Two entrepreneurs who sold their startup for $21 million seven years ago are now suing the buyer, who they say still hasn’t paid the full purchase price.
Avi Stopper, alongside his college friend Michael Farb, created CaptainU, a sort of LinkedIn for high school athletes that connects them with coaches and colleges, in 2007. The company moved its headquarters from Chicago to Denver’s Santa Fe arts district in 2011.
At the end of 2016, CaptainU was sold to Stack Sports, a tech company in Texas, for $21 million, according to a copy of the purchase agreement BusinessDen obtained. CaptainU is now used by 3 million people, according to Stack. Prices range from free to $200 per month.
“After years of establishing and growing the company into the leading online college sports recruiting platform, Farb and (Stopper) were excited to sell…and take the company to the next level by expanding CaptainU’s reach to millions of athletes,” their Nov. 27 lawsuit states.
Not all of the $21 million purchase price was to be paid up front. About $4.8 million was held back and secured by promissory notes, to be paid with interest by February 2023. But February came and went without payment of the $6 million that Stopper and Farb say they are owed.
“Hi Jonathon — didn’t hear back from you on Friday,” Stopper emailed Jonathon Dussault, chief financial officer at Stack Sports, on Feb. 26, according to a copy of their exchange. “Today is the day on which the (promissory) notes mature. Are wire transfers processing?”
“Hi Avi,” Dussault wrote back. “Thank you for your follow up and I can appreciate your desire to see the funds wired asap. We are working to understand the particulars.”
Dussault did not answer BusinessDen’s requests for an interview last week. Neither did Stack Sports CEO Jeff Young.
Their company ultimately determined that it doesn’t have to pay Stopper and Farb yet, according to the lawsuit. Stack cited a clause in the promissory notes that allows it to delay repayment when the company lacks significant liquidity, the lawsuit claims.
Stopper and Farb say that Stack allowed their attorney to look at Stack’s finances and liquidity certificates. Those certificates, which were also obtained by BusinessDen, show that Stack had $11.2 million on hand in May, $9.1 million in June and $9.4 million in July.
“(Stack) had sufficient excess liquidity to make at least partial payments on each of the promissory notes and was obligated to do so,” last week’s lawsuit says.
The two plaintiffs — Farb, and Stopper’s LLC — are asking Denver District Court Judge Kandace Gerdes to declare that Stack has defaulted on the promissory notes and that the notes have been accruing interest since February at a rate of 7 percent annually.
Stopper and Farb are represented by attorneys Luke McFarland and Klaudia Palczynska with McFarland Litigation Partners in Golden. They declined to discuss the case.
Since CaptainU was sold, Stopper has created an app for poll workers called Poll Hero and started Bike Streets Denver, a cycling advocacy group in the city. Farb, a San Francisco resident, is now the CEO of Boatsetter, an app for renting watercraft.