Startups

Zozi’s ousted CEO sues board following last week’s layoffs

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our and activities marketplace Zozi fired its CEO earlier this year, but employees were only just informed of this fact last week, when the ousted CEO — who hadn’t been in the office for months — crashed an emergency Town Hall meeting scheduled the day after the company announced a series of layoffs, affecting nearly 40 percent of staff.

Now the CEO, T.J. Sassani, has filed suit against the board and investors who have taken control of the company, alleging wrongful termination, among a number of other outrageous claims, including also breach of fiduciary duty, embezzlement on the part of a former exec, fraud, discrimination, harassment and a host of other violations.

Last Thursday, tour and activities marketplace and software maker Zozi confirmed to TechCrunch it had laid off a portion of its staff.

The layoffs, which we noted last week, had affected jobs across the board, including sales, marketing, operations and engineering.

The company at the time claimed 30 percent of staff were affected, but the real number is actually higher — closer to 40 percent, we’ve since learned, and confirmed with Zozi.

The company actually had around 106 employees ahead of the layoffs, which included a team of 35 engineers in Vancouver.

A spreadsheet with over 40 names was being passed around among the affected employees, as a means of helping each other find new jobs.

But the layoffs are only one facet of this company’s current struggles. Sassani is no longer with the company and really hasn’t been around for months. Many told us a member of the executive team, Steven Weidman, was acting CEO after the COO’s departure.

But when we contacted Zozi, we were told that Elon Boms, a long-time investor and board member, has been working with Weidman to lead the company internally. The company now says Boms is acting CEO. Boms is also named in Sassani’s lawsuit.

Boms is a representative of KLP, the fund owned by Karen Pritzker and Michael Vlock, of the billionaire Pritzker family, which is a majority shareholder in Zozi.

Boms tells us that last week’s layoffs were about refocusing Zozi on the part that’s growing — not the consumer marketplace, but the software-as-a-service product for businesses, Zozi Advance.

Photo: Ascent Xmedia/Getty Images

He confirmed Sassani’s departure and a new round of funding in a statement to TechCrunch ahead of the lawsuit’s filing:

“Earlier this year, the Board decided to part ways with our CEO, TJ Sassani, due to strategic differences. He brought us a long way as the Founding CEO, and we wish him the absolute best. As our acting CEO, I’ve just completed a restructure to double down and focus on our SaaS product which grew our revenue nearly 3x last year, and will comfortably 2x this year. March was another record-breaking sales month for Zozi.”

Following the filing, Zozi issued another statement:

Unfortunately our former CEO, TJ Sassani, has decided to pursue a lawsuit against the company regarding his termination in late January. Zozi denies all allegations of wrongful conduct and will take all actions necessary to defend itself and protect the company and its shareholders. The company will not comment further upon pending litigation.

Sassani, we heard from many people, hadn’t been around the office in recent months. Some staff was led to believe he was out fundraising — and Sassani’s lawsuit indicates this, as well.

Employees were not told in January when the board fired him, and only learned of it last week.

But many employees were already concerned that something odd was happening at Zozi. The CEO hadn’t shown up at the holiday party in December, for example, though he lived only blocks away. He didn’t even come after people called him to ask where he was.

“I knew that was a terrible sign that the CEO hadn’t been in the office in months and the COO apparently left the company unannounced,” noted one person who had recently been laid off. “There’s been no transparency about this situation,” they said.

“We were told that he was out fundraising. He met up with a group of employees that were affected by the layoff and was shocked that we weren’t informed that he was fired in December, shortly after raising $15 million, for not agreeing to a merger with our rival Peek,” they added.

Sassani had made those claims to a group he met with at a local bar, following Thursday’s layoffs. He also alluded to various health concerns — including serious illnesses — as being partly to blame for his absence at the company as well as the holiday party. Sassani also told the group he planned to fight back.

After the layoffs were announced Thursday at a Town Hall, a second Town Hall was called on Friday to address the situation with Sassani, and clear the air about the nature of his exit.

Weidman called the Friday meeting, where, along with Zozi co-founder Daniel Gruneberg, the execs prepared to finally tell the staff about the leadership changes, including Sassani’s firing — as the founder had yet to address the situation himself.

But before the meeting started, Sassani entered the room. Some Zozi hires were so new, they had never even seen him in the office. Those who did know him were fairly shocked.

Weidman tried to call off the meeting at that point, but Sassani said he was there to observe, and to please continue. Weidman and Gruneberg refused, so Sassani spoke to the group instead, to explain his firing. He brought up his health issues. He then asked Weidman to proceed with the scheduled meeting, but Weidman dismissed the group instead.

Staff in attendance described it as a very “awkward” situation.

When trying to reach Sassani for comment on all this (initially via his girlfriend), we were directed to call his lawyer, Harmeet Dhillon. We were later provided Sassani’s cell, but he has not returned our calls.

Dhillon’s firm, DLG, Inc., has now filed a lawsuit on Sassani’s behalf. The firm confirmed their involvement but did not issue a statement.

The suit makes a number of astounding claims.

