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PhonePe goes to Sebi against Ventureast for ‘scuttling’ Indus OS deal

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PhonePe on Saturday said it has filed a formal complaint with the Securities and Exchange Board of India (Sebi) against early-stage investment fund Ventureast and its top officials. The complaint’s main premise is that Ventureast, an investor in homegrown content discovery platform Indus OS, did “side dealings” with Affle Global “deliberately” in a “bad faith attempt to scuttle”
PhonePe’s acquisition of Indus OS. is also a minority investor in Indus OS, which has objected to the deal.

PhonePe said its complaint to the market regulator has highlighted “serious misrepresentations, including a series of unethical and bad faith actions, as well as potentially illegal actions, that have been and are being continually undertaken by the managing partner, general partner and principal of Ventureast involved with this transaction.”

PhonePe’s complaint with Sebi against Ventureast follows allegations that Ventureast sold its stake in IndusOS to Affle,
giving it nearly 23% stake while the terms were already agreed for an acquisition by PhonePe.

“As founders, we are always held to the highest standards of legal and ethical integrity by our investors. But these standards should apply to investors in startups too. I believe in this case, VPF (Ventureast Proactive Fund-II) has not only broken Sebi’s code of conduct, but it has also acted in complete negligence of its fiduciary duties as a large shareholder of Indus OS. By deliberately derailing PhonePe’s acquisition of IndusOS, a deal which all three OS Labs founders continue to also believe is in their company’s best long-term interests, VPF has also hurt OSLabs’ long term interests,” PhonePe’s cofounder Sameer Nigam said in a statement.

“We believe it’s important to expose such unethical conduct by VPF for the sake of the larger startup ecosystem. We have a very strong case and are confident that we will prevail on both fronts, and hopefully in the process also create a strong deterrent against bad actors trying to bully young startups.”

ET has
exclusively reported how PhonePe’s seemingly straightforward deal to acquire Indus OS for $60 million has run into trouble after Affle objected to the deal. Affle has
sued Indus OS and PhonePe in a Singapore court seeking an injunction over the proposed acquisition. In reaction, PhonePe has also filed a counter lawsuit against Affle as well as Ventureast. ET
reported earlier this month that Indus OS, which wants to close the deal with PhonePe, has also moved a petition against Affle in a Singapore court.

Over the past few weeks, ET has
reported about the legal tangle over the takeover. PhonePe was in the final stages of closing its acquisition of Indus OS but Affle Global had sought an injunction in the Singapore court on the deal and said it had the right of first refusal against the sale of the founders’ stake to PhonePe.

Indus OS had told ET earlier that its founders and board members had signed a term sheet to sell a significant majority in the company to PhonePe. According to the initial plan, PhonePe was looking to buy over 90% in Indus OS. The latest developments would have a direct impact on this plan but PhonePe, meanwhile, has secured two board seats in Indus OS as it bought over 30% in the company from earlier investors like Omidyar Network, JSW Ventures and others.

Affle Global has previously told ET that it has invested over $20 million, so far, in Indus OS and owns a 20% stake, valuing the startup at $90 million. This is another point of conflict as PhonePe has valued Indus OS at $60 million.

Indus OS was started in 2015 by three IIT alumni – Rakesh Deshmukh, Akash Dongre and Sudhir Bangarambandi. The company operates a local Android app store called Indus App Bazaar, which offers apps and content in over a dozen Indian languages. The company said it hosts more than 400,000 apps and caters to over 100 million users across India.

Through this acquisition, PhonePe’s plan is to bring a wider array of apps on its platform through in-app integrations. If it happens, this would be PhonePe’s second acquisition after it
bought point-of-sale startup Zopper in 2018.

Bennett, Coleman and Company Ltd (BCCL), the publisher of Economic Times, is an investor in Affle Holdings Pte Ltd, which owns Affle Global.

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