies in a board meeting floated an offer to raise INR 1.64 Cr from investors such as Sandeep Tandon’s Whiteboard Capital, South African rugby player Ruan Janse van Rensburg, Paysense founder Prashanth Ranganathan, AL Trust, 3.0 Fund led by Jake Zeller, Alexander Peter, and Vaibhav Puranik. A similar private placement offer was filed twice on May 9 and June 4, 2020. 

Interestingly, Kulin Shah’s first startup Wishberg was acquired in 2014 by Freecharge, founded by Sandeep Tandon and Kunal Shah. Post the acquisition, Kulin Shah and Wishberg cofounder Pravin Jadhav joined Freecharge, which was later acquired by Snapdeal. After a brief stint with Freecharge, Shah joined Acko and Jadhav cofounded Paytm Money. If sources are to be believed,  Jadhav and Shah have not spoken in the last five years.

What About Due-Diligence?

The presence of a marquee VC such as Nexus Venture Partners raises serious questions around the due diligence exercises and background checks conducted by investors before writing the cheque. It’s also unusual that a large VC might have missed the common-yet underutilised non-compete clauses baked into most contracts, which most certainly would have been in play for high-level employees such as Kulin Shah and Yogesh Agarwal. 

While non-compete clauses are ubiquitous in high-profile appointments, rarely does it come under the spotlight in such cases. Considering that Kulin Shah is a second-time founder, it is not unusual or a surprise that VCs and angels backed his startup at an early stage, but it raises questions on due diligence by investors, especially considering that it’s no secret that Shah was working with Acko.  

The fact that the company’s app had been around for much longer than the company, the use of family members as directors in related companies, and the work on the product was done while some founders were still employed with a direct rival are all red flags. It also raises questions about the high confidence that investors usually have in startups with repeat founders. 

It’s no secret that VCs have an explicit preference for such startups with founders that have started up in the past, so do they also get less stringent on due diligence in such cases. For example, a quick look at Sequoia Surge’s early-stage portfolio in India reveals that up to 47% of the founders at 26 Indian startups (among the disclosed investments) across its three batches have founders with previous startups. 

However, in the case of Onsurity, were these matters overlooked in the quest to woo repeat founders and serial entrepreneurs or is just a side-effect of “healthy” competition in the VC space? 

Unfortunately, Onsurity’s investors did not respond to Inc42’s queries on the data theft allegations laid by Acko. While Nexus Venture Partners declined to comment on the investment and the case, our questions to Whiteboard didn’t elicit any response till the time of publication. Neither Kulin Shah nor Yogesh Agarwal responded to our queries. Acko declined to comment on the alleged IP theft, despite multiple attempts by Inc42 to get an official response.

IP Theft & Indian Startups

Cases like these are nothing new in the Indian startup ecosystem. India’s SaaS poster boys Zoho and Freshworks are also fighting a legal battle. In March’20, Zoho alleged that Freshworks, since its inception, built its business upon theft and misuse of Zoho’s confidential business information. Freshworks was founded by two former Zoho employees, Girish Mathrubootham (VP, product management) and Shan Krishnasamy (technical architect). 

In March 2020, Zoho accused Freshworks of misusing Zoho’s confidential financial information to get the first round of funding. “After leaving to start Freshworks, Mathrubootham improperly included Zoho confidential revenue figures in early Freshworks investor pitch materials to secure initial investments, leveraging his work at Zoho and suggesting his new startup would perform like Zoho,” the lawsuit read.

Zoho also claimed that it found compelling evidence that showcased that Freshworks stole customer data from Zoho and attempted to contact those customers. “In order to protect customer data, we were compelled to immediately sue Freshworks to stop their illegal and immoral behaviour. We cannot discuss this further, as it is now a legal matter,” Zoho told Inc42 in an earlier interaction on the lawsuit

Even though entrepreneurs leveraging existing connections for new businesses isn’t a new phenomenon, in Acko’s case, the timing of the exits of Onsurity’s founders and the allegations of IP theft and the business pivot raises serious questions for the startup as well as its investors, who have backed some of the most successful startups in India. 

As of now, with the case in the investigation stage, there’s very little clarity on how things will play out legally speaking, but at the very least Acko’s tussle with Onsurity points at some grave issues in India’s VC ecosystem.

Edit Note:

The story has been edited to add more source-based details on the connection between Wishberg founders, Pravin Jadhav and Kulin Shah.