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Ukrainian startup Sixa vanishes after attracting $5 million in investments – big story by AIN.UA

Within a couple of years, Ukrainian startup Sixa has managed to join startup accelerator Y Combinator, attract $5 million in investments from reputed funds, announce three ambitious products, and… vanish.

In 2020, when asked by AIN.UA about the progress of the promising startup, Sixa investors reluctantly acknowledged that the contact with the company was lost, the startup had disappeared, as well as their investments. One of the investors, speaking with undisguised anger, called the founder Mykola Minchenko “a Ukrainian Ostap Bender.”

Investors unaware of each other, products existing on paper only, and two lawsuits in the USA – this is what AIN.UA’s editor has found during her investigation of probably the most dramatic scam in the history of the Ukrainian IT entrepreneurship.

What is Sixa?

The first mention of Sixa dates back to 2015. Back then, the company offered a revolutionary [not quite so – Ed.] solution: a cloud computer.

“Effectively, Sixa is a full-fledged powerful computer in the form of an application that supports various devices and provides for the execution of the most demanding tasks,” said Kateryna Kondrunina, the then COO of the startup.

The idea behind ​​Sixa was to give users access to a powerful virtual computer that would allow them to use heavy-weight programs on old hardware. For example, VR games or environments for complex engineering calculations that were previously impossible to install or use due to hardware limitations.

“You cannot afford to buy a supercomputer for yourself, but renting it is a different story. Given the current growth of VR, which specifically requires powerful hardware, investors fell in love with the project,” says one of Sixa’s investors on the condition of anonymity.

It was this solution that brought the team to the famous American accelerator Y Combinator and helped secure a $120,000 investment from it. Sixa had attracted investments before, but it was this success in the world’s main startup accelerator that was indicative for many: Sixa became targeted by investors. Y Combinator did not respond to AIN.UA’s request.

Comparison between Sixa and its competing analogs. From the original investor presentation, 2016

By 2016, the Sixa cloud platform for several months had been available in beta for 15,000 developers, at the rate of $49–59 per month. And people were continuing to line up for the registration, as claimed by Sixa’s executives.

Results on paid subscriptions and monthly revenues as for June 2016, according to Sixa. A slide from the original investor presentation.

In 2017, the startup suddenly hit the media with a new product. A new wave of hype was just rising in Silicon Valley around virtual reality technologies. And Sixa introduced Rivvr, a VR helmet akin to Oculus Rift and HTC Vive – wireless and with minimal latency.

Lucas Matney, a TechCrunch journalist, praised the helmet in his review, though noting that its video transmission was unstable at times. VR fans were ecstatic about getting rid of wires. Rivvr was available for pre-orders since January 2017. The first batch consisted of 4000 devices only. Two models were available: Rivvr Lite for $200 and Rivvr Plus for $250.

A year later, in the spring of 2018, during the peak of blockchain and cryptocurrency hype, Sixa announced another spin-off: its own blockchain and ICO. This announcement helped Sixa attract several more relatively small investments from small funds and angels, according to AIN.UA’s own sources.

So, in 2018, Sixa was working on three products: a cloud-based supercomputer in beta, a helmet on pre-order, and a blockchain in development. Sixa had more than $4 million in investments from Ukraine, Russia, and Silicon Valley. Its largest rounds were:

  • $3.5 million from Tandem,
  • $500,000 from u.ventures,
  • $400,000 from Digital Future,
  • $300,000 from TMT.

Investors were set up for success and were doing everything possible to strengthen the asset. As they themselves claim, at first the project sent all reports on time and was always available for communication.

One of the last reports received by an investor from Sixa

Virtual vs actual reality

Then the reports began being badly delayed, and the startup’s main person, its co-founder and CEO, Mykola Minchenko, disappeared for long spells of time and would not answer letters and calls.

One of the investors remarks that he used every available means to get access to the product, but was turned down by Minchenko, who claimed access was granted on a first-come-first-served basis, and the enquirer was at the back of the line.

Another investor, having scoured Facebook and LinkedIn, concluded that Sixa had no employees, although Minchenko claimed that the startup had about 20 developers in Odesa, plus employees in the US and Asia.

Then suddenly, Tandem Capital, Sixa’s largest investor, withdrew half of its $3.5 million investment.

“Addressing investors’ concerns about the reasons for the withdrawal of the $1.7 million investment by Tandem, the lead investor of the round, Minchenko said that the Chinese corporation HTC [producing HTC Vive VR helmets, among other things – Ed.] had expressed interest in buying Sixa. And despite everything was clearly going wrong, this answer satisfied everyone,” says one of the investors. “He simply blew away the current and potential investors, who were already calculating in their minds the multipliers of the next rounds instead of conducting due diligence and auditing.”

