Long before Tinder became a wildly popular smartphone dating app with 50 million users and an estimated worth of $1.35-billion (U.S.), a well-known Toronto-based venture capital fund held a stake in the technology incubator that developed the software.
That indirect stake in Tinder and how it changed hands in 2012 is now the subject of a court feud that has torn apart former business associates involved in Toronto's Extreme Venture Partners Fund, which has investments in various startup tech companies.
Three of the fund's founders allege three other fund investors conspired against them to buy out a company that secretly held the coveted slice of Tinder, an app that matches users by way of the GPS location on their smartphones and has since become so ubiquitous that some blame it for perpetuating a superficial "hookup culture."
However, in a statement of defence filed last month in Ontario Superior Court, the defendants call the allegations an attempt to "rewrite history," saying that at the time the sale was being negotiated, not only did they not know about Tinder – it had yet to be developed.
It is rare for such a dispute to break out in Toronto's small technology venture capital scene. The battle began last November, when lawyers for Extreme Venture Partners Fund and three of its founders, Ravinder (Ray) Sharma, Imran Bashir and Kenneth Teslia, filed a claim demanding more than $200-million in damages and alleging that two former business partners, Amar Varma and Sundeep Madra, conspired with a Silicon Valley-based friend and former Facebook vice-president named Chamath Palihapitiya to hide the interest in Tinder and buy it out from under them.
In 2012, the fund, along with Mr. Sharma, Mr. Bashir and Mr. Teslia, were paid $10-million for their interest in a software development company called Xtreme Labs, which was involved in a joint venture called Hatch Labs and had a stake in what became Tinder.
According to court documents, Mr. Varma and Mr. Madra, who were co-chief executive officers of Xtreme, retained their shares in the company, worth $8-million. But less than a year later, the court documents allege, Xtreme Labs sold its interest in Hatch, including its stake in Tinder, for $55-million.
In a court filing, Mr. Varma and Mr. Madra, who are long-time friends, say they never concealed Tinder from their business associates, as they knew nothing about it. They say it had not even been developed when the sale was negotiated.
"The Plaintiffs seek to re-write history because Tinder ultimately achieved commercial success," their statement of defence reads. "Its future success was unforeseen and unforeseeable, and it did not achieve success for years thereafter."
Hatch Labs was a joint venture between Xtreme and Los Angeles-based InterActive Corp., which now owns Tinder and is planning an initial public offering of its online-dating division, which also includes Match.com. Mr. Varma and Mr. Madra say in court documents that Xtreme's involvement in Hatch was always disclosed.
According to Mr. Varma and Mr. Madra, Hatch, unbeknownst to them at the time, held "an internal hack-a-thon" for its staff in February, 2012, that resulted in concepts for a number of new apps, including one to use geographic information from smartphones to match users of a dating app, which would later become Tinder.
Tinder launched in August, 2012, two weeks before the Xtreme Labs transaction closed and months after negotiations had ended, Mr. Varma and Mr. Madra say in court documents. Tinder still had "very few users" in the months after it was released, they say, and "any future success was speculative." By October, 2012, when Mr. Madra and Mr. Varma say they first became aware of Tinder, it had just 2,000 users. (It had 670,000 visitors last May in Canada alone.)
In a counterclaim, Mr. Madra and Mr. Varma demand $10-million in punitive damages, $150,000 in unpaid fees, and say their opponents should not be allowed to use cash from Extreme Venture Partners Fund to pay their legal fees.
Ira Nishisato, a Toronto lawyer with Borden Ladner Gervais LLP acting for Mr. Madra and Mr. Varma, said the case against his clients is frivolous: "This is really a case of seller's remorse."