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Cloudbrink’s co-founder takes his company to court over allegations of financial fraud

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A simmering dispute between the co-founder of Silicon Valley startup Cloudbrink Inc. and the executive brought in to run the company became public knowledge on Wednesday with the filing of a lawsuit.

In a complaint filed in Superior Court of Santa Clara County, California, Subbu Ponnuswamy, co-founder and former chief technology officer of Cloudbrink and his attorneys alleged that Chief Executive Prakash Mana engaged in “fraudulent conduct” resulting in retaliation against Ponnuswamy and his termination. Mana was hired to run Cloudbrink in 2020.

The lawsuit against Mana and the Cloudbrink board of directors alleges reporting false or nonexistent revenue, counting nonrecurring revenue as annual recurring revenue, and counting expired or multiyear contracts as single-year revenue, which “resulted in a far rosier picture of the company’s financial situation.”

The court filing noted that Mana used fraudulent “customer quotes, invoices and purchase orders” and orchestrated an “illusion of success that was then shared with the Board and current and prospective investors.” Cloudbrink announced a $25 million Series A funding round in November 2022, led by Highland Capital Partners and The Fabric co-creation studio.

In an exclusive interview with SiliconANGLE, Ponnuswamy expressed a desire to hold the company responsible for its actions. “I hope for accountability,” Ponnuswamy said. “Raising venture capital is a responsibility, not merely an accomplishment, and breaching this trust should incur significant consequences.”

Company plans formal denial

In addition to Mana, Rajan Raghavan, co-founder and CEO of The Fabric, Corey Mulloy, managing partner at Highland Capital Partners, and Prabakar Sundarrajan, founder and chief strategist at The Fabric, were named in the court filing as participating in conversations with Ponnuswamy about his concerns surrounding potential fraud. SiliconANGLE reached out to all three for comment, but no response was received from them by the time of publication.

Cloudbrink company spokesperson Mark Fox provided the following statement:

“Cloudbrink affirmatively denies Ponnuswamy’s allegations and will be filing a formal denial in court at the appropriate time. Our policy is not to comment on active litigation; however, we can say that Cloudbrink has an impeccable reputation in the marketplace, intends to vigorously defend itself in this lawsuit, and views the allegations as internally inconsistent and nonsensical. The Board is aware of Ponnuswamy’s allegations and remains in full support of Cloudbrink’s current leadership and direction.”

Founded in 2019, Cloudbrink provides a software-only solution for edge-native hybrid access-as-a-service or HAaaS. The company claims that its in-office experience delivers a 30-fold increase in application performance and reduced operational complexity. Prior to starting Cloudbrink, Ponnuswamy was the CTO at Mojo Networks and Koda Cloud, and was a Distinguished Engineer at Aruba Networks for 11 years.

According to the court filing, Ponnuswamy became increasingly concerned over Mana’s handling of the company’s finances, and the inclusion of nonexistent customers and false revenue in Cloudbrink’s investor pitch deck. Ponnuswamy elevated his concerns to the board of directors in 2022.

Cloudbrink emerged from stealth mode in November 2022 and announced its $25 million in funding that month. In the court filing, Ponnuswamy claimed that he presented “detailed evidence” of the company’s attempt to falsify customers and annual recurring revenue during a meeting with Raghavan, Sundarrajan and Mulloy in March of this year. Ponnuswamy was terminated later that month.

Advice for entrepreneurs

Asked by SiliconANGLE about why he moved forward with legal action against the company he started, Ponnuswamy expressed a belief that company founders needed to address deceit.

“Proceeding with legal action against the startup I founded was a tough but unavoidable decision, which I made in the face of limited meaningful alternatives,” Ponnuswamy said. “With the environment of limited enforcement and consequences, companies may be tempted to engage in financial deceit. Entrepreneurs must actively oppose such deceit, which risks the hard work of many dedicated team members.”

The lawsuit filed on Wednesday provided another chapter in what Ponnuswamy claims is a “fake it till you make it” mentality that has become a part of tech industry lore. Cautionary tales of biotechnology startup Theranos Inc. and the now defunct FTX cryptocurrency exchange highlight the perils of deceiving investors, consumers or both in an attempt to strike gold.

Asked if he had taken any particular lessons away from his experience with Cloudbrink, Ponnuswamy encouraged others to be proactive whenever there is a possibility that a company’s financial situation may not be managed honestly.

“I encourage all employees to consider that staying silent on financial manipulation means deceiving not only the board and investors, but also yourself,” Ponnsuwamy said. “You cannot achieve a genuine product-market fit when a significant portion of the ‘revenue’ is fabricated.”

Image: estherpoon/Adobe Stock

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