My experience investing in Nik Cubrilovic...

I see RWW is considering placing Omnidrive into the deadpool.

Below is a public letter to Nik Cubrilovic and anyone else interested in this topic.

I am (or should that be was?) an Angel Investor in Omnidrive to the tune of USD$100k.

Nik if you are reading this I would love to see my money returned plus interest, although you already know that as I requested this about two months ago.

If you are interested here are my thoughts/experiences...

1. I invested USD$50k in Omnidrive in late 2006. (Convertible note, which is basically a loan which earns interest, and converts to stock in the event of a large investment (ie: series A venture capital))
2. I invested (convertible note) a further USD$50k in mid 2007
3. I found Nik Cubrilovic to be confident and believable
4. I lived in the valley for 2007 and was just down the road from where Nik lived. So we caught up a few times to go out socially. Again I found him charismatic and believable.
5. I have been informed by others that Nik had a term sheet for VC in early - mid 2007 from a VC firm and shopped it around too much (to other VCs) and basically lost the deal.
6. My first concerns started to occur when I heard that Phil Morle had quit because he had not been paid at all. I think this was late 2007.
7. I was then questioned if I could confirm that I had invested a 3rd time in late 2007, as according to this 3rd party the employees at the time were told their wages would be paid as Clay Cook had just invested further and the funds would clear soon. I informed the 3rd party that this was certainly not the case.
8. I am aware that Omnidrive owes various parties considerable money. I would estimate at least $500k for Investors, $250k for employees and outsourced resources, ??? other parties?
9. I requested my investment and interest back in mid Feb 2008. Received a reply that he was in negotiations with a bunch of possible acquirers.
10. I had been informed by a 3rd party that there was a party that was interested in acquiring Omnidrive however Nik was not returning their emails. This certainly didn't fill me with confidence, so I replied to Nik's email suggesting that he prove he was in negotiations or pay me my money. I haven't heard from Nik since.
11. Note: The convertible notes allowed for the investor to request their funds back plus interest if they had not yet been turned into stock.
12. Nik is great at emails and information, however a lot that I heard contradicted what I read in his emails.
13. I am 99% sure I will not receive a cent.
14. I did consider legal action, however the structure was a little messy. Due to my contracts being with the US parent company (Omnidrive Inc). I am again based in Australia. There is a wholly owned subsidiary in Australia called Omnidrive Pty Ltd. It would cost some serious dollars to take legal action and the fact that I doubt Omnidrive has any money means I would be throwing good dollars after bad.
15. Michael Arrington has been extremely quite on the fall of Omnidrive with the only public discussion that I am aware of happening on a few Seesmic posts where he basically said I no longer cover businesses I have invested in.
16. Some thoughts on Angel Investing and this experience in general: I (we) certainly didn't do enough due diligence, however angel investing is a little like that. You know 30% are going to fail, 50% may just plod along, and hopefully 20% will hit home runs to give the portfolio a return. You tend to go on your intuition and the big points. In Omnidrive's case this was; Online Backups will be big (MozyPro has proved that since), and Omnidrive seemed to be a leader at the time and have momentum, and you back the horse... is this guy (Nik) have what it takes, and at that point in time he did appear to have the ability. If interested see here for my (our) other investments.
17. By the way I never saw any financials, and have a feeling no accurate ones exist, which would indicate to me that Omnidrive as a company would not get through due diligence on a sale.
18. Omnidrive.com is now a domain showing a Network Solutions parking page. I wonder where Nik is, and what he plans to do with the IP?

Here is a copy of our last email conversation...

-----------------------------------------

Sent: 20th Feb 2008

Nik,

Thanks for the reply.

I have been informed that at least one firm has expressed an interest in Omnidrive, however I have also been informed by them (through a third party) that they are not receiving any co-operation/contact from you.

This type of feedback, plus the fact that Omnidrive owes many staff, contractors and debtors considerable money (over 300k) has me extremely concerned for my investment. Not to mention the fact that Omnidrive has no current funds.

The notes we signed clearly outline that I can demand and expect payment for the principle and interest after the maturity date of the investment (12 mths).

If you are serious in selling Omnidrive, I would need to know who the interested parties are plus contact details. I would also like further evidence that progress is being made (term sheets, proof of discussion). If you can satisfy and convince me that something may happen in the coming weeks then I may delay seeking further legal advice.

However, until I am convinced, I am currently on a path to recovering my funds.

A phone call is not desired, I require all communication in writing.

Regards

Clay Cook

------Original Message------

From: Nik Cubrilovic

To: Clay Cook

Sent: Feb 15, 2008 13:58

Subject: Re: Omnidrive - Notes - Principle and Interest

Hi Clay,

Yes I got this email. If I understand correctly, are you asking for the investment back with interest by next Friday? I am in the process of having the notes converted into stock, preceding a sale of the business. At the moment I am speaking to a number of potential acquires, and hope to have a deal wrapped up soon. My target for an acquisition is to achieve at least a 2x return for investors, which would be a sale price of around 900k, at the very least. I have been working with a small team of developers to get the 1.0 release finally finished and out as soon as possible, as it would greatly increase the chances of a good outcome. We are running very lean at the moment and once we switch new signups on again, we will find ourselves being profitable.

If you are asking for your investment to be returned, I am really sorry about that and that you feel that way, but would like to work with you to work that out, since we don't have the capacity to pay it back by Friday.

