What happens in Kwambio: employees get no pay, startup does not work, management tries to relaunch it
Employees at one of the most promising Ukrainian 3D printing startups, Kwambio, are complaining that for almost a year, they have been getting their paychecks late and have received no money at all since September 2020.
The company admits there have been delays. Kwambio has not been working since March, but the management hopes to raise a new round of investment, relaunch the production, and pay off debts.
AIN.UA’s editor has spoken with former and current Kwambio employees, as well as the new management of the company, to investigate what is happening in the startup.
A brief history of Kwambio
The startup was launched in 2014, at the height of the 3D printing technology hype. 3D printing came into fashion all across the world, but for basic users, the preparation of printing models was complicated and obscure. Kwambio offered ready-made models that could be selected on the website and ordered as printed items. There were toys, home décor, and other products among them.
With this model, the startup came to IDCEE and won EUR 15,000 for the first place, as well as attracted a $500,000 investment from an unnamed Odesa-based company.
In 2015, Kwambio presented its own 3D printer, and in 2016, its own innovative 3D printing laboratory that was used for printing with ceramics and metal. After that, the company made it to TechStars Boston and received $650,000 for the startup’s development from the accelerator and business angels.
In October 2017, Kwambio raised another investment, receiving a further $500,000 from the VC firms Empire State Capital Partners and Impulse VC. By that time, Kwambio had already had a working 3D printer of its own design, with high printing speed and fidelity. The team was planning to put the device into serial production and sell it for $25,000 per unit.
In 2018, the startup entered a new Techstars program, which helped it get another $20,000 in exchange for 6% of the company, as well as receive a convertible loan of $100,000.
In 2019, Kwambio announced a new project, ADAM, looking at printing implantable human bones. The project attracted seed financing from WeFund, but the amount was not made public. Kwambio itself was also one of the project’s investors.
Thus, in the course of its existence (6 years in total), Kwambio has received about $1.69m in grant financing and public rounds, not including the convertible loan.
The startup also planned to raise a new financing round in late 2019 or early 2020 to expand ADAM and complete the development of Kwambio printers.
Who is behind Kwambio
Kwambio was founded by the Odesa resident Volodymyr Usov who ran the company from its inception till 2019. In January 2020, he won the contest for the Head of the State Space Agency of Ukraine (SSAU) and went out of the Kwambio business. According to Usov, he has not been involved with Kwambio or ADAM for almost a year.
As of today, the former Head of Development, Dmytro Skomorokhov, acts as the CEO of both projects.
Another active contributor to the two projects is one of the investors, Alex David Bart, from New York, the founder and managing partner of the Empire State Capital Partners fund that invested in Kwambio back in 2017. The fund has two offices, in Kyiv and New York, and does not have any portfolio companies yet, except for Kwambio.
Today, Bart holds the position of Non-Executive Director at Kwambio. He is helping Skomorokhov to attract a new round of investment to relaunch the startup.
When the problems began
According to one of the first employees who spoke to AIN.UA’s editor on condition of anonymity, Kwambio has always had financial problems, despite the interest from many investors.
Serhiy (not his real name) worked in the company since 2014 till 2017. As Serhiy explains, he and his colleagues were understanding about the delays, which often happen in startups. They were putting their heart into their work, having access to the most innovative 3D lab in Ukraine.
But the problems with funding were just getting worse.
“It seemed to me that everything would come out well, but no miracles happened. When I was still working, we started to design a new printer; there was rapid development, and new investors were constantly showing up. But we could get payments late or in part, and then not a word about ever paying the remainder,” says Serhiy.
“For the last sixth months, I was receiving just enough compensation to pay for the apartment that I rented together with another employee and pay utility bills. I decided to quit. I can only guess what has been happening in the last 3 years.”
At the time of Serhiy’s departure, the company had about 15 employees, and from what he knows, eventually there were no one left from the original Kwambio team. He has not worked with Kwambio ever since.
It is worth noting that Serhiy left the startup in spring 2017, and in the fall, Kwambio raised a new round of investment. Alex Bart, who joined the project during that round, is unaware of the wage problems in the early Kwambio history but admits that there might have been delays. It is all about the specifics of the startup’s operations.
“It could happen that it ran out of money while new investments had not been received in the account yet. That was why they could delay payments or pay in part,” he explains to AIN.UA’s editor.
That being said, according to Serhiy, the company did not settle up with him in the end. As well as with his colleagues who left at about the same time.
Debts, cash-outs, lawsuits
According to employees who joined Kwambio in 2017, everything went well in the startup until around mid-2019. No payroll disruptions, active leadership that had earned a strong credit of trust with the team, and an inspiring product. However, at the end of 2019, the problems resumed.
Svitlana (not her real name) worked in the company from the fall of 2017 till late 2019. In her words, during that entire period, even if delays happened, that was for a couple of weeks at most, and then the company would clear all arrears to the employees. But in August of 2019, the situation worsened.
First, according to her, payments were simply being delayed, but then they stopped altogether. After her departure, Svitlana did not receive the full payment, so she decided to go to court.
