This story begins in August 2019, when Sequoia Capital and Matrix Partners, two of India’s marquee venture capital firms, were preparing to invest in a pet walking startup named Cozo Pets. They issued a term sheet— a non-binding agreement that contains the basic details of an investment—to pump $3.5 million each in the company.
They were excited.
Pet care is among the hottest internet startup spaces globally. The segment came to life in 2000, when Pets.com catapulted into Silicon Valley’s hottest startup. The company crashed spectacularly and became the symbol of the dotcom bubble, but that had little effect on the fortunes of the segment.
Only recently, SoftBank-backed Wag and Rover have grown fast and attracted large amounts of capital. The sector even has its own catchy name—Doggie Tech.
Owners are extravagant with pets the way parents are with children. For companies, there is money to be made from say, walking dogs, vet treatment, grooming, food and so on. But the sector has been fragmented and offline for years.
It was this thriving segment that Cozo was targeting with pet wellness services such as walking, exercising and grooming. The then one-year-old company said it had served 3,500 pet parents.
For a one-year-old company, Cozo was receiving plenty of attention from investors. Nexus Venture Partners, another top VC, was upset at not sealing a deal back then.
The interest of investors such as Sequoia, Matrix and Nexus was understandable. Cozo’s revenue had quadrupled from Rs 50 lakh to Rs 2 crore in three months. The co-founder and CEO Vaibhav Jain affected a confident demeanour. Ola CEO Bhavish Aggarwal, who shares a common investor in Matrix, was also planning to invest.
Not A ‘Purrfect’ Company
In August, Sequoia and Matrix conducted due diligence to examine the company’s numbers, customers and dog-walkers. They were about to verify if all the fervour Cozo was generating was for real. They were in for a shock.
In a Gurugram locality, the investors found about 20 dogs being walked by people wearing Cozo t-shirts. So far so good.
One investor asked a security guard who was around, “Do these people come here every day? To walk dogs?”
“This is the first time I am seeing them,” said the guard who had been serving in the area for years.
The investors dug for more information and found out that the 20-odd dogs and their walkers were specifically planted at that location that day for the due diligence. The walkers and customers confessed that they had been coached by the founders on what to say when the investors turned up.
There were more nasty surprises in store. Cozo was also siphoning off money to relatives of the founders, sending lakhs for vague services. Revenue was inflated.
Digital payments were already pervasive in India by 2019. But Cozo claimed that all of its revenue was in cash. There was not a single bank or online payment from a customer.
This account has been pieced together from people who are intimately familiar with the matters of Cozo. All of them spoke on the condition of anonymity.
Moneycontrol has also verified bank statements, legal notices and other documents to the company’s operations.
Cozo, Sequoia and Matrix declined to comment for this article.
What happened after the due diligence?
Sequoia and Matrix recused themselves from the deal. Neither firm has seen something as brazen as Cozo’s shenanigans, according to people aware of their operations.
The matter did not end there.
Cozo’s other investors, including Snapdeal founders Kunal Bahl and Rohit Bansal’s Titan Capital, were stuck. The startup had raised Rs 2.5 crore in the months prior. The money, its usage, or lack of it, and a series of questionable decisions from the company has created a rift between investors and the company.
Titan Capital too did not comment.
Cozo Pets (Brujun Technologies Pvt. Ltd) was founded by two former Uber executives, Vaibhav Jain and Yasir Khalil, along with Jain’s lawyer wife Minal Kaushik, a significant shareholder but not heavily involved in the business. Jain, an MBA from XLRI was the operations and training lead at Uber, responsible for working with drivers and managing relationships. Previously, he was the head of learning and development, an HR function at Bajaj Finserv.
Khalil, an engineer from IIT Guwahati, worked on the customer support experience at Uber, before he co-founded Zorro Solutions, a tech-enabled customer support firm.
Adit Parekh remembers that he was impressed by Jain. Parekh is part of the software unicorn Freshworks and was earlier an investor with Blume Ventures. He has seen more than 20 startups in the pet care space.
Parekh did not evaluate the space the way investors usually do, diving into reports from multinational firms about market sizes and macroeconomic data and studying business models.
He was convinced about the potential of the sector, drawing from the first-hand view of the struggles his neighbour in Mumbai faced. The neighbour’s husky (a sled dog) was hit by an autorickshaw and broke her spine. The lack of infrastructure for finding vets and facilities during a crisis made Parekh, a dog lover, interested in the pet care space.
Parekh decided to invest Rs 15 lakh and roped in his friend Viren Doshi, a Malaysia-based travel executive, who decided to commit Rs 10 lakh. FirstCheque, a micro VC firm, committed about Rs 25 lakh and the Snapdeal founders’ Titan Capital invested another Rs 2 crore.
They were all gung-ho about the company’s growth, the founders’ reputation (Jain himself had three pets and loved them a lot, one person said) and the market opportunity.
And then the due diligence happened. Soon after, the larger deal fell through, exposing the cracks in the company.
Parekh says he is over Cozo today. But you can sense the hurt and shock that lingers in his voice.
Parekh was more than just an angel investor for Cozo. He was their first ever investor. He introduced the founders to all the other investors. He was involved in hiring and interviewing candidates for senior roles. Often, he said he picked up Jain’s calls at midnight asking for company advice.
After Sequoia and Matrix withdrew from the deal, Cozo’s existing investors launched their own investigation.
First, they stumbled on related party transactions. Cozo was less a startup, more a family business, and not in a good way, they found out.
In July and August 2019, Cozo paid Rs 56.64 lakh to Zorro (co-founder Khalil’s call centre, remember?) through 10 transactions, show bank account statements reviewed by Moneycontrol. Khalil was and still is majority shareholder and a director at Zorro, said people familiar with the matter.
