SA VC firm HAVAÍC defends itself over suing Custos; still wants to work with startup


South African venture capital (VC) firm HAVAÍC has issued a statement defending its decision to take legal action against local tech startup Custos Media over allegedly reneging on an investment deal, but says it would still like to settle matters out of court and work with the company.

Disrupt Africa reported last week South African blockchain startup Custos Media Technologies had been sued for US$4.45 million in the Western Cape High Court by local VC firm HAVAÍC, which claims the startup backtracked on an investment agreement.

Custos combats digital piracy by embedding bitcoin bounties as watermarks within videos and movies. HAVAÍC, an active investor in African tech startups, claims Custos agreed in writing to take on ZAR3.5 million (US$186,000) investment from the VC firm as part of its Series A round, and subsequently reneged on the deal.

Custos denies this story, with chief executive officer (CEO) G-J van Rooyen saying the startup did not sign any agreement with HAVAÍC and ultimately was within its rights to decide not to accept its offer of investment.

The news of the legal action – which Custos says has forced it to significantly cut the size of its team and means the startup is struggling to survive – provoked disquiet in the South African startup and VC space, with several well-known investors and entrepreneurs taking to social media to criticise the approach taken by HAVAÍC.

“Philosophically enforcing a VC deal where you’re not wanted (however things got there) is no way to start a relationship. Superior returns come from great partnerships built on trust. Very unfortunate for VC/startup ecosystem in South Africa. Custos Tech had legs,” Knife Capital partner Keet van Zyl tweeted.

Hlayisani Capital investment principle Brett Commaille tweeted: “You can’t drag someone to the altar, and you shouldn’t sue them for your imaginary children’s future income. Was very sad to see this approach and demise of a cool South African tech company so unnecessarily.”

Mark Allewell, founder and CEO of IoT-based insurtech startup Sensor Networks, tweeted: “Still amazed that these guys actually sat at a table and decided to sue a startup for ZAR100 million to teach them a lesson for not taking their deal. Clearly no understanding of being an investor.”

Meanwhile, the Southern African Venture Capital and Private Equity Association (SAVCA) said in a statement it had “expressed its concerns to HAVAÍC about the approach it elected to follow to deal with the matter and the potential negative implications it may have on the broader ecosystem”, but was unable to intervene any further as the process in the High Court had already commenced.

In the wake of the fallout, HAVAÍC hired the Cape Town-based firm Hewers, which describes itself on its website as a “niche market crisis communication, issues management and reputation measurement consultancy, protecting personal and brand reputation, especially when things go pear shaped”.

The VC firm then released a statement, in which it said it was run by experienced and technically-sophisticated managers, with a tried-and-tested business model that had so far worked to support 12 businesses.

“Custos was an excellent fit for our business. I liked the product, the innovation, and its international potential. My confidence and admiration for the founders Gert-Jan van Rooyen and Fred Lutz had grown since we first met in early 2019,” said Ian Lessem, managing partner at HAVAÍC.

The statement said HAVAÍC had entered into an agreement whereby it would provide bridge funding by way of a convertible note and assist them in an advisory capacity to help raise further funding by way of a Series A fundraise. In doing so, it said HAVAÍC undertook extensive technical and financial due diligence, built Custos a financial model, and prepared additional investor material, while also procuring local and international funding from their investors to invest into Custos’s convertible note. 

“When Custos first approached me, they had a funding and technical gap, and asked if HAVAÍC could help. I was in a fortunate position to offer both our advisory and investing experience to them, and I was incredibly excited to work with Custos and be a part of their amazing journey,” said Lessem.

Having agreed all the commercial terms and completed its due diligence, HAVAÍC said it had received confirmation of approval from the Custos founders for the investment in mid-April of last year. According to the statement, Custos management had further requested HAVAÍC invest as soon as possible as a result of financial concerns.

“As HAVAÍC did not want this to occur, and being satisfied that they had an agreement to invest into Custos, called for the funds from their investors. Once they had called for the funding and had it in their bank account, a shareholder now retroactively started raising concerns in an attempt to renegotiate the advisory fees which had clearly been agreed upon previously as early as February 2019,” the statement said.

This shareholder was Innovus, the tech transfer facility at Stellenbosch University that helps with commercialising the university’s innovations and has a minority investment in Custos.

Apparently, HAVAÍC was taken aback by “this attempt to back track on what had clearly been agreed”, while Custos decided to put a stop to the investment that HAVAIC had already secured on behalf of the startup.

“I was shocked. I could not believe that a party who we had worked so hard for and built goodwill for in the local and international investor community would do this,” said Lessem.

Lessem said HAVAÍC met and spoke with Custos and Innovus on many occasions in May 2019 in an attempt to resolve the issue. By its own account, HAVAÍC agreed to remove its advisory fee from the agreement and move forward with the investment, as it had been told by Custos management that this was “the sole basis for Custos reneging on the agreement”. However, it said despite “several failed attempts to resolve the matter amicably”, no resolution was found.

“Investors considered this a very serious breach. After extensive deliberation and engagement with our investors and stakeholders we acted in order to protect their rights, just as we would do for any of our portfolio companies,” Lessem said.

“This does not bode well for investment in South African startups. It is a tough investment environment and we worked exceptionally hard to secure the investment, which includes foreign investors who expressed concerns around investing in the South African ecosystem if this type of conduct is condoned.”

Lessem said it was not HAVAÍC’s intention to harm Custos, and that he and his team were “surprised and concerned” to learn at “such a late stage” that the startup was under financial pressure. He claimed the company was ready to make peace and proceed with the investment.

“We remain saddened that a shareholder dynamic seemingly interfered in a successful working commercial relationship, and have always been and are still open to working together with the founders to make Custos a success,” said Lessem. 

“We believe the founders and Custos have enormous potential to be internationally successful. Our preference is to restore the breakdown and work with the business to its full potential. I am and have always been willing to explore ways of resolving this impasse outside the courts, and on several occasions have communicated this to Custos.”


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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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