In all our stories some comments are more frequent than others. We thought it would be right to answer them in one go and besides tell the story of the conflict in details.
Why We Sold 50%
By 2010 Klumba had already become a profitable family hobby. Everything was fine. We had just obtained a trade mark and registered a new domain. We finally obtained access to Google AdSense. All figures were rising. But we had a critical problem.
I created Klumba in Parser. For those not in the know, Parser is a kind of Esperanto among programming languages. I found myself a hostage to my own choice. Klumba was briskly expanding and needed to develop. I understood I would not be able to continue coding it alone. It was impossible to find a Parser programmer that would certainly stay with us, while rewriting to php was expensive - Klumba had not yet brought this much.
That’s where Andrey Horsev came in. He proposed he would buy a stake in the company and help with the development. Then we were on friendly terms. I enjoyed his company.
In October 2010 we met in Mario’s restaurant in Saksaganskogo Street in Kiev in order to sign an agreement. Initially Horsev wanted a 65% stake but we disagreed. We finally agreed on 50.
Besides, Horsev and Ivankin guaranteed they would not interfere with the project’s policy.
How They Took Control
We signed a memorandum, a document that regulated our relations. Its terms are still ok with me. The Memorandum stipulates we set up ООО (similar to limited liability company) for joint ownership of the trade mark and domain. We agreed this LLC was a formality and our relations would be regulated by the Memorandum. For investors’ convenience LLC was registered in Dnipropetrovsk, with Horsev appointed a director.
Under the agreement, Horsev and Ivankin would pay us $2,000 monthly during the year. They estimated Klumba’s refactoring would cost 100,000 and take a year.
Why didn’t we turn to lawyers for help to protect our rights from the very start? There are several reasons. First, we did not have extra money. Then, we were inexperienced. Finally, Klumba did not yield a profit that would make us think about possible risks.
908 started developing Klumba. Certainly, it did not go without a hitch: sometimes there were delays, sometimes we could not agree on trifles but overall, the development weight was off my mind and I could concentrate on planning, structure and design. I was no more afraid of Klumba’s growth.
We had no major conflicts before 2013. I trusted Horsev and Ivankin, so the database, code and servers were controlled by Ivankin. To the last I was sure they wouldn’t dare to do what they have done. I was mistaken.
Why Don’t You Find a Compromise?
The conflict started when Horsev and Ivankin called us, while our family was in New York. I should say that we met with both of them several times while on that trip in the US. None of them voiced any complaints. Everything was as usual.
Suddenly, I faced a storm of criticism. Developing team is demoralized, there is no plan, the plane is falling (though the figures indicated the opposite). I was deeply distressed. I often discussed it with Natasha trying to understand what the problem was, which was hard as there was no specific problem– just a barrage of criticism.
After three or four talks we managed to understand the problem was we had no written plan. They said the team did not know what to expect, they were in ignorance. I admitted my mistake. Communication has always been my weak point. A detailed plan was ready in two days.
Utter nonsense started here. The plan has the wrong format, they want to talk to me alone, the team is discouraged, competitors are taking away our market share, I am eating away on the current assets and so on.
At one point it was clear any answer would be wrong. Horsev wanted my complete surrender on all issues and unconditional submission but I was not ready for that.
What Is the Conflict about?
Leaving aside the trifles, we disagreed over development strategy.
Horsev and Ivankin assert their goal is to boost the company’s turnover and market share. The problem is I have never heard Horsev propose any ways to achieve it, except buying AdSense for the entire profit. Horsev has presented no guarantees or estimates for this policy. That is, I was to reinvest my profit in an unclear strategy on his word of honour.
I would believe Horsev if he was a serial entrepreneur with an impressive portfolio. But he had launched one successful project, made one fruitful investment (in our project) and many attempts.
The product and users are the main thing for me and Natasha. Turnover and market share are the results.
There is a share of chemistry in any business. I am sure it is not the amount of reinvested money that defines success of a company. We risked forgetting about the user in pursuit of figures and charts, and Klumba would start to lose ground.
I do not object to reinvesting only a part of profit. My development strategy does not require big money. We have built our business without huge investments and see how to develop it in such a regime.
Yet this was unacceptable for Horsev and Ivankin. Horsev did not want an equal partner with his own perception of further development. He needed a hired СЕО with a salary to indulge his whims. Probably he wanted to play a corporation. I didn’t.
Once it was clear it was impossible for us to continue co-operating, I suggested to split. Horsev long objected to the idea but couldn’t suggest anything reasonable.
He was serious about the following scheme: they buy our stake and pay the monthly amount that is less than our portion of monthly profit provided we do not take profit out. See? Horsev suggested they buy our share for our own profit and took offence when we refused.
He could not come up with anything better.
Then we decided to freeze the project for a while until we found a buyer for the stake. We signed an agreement that stipulated the entire profit, except a certain amount, was taken out in favour of four co-owners.
We continued working, doing everything we could do without development. Horsev and Ivankin were stonewalling the project during two months and still gained profit. They received the last tranche on September 15 and announced a takeover on the next day.
Who Are These Buyers and Why Do they Need It?
Our buyer’s name is Dmitry Trofimenko. He is not a public man but kindly allowed not only to reveal his name but also to quote his assessment of the situation from the letter to Horsev.
Klumba is a solid profit-generating project with an approved business-model. Ukrainian market offers few similar projects that can be bought.
Participation of potential buyers has shown that Klumba’s takeover was not a step to save the company but really a hostile takeover. During six months Horsev and Ivankin slowly but surely were moving towards their goal to turn our stake into nothing. I suppose that phone call in March was the start of their plot to appropriate the company. The problem is not I am a careless СЕО or a lousy partner. The problem is Horsev and Ivankin want to seize the company for peanuts.
For this reason they will not assist in selling our stake to either these or other buyers.
Why All This Uproar?
When we got Horsev’s letter in Turkey and lost access to everything during the day, it was clear we had no choice.
I have always known that our partnership was not protected by anything but our decency. Horsev and Ivankin knew this as well, so the takeover not only was incredibly easy – we gave them everything, but also went totally unpunished– in our case courts are powerless.
I am concerned about the fact they still declare themselves angel investors, though they lacked experience and decency to find a civilized resolution. Investment in Klumba and its results is their key instrument of their self-promotion as business angels, as they have no other successful project except their own Audico.
Obviously, other start-ups will see financial statements only from the moment they joined the project. This is like a lure that hides a dangerous hook from hungry young teams, like it happened to us.
From the very start I have known publicity would not solve the problem. My goal is to tell the truth about Horsev’s and Ivankin’s methods in business.
Audiatur et altera pars
Horsev and Ivankin ceased to comment on the situation, when I finally recovered from the first shock and denied Horsev’s comments in September. I don’t know why he gives AIN (Ukrainian online edition about Internet business) no more comments now. I have two theories:
1. He has nothing to say.
2. He will remain silent in order not to spread the information.
Either way, it’s his right.
If any edition is keen to carry out an unbiased investigation, I am ready to present all documents without exclusion, including letters, agreements and figures.
Why Not Get Over and Start Another Project?
We shall. But it is hard to put up with betrayal and injustice.
Klumba is our family business. We love our work that has fed us in recent years. This story is a bitter blow to our family.
We are not serial entrepreneurs and are not sure we shall be lucky again. Not to mention that now we have two children and cannot easily afford a start-up.
We need time to orient ourselves to this new reality and deal with this incident.