In February, Forbes touted app-testing startup HeadSpin as a unicorn "without the notoriety" of streaming platforms like YouTube and TikTok. That description might no longer apply.
The company is returning $95 million to investors and lowering the value of its Series C stock by nearly 80% after an internal review found financial irregularities, tech publication The Information reported Monday.
The company also replaced its CEO and co-founder, Manish Lachwani, with Rajeev Butani, its chief sales officer, according to the report. The executive change was made in May and had not been previously reported.
The company, which launched in 2015 to give developers real-time help with app function, was valued at $1.16 billion in February when it went to market with its Series C stock offering, raising $60 million.
The financial restatement follows an internal review launched in March after the company told its board it expects to report $15 million in annual recurring revenue (ARR), rather than the $100 million it told investors in February.
The internal review was led by former Google executive Nikesh Arora, the company’s board chair, and Karim Faris, general partner of GV, one of the company’s shareholders. GV is the investing arm of Google parent Alphabet.
Arora and Faris, through a special board committee, hired KPMG to review financial statements beginning in 2018 through the second quarter of 2020, and brought in a forensic accounting firm, Guidepost Solutions, to investigate whether some of the company's transactions were irregular.
HeadSpin has $109 million in cash and is expected to spend up to $95 million in a tender offer to repurchase its Series B and Series C stock, The Information reported.
By lowering the value of its Series C stock by nearly 80%, the company’s valuation could drop to as low as $250 million, The Information calculated.
The company is expected to pay $81 million in cash back to investors, with the additional $14 million to be paid in five years’ time, according to a letter Arora sent to investors, viewed by The Information.