The lawsuit’s claims  

In a lengthy document, Sassani claims a litany of abuses. He says he raised $60 million for his company over the course of his tenure from over 150 investors, including funds from KLP. He claims to suffer from ulcerative colitis, a chronic condition that can lead to cancer and is exacerbated by stress.

Sassani, in the filing, says the board refused him medical leave on multiple occasions, and instead pressured him to work longer hours, worsening his condition. He claims he was diagnosed with early-stage colon cancer in 2013 and had polyps removed, but was never offered the opportunity to take formal leave, even as the conditioned flared and subsided over the years. He says he was instructed to raise funding from new investors in 2014, instead of resting, for example.

In 2016, when Zozi needed more cash, KLP offered $5.7 million in a personal loan to Sassani, of which $5 million was invested in Zozi via convertible note, with other portions used for Sassani’s personal debts. The collateral for the loan was Sassani’s preferred shares and common stock (meaning his voting rights.)

In August 2016, Sassani says he was instructed to fundraise again, but KLP was putting no new capital in — something that would make it difficult to bring in new investors, he said, as KLP was the largest investor. Sassani says by December 2016, his medical conditions were so bad he had to work from home, but formal leave was still not offered. He was also supposed to be out raising equity capital.

Sassani says, during this time, Boms was secretly working on a merger and recapitalization strategy with the then-COO. (We’ve heard this is Peek.) Sassani says other investors were not being made aware of this.

Sassani claims that the COO had been a consultant to Zozi before being COO, but was not owed his fees until the next equity round closed. But the COO had approved a transfer of $58,600 without Sassani’s approval after submitting his hours to the company comptroller. In the lawsuit complaint, Sassani calls this embezzlement and says he fired him. (The board promptly reinstated the COO, however. The COO is not named as defendant in the lawsuit.)

Sassani says that he was threatened with bankruptcy if he didn’t resign, and that Boms used a number of high-pressure tactics to seize control.

He says Boms threatened to force a lender to call a loan on Zozi and sink the company if he didn’t comply. He says Boms followed through on this, as KLP sent a Notice of Default on a personal loan Sassani took from KLP to invest in Zozi.

Sassani says he was also sent a letter that said KLP would sell off all common and preferred stock and other assets valued at $25 million (Zozi’s most recent valuation) to cover the $5.7 million loan. This would allow KLP to seize control of the company and deprive Sassani of his voting power. KLP did not seize the preferred stock Sassani recently purchased, he also says — which is why they would be able to believably claim they were not trying to bankrupt him, the filing states.

Photo: Ascent Xmedia/Getty Images

The flip side

Sassani’s claims are only one side of this complicated saga. Reading between the lines, it appears like this is a founder doing everything in his power to hold onto his company. But many questions can be raised here.

For example, if Sassani were as sick as he claims — necessitating him permanently working from home — why didn’t he voluntarily step down as CEO long ago? Wouldn’t that have been what’s best for his company — to have a leader who could run it day-to-day?

Why did KLP issue a personal loan to Sassani to allow him to pay off personal debts, in addition to infusing the business with more capital? What were these debts?

Why would a company deny someone with cancer, or at least a serious medical condition, medical leave?

Why would a board member representing KLP threaten to “sink” a company they had invested in?

How could paying someone for their hours worked be called embezzlement, when the board immediately rehires the exec in question after ousting the CEO?

According to multiple sources on the exec team, the reality of the situation is not one that Sassani describes in this suit.

Instead, they paint a picture of extreme dereliction of duty by the founder — where he was gone from the office for months at a time — something other non-exec Zozi employees have confirmed. Various sources said he was essentially unfit to lead and lacked the strategic decision-making skills that would allow the company to remain operational.

We also heard that Sassani had just stopped showing up at work, was not participating in leadership meetings and stopped having one-on-ones with direct reports as far back as the second quarter of 2016. By the third quarter, he was really gone.

T.J. attended meetings less and less and by Q4 of 2016 he was rarely seen in the office,” said a member of the executive team. 

The last executive meeting Sassani attended was late summer 2016, where he became excessively agitated when the team didn’t stay on script per his agenda and were in disagreement with how he wanted to spend funds. We heard from sources that the startup’s cash burn was high.

We heard Sassani had hired a number of account executives ahead of his fundraising; and many account execs ended up getting laid off last week.

We also understand Sassani was pursuing a number of expensive initiatives that execs didn’t agree with, including those with outside contractors.

“Working with T.J. was easily the most horrible experience of my professional career,” said one vendor that had been contracted to work for Zozi. “Zozi owes us almost a million in debt and cash. Despite repeated assurances that we would be paid, we’re months overdue on payment,” they said.

Overall, multiple sources at Zozi painted a picture of a CEO refusing to back down, no matter the damage done to Zozi in the process.

While it’s not unusual for a board to take control of a company where the CEO is ineffective, Zozi’s situation is fairly chaotic and dramatic, largely because of Sassani’s behavior, and now, this lawsuit.

In addition to the suit, Sassani has filed a temporary restraining order to prohibit KLP from “selling, deposing, conveying, purchasing, or transferring” any of his assets or equity securities.

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