In August, Cozo paid Rs 27.6 lakh to Divisht Kaushik, CEO Jain’s brother-in-law. The money is supposed to be six months advance and six months deposit payment for premises rented from the brother-in-law and father-in-law Satish Kaushik. Moneycontrol has reviwed a copy of the rental agreements.
The same month, Cozo also paid Rs 6.93 lakh to Jain’s sister in law Vallari Kaushik, in lieu of making t-shirts and caps for the company’s dog-walkers.
“The moment you see related party transactions (RPTs) is when you know there's something amiss,” Parekh said.
Company law in general places restrictions upon RPT, and Brujun Technologies’ shareholder agreement in particular restricts RPT unless voted upon, said people familiar with the matter.
The investors demanded an explanation from Jain. Through the course of the past two years, Jain’s responses have been a combination of denial, or partly accepting and then somehow justifying what was happening, said people aware of the matter.
“He will look you dead in the eye and casually lie to you. It is eerie,” said one person directly involved in those discussions.
Cozo likely did not have any customers of note, except those it artificially created, said the people familiar with the matter. All the so-called cash transactions, meant to be ‘revenue’, was possibly actually the investors’ own money shown as revenue when cash is deposited in the bank, they suspect.
When the angel investors and micro VCs invested, they did not check for customers . This is not unusual because when angel investors approach a startup in the early stage, it does not have the systems, processes and records to show for due diligence. This arrangement suited Cozo fine as it may not have had much to show.
Even in late 2019 and afterwards, for many months, Jain had several meetings with his investors. When confronted with evidence of fraud and mismanagement of funds, he promised to return the money. Only a portion of the total investment has been returned though.
There were always excuses for the delay. But investors were getting jittery.
"Part of angel investing is spending time with the founders and making relevant connections to help the business scale. But when your trust is broken, it is just a sinking feeling,” Parekh said.
Let’s Go Legal
Investors finally had enough. On September 25, they sent a 13-page legal notice to the promoters and directors of Cozo. Barring Titan Capital, other investors asked to be paid Rs 65,37,033, which covers their investment of Rs 50 lakh, 18 percent interest per annum and Rs 3.75 lakh incurred towards legal costs to complain to the Registrar of Companies, Income Tax Department and Serious Frauds Investigation Office.
They asked for this money because of Cozo Pet’s “illegal and deliberate financial irregularities corporate governance non-compliances, commission of fraudulent activities, misappropriation and siphoning of funds, acts of mismanagement of the Affairs of the Company, breach of trust and fiduciary duties,” according to the notice, which Moneycontrol has seen a copy of.
Cozo did not officially respond to the notice for some time, only asking for a 45 days grace period to comply with the notice. The investors followed up with another notice on October 9, with the same allegations, but threatening to sue this time.
This time Khalil responded with a three-page reply of his own, alleging among other things, that the investors “used investment as a tool to stall our business and our company so that you can start your ventures or invest in existing or new competitive ventures”. Cozo was amicable all along while the investors took the seemingly ugly legal route, according to Khalil.
“It seems that you never wanted our company and its business to be a success. You approached us with a malicious objective, to destroy our business and start your own venture or invest in existing or new competitive ventures for higher profits,” the response reads.
Incidentally, Titan Capital recently invested in Super Tails, a digital pet care platform.
Khalil said in the response that the company is ready to give back the money it raised. It even returned 10 percent of the money invested.
The rest has not come, despite repeated promises, repeated texts, calls and WhatsApp messages.
Cozo Pets now seems to have pivoted from its dog-walking plans to online vet consultations. This strategy is in line with the COVID-19 pandemic shifting operations of several companies online.
The vet consultation platform Cozo Plus is available on Google’s Android Play Store. But it us not accessible on Apple’s App Store in India.
Even the Android version does not seem to work, when this reporter and six other people tried it out. It asks for your mobile number to send a One Time Password (OTP), but the OTP does not come.
Cozo’s investors have no idea what the company is up to. The founders have not responded to their calls or messages for the last six months or so, and unless they go to court, the investors may never recover their money, said people familiar with the matter.
They are hesitant about going to court because there is no guarantee how long the process will take. Even if the judgement is in their favour, it is unclear if the founders will have any money to return.
Why did they do it?
The total amount Cozo raised—Rs 2.5 crore—is not much in the startup and VC world. Many startups routinely raise a lot more with flawed (but not fraud) business models.
The three founders, well-educated and with corporate careers, could arguably have made the same money in salaries over the next few years.
So why did the founders of Cozo build a company on a pack of lies and deceit as the investors accuse them of?
Nobody can tell for sure.
"More than just losing money, it's their brazenness that hurts. These guys have no moral compass and took us all for a ride,” said angel investor Doshi, Parekh’s friend, who works in Malaysia for tourism company Tui.
"Even today, I'm not sure why he (Vaibhav Jain) did it. He could have made the same money legally easily. He's a smooth talking cold blooded scamster,” he added.
Some well-networked investors still speak about Cozo in hushed tones every now and then. It has taken investors ages to reconcile with what happened.
Early-stage investing is a game of trust, no matter how much diligence an investor does. The largest success stories, say, Flipkart, Swiggy and Freshworks have succeeded because of this trust. But every once in a while, a Cozo comes along, shaking things up.
The Cozo incident holds particular significance currently, when India is in the middle of an unprecedented startup and funding boom. Many of the business models going around are work-in-progress, as Moneycontrol reported earlier
. Some work. Some do not. But, when they do not work because of non-business reasons, is when eyebrows are raised.