On Monday, Symbiont told the bankruptcy court that a deal was pending to provide interim funding of $6 million for the blockchain startup while it pursues additional equity funding. The company entered into Chapter 11 bankruptcy at the start of December 2022 after it was unable to repay $2.3 million relating to a secured loan from LM Funding.
In the past, Symbiont raised $56 million in funding from the likes of Citi, Nasdaq Ventures and Broadridge, with high profile clients including Vanguard, Nasdaq, SWIFT and State Street.
Planned merger and funding
There’s a non-binding letter of intent from Morse Labs, which aims to merge with Symbiont and inject $6 million as bridging funding to acquire or settle the LM Funding debt and pay other creditors, which totals another $2.3 million. It also aims to reinstate and pay the 30 employees currently on furlough.
The merged company will be called Symbiont and then pursue an equity funding round to raise $12-$15 million at a valuation of $75 million.
In the meantime, the funding will wipe out Symbiont common stock shareholders including founders and the seed round, leaving “Morse’s sole stockholder” with two thirds of the equity and the balance going to Symbiont preferred stockholders from its Series A and B.
Based on our research, this likely means an organization controlled by Symbiont’s current chairman Shivan Govindan will own two thirds of the merged company.
White knight is Symbiont’s chairman
In the bankruptcy filing, Symbiont’s lawyer described Morse Labs as a client of Symbiont’s for two years.
“Morse Labs is an existing licensee of Symbiont and has an tech team that has been working with the Symbiont team for approximately two (2) years,” wrote the lawyers in a letter to the court. “They are well versed in the technology and applications. As such, Morse brings with it technical expertise, access to its own customer base, and a complimentary set of products, which makes them an ideal strategic partner to grow the Debtor (Symbiont) following the conclusion of this proceeding.”
There’s little record of Morse Labs on the internet. A Symbiont insider told Ledger Insights there was a project called Morse, which is developing a blockchain payment system for credit unions in Colorado. The company behind the project already provides a payment system to credit unions and blockchain is being used to upgrade it.
The Morse payments project was associated with Helios Companies, which provides compliance software solutions to community banks and is led by Symbiont’s Chairman, Shivan Govindan.
The Helios connection is reinforced by the Morse Letter of Intent to merge with Symbiont, signed by an executive who is also a board member of Helios Companies and Helios Holdings. Last year Helios Holdings raised funding of $8.4 million, according to an SEC filing.
Meanwhile, in late December 2021, Symbiont settled a court case with IHS Markit’s IPREO in which it received $53 million. The secured loan from LM Funding was just before the settlement. However, much of the settlement went towards litigation funding, leaving only $25 million, which was spent on operations during 2022.