As an example, an investment of $300,000 from TMT Investments in 2019 was estimated at $900,000.

Each time, Minchenko showed investors just a demo of the product, and from his computer only, flaunting non-existent agreements with industry giants: now Intel wanted to buy Sixa, then HTC wanted to license Rivvr; ASUS and HP were also mentioned. However, Minchenko allegedly did not want to sell the company – he saw Sixa as a potential unicorn: the startup’s MRR [according to him – Ed.] was just under $2 million.

Sixa’s traction, as claimed by the startup in April 2017. A page from an investor report

Many investors bought into the CEO’s tricks, and he was always in a hurry: meetings, trips, negotiations… Unlike Tandem, which invested in Sixa under a Convertible Loan agreement, most investors acted hastily and invested in Sixa under a SAFE (Standard Agreement for Future Equity), meaning rights for shares during the next round or deal, with no effective tools to protect their money. Why not? SAFE was in fashion in the early stages for promising startups; a couple of hundred thousand dollars were not so much, while the competition for such startups was crazy among investors.

Under a SAFE, investors have no information rights as well: they cannot demand reports and make legal claims in case those are not provided. And this is exactly what was needed.

The spin-offs looked no better. The Rivvr helmet had its delivery date being constantly postponed. Initially, customers were promised to receive the device in May 2017. Then the shipping date was put off to July, then October, then March, then April of 2018. In one of its newsletters, Rivvr explained that the first batch had allegedly turned up to have defective batteries, so the company had to withdraw it and postpone the release until it found a new manufacturer.

From the comments on Reddit:

“I can’t help but feel like this entire thing is nothing but a scam. They made a fancy web page then invest your money in CDs/stock markets or some shit for as long as possible, offering refunds when asked so no one gets suspicious but then when it hits the point of no return they refund everyone… only to put the pre-order page back up all over again.”

There was simply no news about the ICO. Here is an interesting detail: the funding went directly to Minchenko’s bitcoin wallet, and there is no information about this on Crunchbase or any other platform. Meanwhile, the wallet is still active.

The rabbit disappears

According to AIN.UA’s estimates, Sixa has about a dozen investors. These are 9 funds (Tandem, u.ventures, Digital Future, TMT, Gagarin Capital and others) and at least 4 angels. It is the investors who are the affected party of the story. Almost all the money raised by the startup has disappeared. However, only two of the investors responded to AIN.UA’s request concerning Sixa. The head of Digital Future Aleksey Vitchenko replied that “the contact with the company was lost” and requested to be kept informed.

“We believe that the development of the situation with this project bears indications similar to fraud. At least, at the moment it looks like this. That is why now we are consulting with lawyers who work with courts and law enforcement agencies to investigate the situation and the chances to recover the money,” said Artem Inyutyn, the co-founder and managing partner of TMT Investments.

“This is a rare case of strange and, apparently, dishonest management behavior; this is the first such case out of 50 projects that we have invested in. Therefore, we wrote off this investment in our portfolio. And, of course, we take all possible actions to recover the invested sum.”

Photo: Medium

According to comments by investors who wished to remain anonymous, Minchenko could ignore letters from investors for months, refuse to meet them under fantastic pretexts: now his relatives have died and he needs to fly to the funeral urgently, then he is in the hospital himself, and then still he is off to China, and there is no Internet. Reports were sent in PDF format, and, as noted by the sources, they were clearly fabricated.

For everyone, these relationships ended the same way: at some point Minchenko would simply disappear for good.

The lawsuit. The secret million

It will be recalled that in 2017, Sixa already had $4 million in publicly visible investments. However, this is not all the money that Mykola Minchenko managed to raise. Another million dollars of funding did not get into the media. But it did get into the judicial register of actions in the USA.

On March 13, 2020, the Superior Court of California registered a complaint by the UK’s Innes Wordwide Holdings against Sixa and specifically Mykola Minchenko. The statement of claim says that in 2018, Minchenko approached Innes with a proposal to invest $1 million in his startup. He assured the investors that the project would start generating profits 18 months after the transaction date.

The agreement was signed on December 21, 2019: Minchenko received $1 million under a Convertible Promissory Note at 3% per annum, and Innes, Sixa’s obligations to regularly report on its business achievements. Then the story repeats itself.

At first, Minchenko answered the letters of the investor after a fashion, but gradually the answers became farther and farther between, and the delays became longer. Minchenko would skip filing his business reports under various pretexts: now his accountant got sick, then she became pregnant, and sometimes it was both at the same time. Minchenko himself was also constantly “sick” and unable to answer Innes’s requests. Eventually, in the summer of 2019, the investor lost all contact with Minchenko.

