Capiter

Last month, Egyptian B2B e-commerce platform Capiter made headlines after founders Mahmoud Nouh and Ahmed Nouh were ousted by its board as CEO and COO. The reasons were unclear, as both parties didn’t publicly comment on the situation; however, from various local news outlets, they ranged from mismanagement of funds to failure to report to the board and work out a potential merger, as well as internal disagreements over management methods. In a statement issued to ZebethMedia last month, Capiter’s board said claims of theft of the company’s assets by the founders are untrue and it didn’t move to remove the founders due to suspicion of theft or fraud. “Rather, this course of action was undertaken after the founders abdicated their responsibilities, failed to enact Board-approved corporate actions, and began to actively subvert the abilities of the company to stabilize its financial and operational affairs. After that juncture, it became necessary to appoint an interim CEO (the company’s chief financial officer Majid El Ghazouli) to manage the operational and financial affairs of the company.” When the news broke, the axed CEO Mahmoud Nouh denied the allegations when ZebethMedia reached out and said he and his brother Ahmed didn’t receive official notice of their dismissal. But in an unexpected twist, the founders, in a statement to ZebethMedia, are accusing the board of spreading “false and untrue allegations” that question their reputation. Last week, Nouh took to LinkedIn to describe his account of the whole drama. Meanwhile, the statements received from Capiter’s board and founders involve a lot of finger-pointing, leaving Capiter’s employees more confused than they currently are about their current situation. Many of these employees, clueless about the company’s direction, are yet to receive their August salaries and severance packages. Some have expressed their displeasure on LinkedIn (you can find other posts here and here). While about 50% of August salaries have been paid, a few employees who spoke with ZebethMedia on the condition of anonymity said the board has yet to communicate any timeline or dates for outstanding salaries, leaving them stranded. “The Board told us they are following legal procedures to finalize whatever is going on before they pay us. Also, suppliers and creditors are calling some of us asking for their money, which should be the company’s responsibility, not ours,” one said, adding that many of them haven’t moved on to new opportunities, as they are yet to be officially released from their duties at Capiter. Founders versus investors Last September, Capiter raised $33 million in Series A funding to compete in the country’s growing B2B e-commerce and retail space. It was one of the largest of that stage, and things seemed to be going well with the company until it laid off multiple employees between June and July, citing global macroeconomic trends. But various sources say the company’s issues were more inward than outward, as they described Capiter as a workplace with poor management, no structure and a business with a high burn rate. The company had planned to raise a follow-on round to address its struggles but met a challenging fundraising environment. What ensued after this led to the current spat between founders and investors. According to sources, Capiter’s investors wanted to sell the company to Retailio, a similar player based in Saudi Arabia, but the founders refused; they wanted existing investors to inject more capital into Capiter. A source close to the company confirmed this to ZebethMedia. “It is true that in the last nine months, the company has received inbound interest from multiple players in Egypt and neighboring countries because of the incredible business that Capiter built,” the person said. “During that same period, investors infused millions of dollars of capital in two tranches (over and above the Series A that was raised last year) based on the progress of these conversations and the traction of the business. Though the events of the last couple of weeks have disrupted these efforts, there are still active M&A discussions underway currently.” The board claims that Capiter founders departed Egypt during these discussions around September 1. By doing so, they ceased to resolve the company’s operational and financial situation. They also argued that the founders blocked email access for key employees and restricted the viewing and transacting ability for important bank accounts. “These actions undermined efforts to stabilize the company, most notably its ability to negotiate with creditors, pay employees and realize a potential consolidation,” the board expressed in its statement. The board said it funded Capiter with sufficient capital to pay August salaries and directed the founders to effect these payments. They claimed that the founders unilaterally and without approval redirected most of this capital to lower-priority creditors and the now blocked bank accounts. According to the board, any liabilities for outstanding salaries and employment benefits rest with the Nouh brothers and Capiter Egypt, where the board is composed solely of the two founders. Yes, you read that right: The major investors which include Quona Capital and MSA Capital, say they hold board seats at Capiter Technologies Holding Ltd., the holding company initially based in Mauritius and now in Abu Dhabi. In contrast, Capiter Egypt has only two board members: the Nouh brothers. Thus, all of the liabilities currently under investigation sit entirely at Capiter Egypt, where Capiter Technologies Holding Ltd. doesn’t hold any managerial rights or signatory powers. Now, here’s where it gets interesting. On September 5, Capiter’s board appointed new management, with El Ghazouli as interim CEO. The Nouh brothers, in their statement, said the board did not commence any official procedures or formality to dismiss them and strike their names off the official records of Capiter “to the best of their knowledge.” In response, the board claims that because the two founders are sole managers, signatories and legal representatives of Capiter Egypt, any efforts to effect a change of control must follow due process and could take up to 60 days, per the guidance of Egyptian legal counsel. The board said