Do you have time for a call in the next day or two? I am in Australia on Sydney time..

Nik

On Thu, Feb 14, 2008 at 1:11 PM, Clay Cook wrote:

>

>

> Hi Nik,

>

> I hope my email finds you and Omnidrive well.

>

> I have need for the USD$100k invested in Omnidrive over two

> convertible notes, one in late 2006 (USD$50k), and the other mid 2007 (USD$50k).

>

> I am requesting that the principle (USD$100k) and interest be paid to

> the following account by next Friday the 22nd Feb 08...

>

> Account Name: XXXXXXXX

> BSB: XXXXXX

> Acct Number: XXXXXX

> Bank: XXXX

>

> Kindest

> Clay

>

>

> ============

> Clay Cook

> www.claycook.net

> ============

>

>

> No virus found in this outgoing message.

> Checked by AVG Free Edition.

> Version: 7.5.516 / Virus Database: 269.20.4/1275 - Release Date:

> 12/02/2008 3:20 PM

>

--

Nik Cubrilovic www.nik.com.au

CEO, Omnidrive www.omnidrive.com

Key Words: Nik Cubilovik Omnidrive Angel Investor Clay Cook

UPDATED: 4th May 2008

A few other points come to mind...

1. I understand that Angel Investing is a risky business. I am cool with businesses going under and losing 100% of my investment if they have had a hard honest crack at it. I have at least one other in our angel portfolio that I suspect will be in the deadpool within 6 months.
2. I have been told that Omnidrive's revenue went straight to a PayPal account that Nik used as if it were his personal account. I am not sure if this is correct.
3. I have been told that at one stage (mid-late 2007) employees kept asking when they would be paid, and Nik said that Michael Arrington had again invested and that the monies would soon clear. After a couple weeks the employees kept pushing and Nik said it was coming and even provided a wire transfer ID number. Then one of the employees contacted Michael direct and Michael said he had no idea what Nik was talking about. It turned out that Michael had not invested again.
4. RWW blogged about the issue (softly) here in Dec. Phil Morle commented on the blog and disclosed some of his experience. Nik also commented, with a typical "we just knocked back a round of financing, and we will likely raise another round early in the next year".
5. Nik hasn't blogged on his personal blog since Aug 2007.
6. Entrepreneurs should keep investors up to date at least twice a year. Not just with the 'good stuff', but also the challengers. They need to be upfront and communicate if they are in trouble.
7. The last time I looked (you can't now unfortunately as the domain is no longer working) at Omnidrive's forums there were a bunch of "please refund my money" posts, where Nik had said "yes i will refund ASAP", which dragged on for months with the clients coming back saying "still haven't received my refund". It is extremely unlikely that these customers were refunded.

UPDATED: 5th May 2008

1. Why did Omnidrive fail in my opinion? Something strange can happen in the valley and I think Nik got trapped by it completely. Too many parties, too many conferences, too much working between 1-4am, not enough working normal business hours, too much socializing, not enough focus, no business development, and not enough follow up and delivery.
2. Why didn't this come out earlier? From my personal perspective I wanted to see if Nik could pull off a miracle, sell the company, pay off all the debts. Why wasn't this covered by TechCrunch earlier? I would suspect Michael Arrington was hoping for the same as me, however being the owner and editor of TechCrunch I am surprised he didn't cover it. I saw his Seesmic response (ie: I don't cover companies I invest in anymore) but I don't buy it. I think he is an investor in DanceJam but he has certainly covered them recently here and here.
3. I listened to a 2 web crew podcast the other day and was impressed with Cameron Reilly, however Duncan went very soft on Nik, why? I think largely because Nik has been a good friend to Duncan and also so has Michael Arrington.
4. What about the rest of the blogoshpere? Why didn't they go harder on it? Truthfully I believe that most were wary of it because of Michael's involvement in it, plus most people like Nik personally. I certainly was drawn to him until I started to here some of the details coming out.
5. Other coverage of Omnidrive's downfall... Andrew Hyde, Ben Barren and also here, and Matthew Ingram.
6. Something else I heard (not confirmed) was that Jeff Clavier invested in Omnidrive for himself and also his clients. At some stage during 2007 one of his clients kicked up a fuss and asked for his money back and Jeff gave the clients money back and covered it himself.
7. Apologies if I have taken a swipe at a number of people here, however it is a messy affair and I think it's time to call a spade a spade.

UPDATED: 6th May 2008

I want to move on from this topic, as honestly it is quite depressing reporting on it.

But before I do there are a couple major things I want to clear up...

1. I want to make it very clear that this shouldn't be seen as a general experience in investing in Australian start-ups. There are some great aussie start-ups mixing it on the world stage, and 2 that come instantly to mind are Mig33 (another one of our angel investments) and also Atlassian. Aussie start-ups are backable, and there are a bunch of them just starting the journey.

2. This blog post is not about me going in blind, feeling a little bump in the road and then wanting out immediately. I understand the risks involved in angel investing and am happy with the other entrepreneurs I have funded, even though I am going to lose my cash with most likely a few of them... that's the way this game plays out. The thing is they have been transparent and as an investor I feel very comfortable with that fact.

3. I honestly wish Nik all the best and will, if I can, help him on the journey. But first I think we need to get very clear on who is owed what and how we intend to pay it back. I hope this public discussion moves us in that direction...

By the way - RWW posted another article on the whole topic. You can see it here, and I highly recommend reading the comments.