Soon Innes discovered that the information provided by Minchenko at the stage of capital raising was false. More specifically, in his presentation he argued that Sixa had agreed to partner with major game developers from Korea and China. He also stated that Sixa already had 50,000 customers. Both of these were lies, according to Innes.

The lawsuit. Sixa against Minchenko

In July 2019, Sixa Operations LLC, represented by its sole manager, Nazar Banit, sued Mykola Minchenko, CEO of Sixa Inc.

According to the Plaintiff’s testimony (from the documents, which were received by AIN.UA), on May 10, 2019, Minchenko borrowed from Sixa Operation $2 million to finance its business Sixa Inc., which he had to return on May 31 with +1% of annual interest.

It should be made clear that Sixa Operations LLC and Sixa Inc. are different companies with different founders. Sixa Operations LLC was founded to provide operational services to Sixa Inc. of Mykola Minchenko. This was stated in the statement of claim:

“In fact, the Plaintiff company was founded (and named Sixa Operations) because it intended to work together with Defendant Sixa Inc. and provide it with some operational services. As described below, this was not possible because it is clear that Defendant Sixa Inc. a fraud.”

In fact, Banit founded the company for Minchenko as his key client (it’s like Foxconn makes smartphones for Apple). He expected to provide service to Sixa and even named his company by a similar name, Sixa Operations. But before the cooperation started, the key client (Minchenko) required money. And he borrowed it from the contractor (Banita).

Nazar Banit transferred the money to Mykola Minchenko in several tranches. According to Banit, Minchenko immediately converted it into cryptocurrency for personal use and then left the United States.

According to the Plaintiff, after he filed a lawsuit, Minchenko began to threaten that he would accuse the company Sixa Operations of illegal activities and even sic thugs on Banit if he does not withdraw the lawsuit.

Therefore, the plaintiff demanded an additional $2 million along with reimbursement of expenses. Thus, the amount of claims against Minchenko exceeds $4 million.

What does the company say?

Mykola Minchenko or, as he calls himself, Miko. Photo: LinkedIn

The AIN.UA journalist failed to contact any of the founders, natives of Odesa, Mykola Minchenko (CEO) and Ievgen Nechaiev (STO).

Minchenko deleted his Facebook account, part of the data on LinkedIn, and does not answer calls and messages as well. All investors that AIN.UA has contacted do not know where he is now. The Bitcoinwednesday founder profile says that before Sixa, Minchenko worked for British Petroleum and was a co-founder of Almareks, an object recognition SaaS startup which was acquired by Motorola. He also helped develop a communication system for the Ukrainian army at the beginning of the military conflict in 2014. AIN.UA could not confirm or deny these facts.

Nechaiev published his CV and he is looking for projects. His profile on LinkedIn says that he left the company in January 2020.

Katerina Kondrunina, COO and business developer in 2016-2017, responded succinctly, “I don’t know. I have not been working there for a long time, and I live in another country.” AIN.UA interlocutors noted that in the beginning, it was Katerina who sent the reports to investors, which appeared to be fake.

AIN.UA managed to find only one person from the team, Sixa collaborator Andrey Volovik, (the project is listed in his LinkedIn profile). However, according to him, he worked with the startup only a couple of months in 2016, during the acceleration period at Y Combinator.

Now what

According to AIN.UA calculations, in addition to $4.06 million of publicly announced investments and $1 million from Innes Worldwide Holdings, Minchenko raised about $1.4 million more from various investors over the period from 2015 to 2019 (these transactions have not been disclosed and announced anywhere).

Thus, even after deducting $1.7 million from Tandem, Sixa CEO received almost $5 million in investments. And Minchenko personally received another $2 million in debt.

Minchenko does not appear in the US courts. At the address in California, which is indicated on his driver’s license, he has not lived for over a year. The company that Minchenko registered in Delaware has not paid taxes or filed reports since 2018. Sixa’s accumulated tax debt is over $400,000.

However, Sixa has not declared bankruptcy, in the Crunchbase database, the startup is listed as active, although most likely it never operated. Furthermore, there is no public reference to the fact that its founder is suspected of fraud. Perhaps, Mykola Minchenko is raising another round of investment for his new revolutionary idea right now.

How did this happen?

In a conversation with AIN.UA, some investors said that the last time they heard the news from the startup was in 2019. Some of them mentioned that “a couple of months ago, we got something” or “we suspect that the startup has problems.”

Answering the question of why they did not conduct proper due diligence and, subsequently, audits, investors blame the dizzying PR, the success at Y Combinator, and the competence of which “cannot be trusted.” But no one could explain why they did not keep an eye on the project. In other words, they didn’t keep track of their money, which had not brought the promised unicorn even after 5 years.

In Ukraine, Sixa CEO has no problems: no courts, no investigations. And considering the fact that some local investors lost contact with him back in 2019 and have not taken any action, he will have none.

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