Lavaboom Encrypted Email Startup Declares Bankruptcy

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Lavaboom, a German startup that was building a zero access secure email service that focused on simplifying PGP encryption security to target a more mainstream user-base, is shutting down and filing for bankruptcy.

Co-founder and CEO Felix Müller-Irion told TechCrunch Lavaboom intends to continue running its services until next week to allow time for users to migrate their data to another encrypted email provider — name-checking Tutanota and Whiteout Mail as possible alternatives.

Speculation about the fate of the startup had ramped up in the past few days, after a post on Reddit by an ex-Lavaboom developer claiming the startup had run out of money. Rival encrypted email service provider Protonmail also blogged about receiving concerned emails from Lavaboom users looking to migrate to another service.

Müller-Irion says Lavaboom has some 12,000 registered users in all — although, given the zero access architecture, the team can’t tell how many are using the service. “What we can measure is the output of emails send through our system which is about 1.5 per second,” he adds.

Why the shut down? Müller-Irion says the problems were two-fold: firstly relating to cash-flow, including the team having to reduce expenses after a failed crowdfunding campaign — “I was faced with a few tough decisions,” he says — although he also confirms he had raised a total of around €280,000 from an undisclosed investor.

Presumably the team burnt through that money during the development process — so questions about how well the funds were managed clearly remain. According to Crunchbase Lavaboom was founded last year, at the start of June, so it’s crashing and burning in a little over a year.

“I reorganized the internal structures but unfortunately that was too late,” adds Müller-Irion, talking around the financial difficulties. “As a result we had to let go of Piotr [Zduniak, the contract developer who posted the Reddit claims about mismanaged funds]. We needed to cut down on expenses pretty quickly.”

There’s clearly no love lost between Müller-Irion and Piotr at this point. Müller-Irion describes the latter as a “butthurt kid with too much allowance” and says the team “didn’t know for way too long that he was only 16”. “We therefore had to cut a lot of corners to communicate with him while we were in the office, because he was in school!”

While, in his Reddit post, Piotr identifies himself as one of the key cost centres for Lavaboom. “To be honest, Lavaboom had a lot money, but didn’t use it correctly,” he writes. “One of the most expensive assets were services of freelancers such as me.”

How Lavaboom came to hire — and be forced to rely upon — a schoolkid is another question. And one which ultimately reflects poorly on the quality of the decisions being made by the founders. Not for nothing do investors obsess about the team they are investing in.

Müller-Irion admits Piotr was “the only one with sufficient knowledge of the backend” — by way of explaining why he was employed for as long as he was.

“We later found out that Piotr was planning his own version of Lavaboom‘s API and was developing this as a side project!” he adds.

And while Müller-Irion claims the startup did have two VCs “seriously interested” in investing, he says those leads went cold “after they found out about the financial situation we were in and the rumors started to spread”.

The second issue which Müller-Irion mentions to explain the shut down is an ongoing criminal investigation involving the Lavaboom email service that he says he can’t talk about for legal reasons.

“I will not compromise any user-data. So far we did not get a request to hand over any of our unuseful user-data. Since I do not want to risk it and the financial situation we’re in I chose to file for insolvency.”

“I don’t think I would want to do a security company again. It’s really tough and you need a lot of money to get it off the ground before you may get an ROI, or your MRR starts showing significant results,” he adds.

Lavaboom’s code is already open source (hosted on Github), but Müller-Irion says that it will also be opening up other elements such as internal server configs.

Update: Zduniak has now responded to a request for his side of the story. Firstly he points out that although he was 16 at the time he started working for Lavaboom he’d been programming since the age of eight. 

He also reiterates that poor money management and bad recruitment decisions were a key part of Lavaboom’s woes.

After I joined the team, we only found one good freelancer, who ended up developing the whole web client. The company wasted a lot of money on freelancers who had no idea about what they were doing, blatantly lied to us or worked pretty damn slow. Neither Andrei [CTO], nor me had the will to fire them after a week. I always thought about giving them a second chance and Andrei was just a good-hearted man. We ended up spending relatively a lot of money on freelancers who frequently broke more stuff than they fixed.

Zduniak says a specific personality clash between him and another member of the team also caused conflict — starting around May this year.

By June, he says the freelancers were told that their hourly contracts would be terminated, and they would instead be paid for fixed milestones — causing further disagreement, and ultimately leading to him to be kicked off the team when the side-project he started working on was eventually discovered:

I didn’t agree to [fixed milestones], we frequently argued. Usually I would have leave the project back then, but I was very commited to its success. After two weeks of arguing over 200EUR, I was told that Andrei would take over the development. I could clearly sense that it would not work, as Andrei would simply promise stuff that he would never complete. In my free time, I decided to work on a service similar to Lavaboom, which would be opensource and have all the stuff that was incorrectly designed rewritten. I didn’t tell anyone about it and slowly made progress.

Zduniak describes Lavaboom as “my brainchild” — and says he “designed the whole crypto model”, and “came up with some pretty good ideas which simplified the usage of encrypted emails, while not decreasing the security of users’ data” — saying it was his commitment to the project which kept him working in an environment he didn’t like for as long as he did. And also ultimately pushed him to start work on an open source version of Lavaboom.

“Maybe if they used basic logic, the company would have survived,” he adds. “Right now I’m even glad that this stuff is happening, at least users will be free from the terrible organization that Lavaboom GmbH was.”