Startups

Lawsuit claims Snap Inc. hasn’t been honest about its pre-IPO performance metrics

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Image Credits: J. Emilio Flores/Corbis

Against the backdrop of an imminent public offering, one former Snap Inc. employee is claiming in a lawsuit that the company inflated its performance metrics to lure investors.

Anthony Pompliano, the one-time head of Snap’s growth and user engagement team, is seeking an injunction and monetary relief after being fired just three weeks into his tenure. Mr. Pompliano, now a venture capitalist at his own firm, alleges that he was fired for cause after trying to bring attention to systemic misrepresentation of of the company’s internal key performance metrics — resulting in the loss of his employee stock options and potential salary in addition to creating a major eye-sore on his resume.

Afterwords, Mr. Pompliano alleges that on multiple occasions, when called for reference, Snap Inc. prevented him from getting hired in similar roles at other companies by falsely presenting him as incompetent.

In a suit filed with the L.A. County Superior Court, Pompliano’s lawyers outline the tragic story of a whistleblower caught in the fury of an angry tech company seeking to prevent Mr. Pompliano from future employment.

Snap Inc. denies these accusations saying, “We’ve reviewed the complaint. It has no merit. It is totally made up by a disgruntled former employee,” in a statement to TechCrunch.

Of course nothing has been decided and it’s hard to say just what metrics Mr. Pompliano believes Snap misrepresented because a significant portion of the suit has been redacted.

David Michaels, Pompliano’s attorney, told TechCrunch that the information is being withheld while the court decides whether any of it is subject to a confidentiality agreement. Michaels doesn’t believe that it is and further asserted that he would oppose any efforts to prevent the information from becoming public.

One party that was left in is the Alibaba Group. The lawsuit alleges that Snap Inc. Chief Strategy Officer, Imran Khan, misled the ecommerce titan when soliciting investment. Snap Inc. went on to raise over $200 million from the group.

Pompliano is no stranger to due diligence and the world of startup financing. As of an October SEC filing, Pompliano was still in the process of raising his first $10 million fund for Raleigh, North Carolina-based Full Tilt Capital. According to a report from Business Insider, the fund has already closed 22 early-stage deals at an average of $100,000 each. The same report also includes a statement from Pompliano noting that he had signed companies prior to any capital commitment from his limited partners.

Mr. Michaels wasn’t able to comment on whether Snap had made it more difficult to raise money for the fund. It’s also uncertain whether Mr. Pompliano’s move to the east coast had anything to do with the smear campaign he alleges.

The issue of Snap’s internal performance reporting system is really secondary in this case. Even if true, Snap wouldn’t be the first social media company to struggle with appropriately representing performance. Facebook brought negative attention on itself after confessing to misrepresenting average view time for video ads on its platform for over two years. The company claimed the error was a mistake and most of the marketing world moved on.

Snap’s error could hold the potential to be worse if it was intentional and misled investors, but there is no doubt that the primary purpose of this lawsuit is to secure an injunction that would stop Snap Inc. from falsely representing Mr. Pompliano and to seek personal financial relief.

“We believe Snap was falsely representing things, preventing our client from getting a new job and sabotaging new ventures of his,” asserted Mr. Michaels

Given the timing of Snap’s forthcoming IPO, a lot of attention is being given to the company’s financial health — a likely draw of the high level of interest surrounding this case.

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