Dovi Frances selling Papaya Global shares at 90% discount

Last month Israeli payroll platform Papaya Global CEO Eynat Guez sent a warning letter about a potential defamation case to investor Dovi Frances founding partner of the Group 11 venture capital firm. She asked him to apologize for his outspoken criticism, which according to her, he had spoken in media interviews.

Frances had said that Guez was encouraging a “run on the bank” and had in effect called on citizens and tech entrepreneurs to empty their bank accounts in Israel and transfer their money to foreign banks, due to the judicial overhaul legislation and political instability in the country.

The threat of a defamation lawsuit referred to a quote by Frances who told Channel 13 that Guez’s call was from “personal caprice – a whim that does not stem from a business motive but a political motive.” In addition, Guez charges that Frances sent spam mail, after she received several marketing emails from the fund that she claimed arrived without her consent.

Now, it appears that following Guez’s warning letter, Frances sent Papaya Global investors a letter in which he offers to sell Papaya Global shares for 10% of the company’s most recent valuation of $3.7 billion. Frances is offering to sell Papaya shares at a company valuation of $444 million, a discount of about 90% on the share price, according to KAN Channel 11 reporter Avishai Grinzaig.

Frances’s terms

If Papaya reaches an exit, Frances requests an additional consideration of $15.6 million dollars, due to the terms of priority in liquidation that the fund has. Frances points out that if the shares are not bought by existing shareholders, he will offer them to senior executives in the industry who have criticized him in recent months: Vintage founding partner Alan Feld, Qumra Capital partners Erez Shachar and Sivan Shamri Dahan and TLV founding partners Rona Segev and Eitan Bek. “In recent months, these parties have expressed their trust and support in the CEO and the way she leads the company, and accordingly we assume that they will jump at the opportunity to purchase holdings in the company at a discount,” Frances wrote.

“Since the beginning of 2023, Group 11 has been suffering from communication difficulties with the company’s management and is unable to receive the full information about the company’s activities and its affairs,” Frances wrote. “Even though the company is obligated to provide information regarding the company’s affairs and even though the fund is entitled to be invited to all the official or unofficial meetings and discussions of the company and its management with shareholders and investors and to receive all the information and documents – all these have not been fulfilled since May 2023.

Frances added, “What was “the straw that broke the camel’s back, for Group 11, in recent weeks the company’s CEO sabotaged and continues to sabotage our efforts to sell our holdings in the company, in that she refuses to cooperate not only with us but also with third parties and others and to provide the information required in order to allow a sell transaction.”

Group 11 made its initial investment in Papaya Global in 2020, during a secondary round (sale of private shares by investors and entrepreneurs), when it purchased 3.6% of the company’s shares for $5 million, at a company valuation of $134 million. Over the following years, Group 11 took part in three regular financing rounds, investing $8.1 million in Papya, with the company valued at $3.7 billion in the most recent round.

In between, Group 11 sold shares worth $12 million in one of the fundraising rounds. If Frances receives the returns he is seeking for his shares, he will benefit from a double return on the investment in the company, and if the company exits, the returns will be more than three times the money invested.

Papaya Global said in response that “Papaya Global is a global market leader in the field of salary and payroll that continues to grow at a high growth rate year after year. “Papaya Global itself approached Group 11 several months ago and offered to purchase all the holdings from them, and Einat is personally leading a group of investors to purchase all the shares. All attempts to blackmail Einat by Frances after his recent statements are ridiculous. “The letter was sent to the media before it reached the company and testifies to the conduct of Dovi Frances who chooses to prefer his personal wars over the benefit of his investors. “The group of investors led by Einat Guez is happy to buy the shares at a bargain price. As they say, think carefully about what you are doing before you act.”

Published by Globes, Israel business news – en.globes.co.il – on August 29, 2023.

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