"Our customers and prospects were immediately spooked" - Serge van Dam. Photo / Getty Images
"Our customers and prospects were immediately spooked" - Serge van Dam. Photo / Getty Images
Wellington software firm Montoux’s collapse - resulting in the loss of 30 jobs - is being blamed on legal action from a US giant that it says it could not afford to fight.
On Friday, Heath Gair of Palliser Insolvency was appointed liquidator following a vote by Montoux shareholders.
Themove followed Fidelity National Information Services (FIS) filing a case with a Delaware court on November 1, accusing Montoux of stealing trade secrets.
Both FIS, which is listed on the New York Stock Exchange with a US$46 billion market cap, and the tiny Kiwi start-up are involved in actuarial services - or using statistical models to help the likes of banks and insurers assess and price risks.
Montoux was centred on actuarial services and recently launched what it billed as “the first AI copilot for actuaries” (before the ChatGPT era, the technology - which the NZ firm has been creating since 2015 - was billed as “algorithmic optimisation”). FIS - one of the world’s latest fintechs - also offers hundreds of other products.
Veteran entrepreneur Serge van Dam - a director and small shareholder in Montoux at the time of its liquidation - said FIS was essentially accusing the Wellington firm of using FIS code to train its AI.
In a Demand For Jury trial filed last month, FIS said, “Instead of designing and writing its own software - which would take years and cost millions of dollars - Montoux gives itself a massive head start (and relieves itself of developmental risk) by improperly accessing the ‘legacy’ platform’s code, i.e., [FIS] Prophet computer code, which takes only days or weeks and costs much less.”
Van Dam strongly refuted the accusation, saying Montoux was developing a new solution and had no interest in FIS’s “40-year-old legacy code”.
FIS also said, “Montoux obtains the ‘Source Model’ by encouraging FIS customers to breach their agreements with FIS by providing the proprietary information constituting the ‘Source Model’ to Montoux so that Montoux can feed the ‘Source Model’ into its ‘Model Replication Module”.
Van Dam said the customers involved worked in risk and would not expose themselves to extra risk in that fashion
An initial response to the Demand For Jury Trial would cost an estimated US$400,000 to US$500,000, van Dam said. An actual trial could cost millions.
“Our customers and prospects were immediately spooked,” van Dam said.
The lawsuit also “petrified” Montoux’s two staff in New York, who were also directors of the firm’s US subsidiary Montoux Inc.
Van Dam said it was a “David and Goliath” fight. But in this case, David couldn’t afford a slingshot.
Even the cheapest corporate lawyers in the US charge US$1000 per hour - and the best far north of that, van Dam said.
“We’re essentially still a start-up, and we could not be confident we could pay staff long-term,” he said.
Given the circumstances, a voluntary liquidation was the only responsible move, he said. Holiday pay and other issues would have to be addressed by the liquidator.
Verteran tech investor and advisor Serge van Dam was a director and small shareholder in Montoux at the time of its liquidation. Photo / Supplied
Van Dam, who spoke to the Herald in his capacity as a minority shareholder, said Montoux had 30 staff at the start of the year and “18 or 19″ by the time of Friday’s liquidation.
The firm was “close to breakeven” on “revenue below US$5m” he said.
Van Dam said he had concerns that FIS, which he described as “used by all of the banks and insurance companies in NZ” had, in his view, potentially abused what he saw as its monopoly power. He said FIS was “far from a monopoly in the US”, but had a strong position in the Australian market and dominated NZ.
He said Montoux’s ex-board would meet over the next few days to discuss a possible complaint to the Commerce Commission.
What’s his advice for other start-ups looking to avoid Montoux’s fate?
“Be explicitly insured for things like this. We had cover, but it turned out it wasn’t sufficient,” he said.
“And have a trust fund in case an incumbent goes after you - and you should assume they will. We didn’t; a governance error of sorts.”
“Also, if we didn’t have a US subsidiary, this never would have happened.”
While a US subsidiary had a number of advantages, “Think hard about whether you can operate without one,” van Dam said.
Angel HQ, Sir Stephen Tindall’s K1W1 and the Government’s NZ Growth Capital Partners (though its Aspire find) also had small stakes in Montoux.
Angel HQ chairman Trevor Dickinson posted to LinkedIn on Friday, “Montoux is a standout in the insurtech space ... Is this yet another example of a corporate heavyweight using the US legal system to stifle a smaller, innovative competitor with superior technology that challenges its legacy offerings?
FIS declined an interview request. Senior vice-president, communications Kim Snider said: “We can’t comment on litigation matters.”
Chris Keall is an Auckland-based member of the Herald’s business team. He joined the Herald in 2018 and is the technology editor and a senior business writer.