All the while, according to her, the company was run by Andriy Rozov, the former CFO of Kwambio. In the meantime, Dmytro Skomorokhov stayed in the US, dealing with the American branch of the company (Kwamb.io Inc. is registered in the USA, and it also has a Ukrainian subsidiary, Kwambio LLC).
“I respected the company management, namely Volodymyr Usov, and so, was getting by with just promises to pay me for several months, but then, to my deepest regret, I saw that taking legal action was the only way out,” she explained. “Following which, I received threats saying that if I filed a suit, they would drag the trial out and make my life a misery.”
Along with Svitlana, another Kwambio staff member, Petro (not his real name), who was holding a leading position, tried to stand up for his rights. Since October 2019, his paychecks were being delayed, and he was receiving half the amount at the maximum. In January 2020, payments stopped completely. At meetings, the staff was informed about future layoffs, but up to the quarantine, people kept working without pay.
This is confirmed by Anton (not his real name). He worked in the company for about a year and kept going to work through to March, despite the wage delays, until the company processes stopped completely. As of today, Kwambio owes him three months’ wages.
“When Usov left, we already had financial problems, surviving on the remains of investments. Printing was unprofitable, the printers were not yet put on the market. But we still went to work. We stopped coming when we ran out of consumables and there was nothing left to work with,” Anton says.
According to him, the printer that Kwambio had been preparing to bring to the market was at its final stage of development. To iron out the kinks and begin sales the team needed three or at most six months. But the investments ran out, and there was no money for that.
“Several months after the delay, I wrote quite an extensive discontented message to the general chat room, after which Rozov offered to talk on the phone and explain the situation first-hand,” Petro recounts.
“On the call, I was told that the money had been coming in not straight from the investors, but through some cash-out shell companies, and the cash-outers had allegedly stolen the money,” says Petro. AIN.UA has a record of this conversation.
When half a year had passed since the arrears, Petro teamed up with Svitlana and filed a pre-trial application. Meanwhile, other Kwambio employees were paid part of their wage arrears. Petro asserts that those payments to his colleagues were made on the condition that they would resign voluntarily. In lieu of the remaining debt repayment, they received a debt warrant from the American company, which is not legally binding in Ukraine.
Petro did not get any payments himself.
“I asked why so, and they told me it was 100% certain that I, in particular, would receive no money because I had decided to defend my rights. And that I had been fired without notice. Naturally, it had been done in circumvention of the legitimate process, not to mention paying off the debt,” he says.
Petro’s case never made it to court: he did not want to spend his time and money on litigation. Svitlana is keeping up the fight, even though in September the Odesa court dismissed her claim due to insufficient evidence.
Outer space. Searches. Relocation
In November 2019, Kwambio’s founder, Volodymyr Usov, applied for the position of the Head of the State Space Agency of Ukraine (SSAU). He was the youngest candidate.
“There was a lot of negative publicity: the old guard was very much indignant about this (Usov’s win in the competition – Ed.),” Alex Bart recalls.
The competition included several stages; Usov reached the final with strong chances of winning.
About the same period, a search was conducted over a corruption case involving a company created by Usov back in 2011, the digital publisher Gutenbergz.
For reference. According to the case file, Mykolaiv officials bought from Gutenbergz through Electronic Solutions (a distributing company then owned by Skomorokhov, who would later sell it) software for accessing the e-learning system, for a total of UAH 15m. In parallel, the MES decided to distribute textbooks free of charge via its website, which did not result in the termination of the contract: the budgetary funding was assimilated. In light of this, the investigators got court orders to search not only Gutenbergz, but other Usov’s companies too, including Kwambio and ADAM.
The search warrant was issued on December 17, 2019, just on the day before Usov’s final interview for the position of the SSAU Head.
“This cannot be a coincidence,” the current Head of the SSAU thinks. “Now the case is stagnant: the search was ruled illegal, and we are gradually receiving judgments on the return of everything that was seized.”
According to Usov, the searches were not particularly damaging for Kwambio – it was Gutenbergz that suffered the most: operatives blocked the company’s activities. But the employees hold a different view. Petro claims that due to the searches in Gutenbergz, in January 2020, the Kwambio team was refused to rent the premises.
“The landlord didn’t like that searches were underway in relation to Mr. Usov’s other startup, Gutenbergz. The property was moved to other premises of the company, where, nevertheless, there were no conditions for manufacturing,” he says.
For his part, Dmytro Skomorokhov claims that Kwambio gave up the premises of its own accord. “We had two premises; we dropped one because of the high rent and moved all the equipment to our R&D office, but there were no working conditions there, and it was just waiting for the time when we would relaunch,” he explains.
Why Kwambio ran out of money
According to Usov and some of the employees, Kwambio’s situation worsened because of the strict quarantine in China. This was the first blow.
“We purchase components and consumables in China, and after they blocked everything there and the supplies were halted, our manufacturing cycle immediately increased – and it was just the time when we were launching the second version of the printer,” Usov says.
According to him, Kwambio was planning to raise a short round of investment in spring 2020. But due to the pandemic and the resulting uncertainty, the company was unable to close it in time, so the wage payment interruptions resumed. As Skomorokhov specifies, the sum in question was $300,000.
“This would be sufficient for us to grow further and do everything that we had not finished. But in March, we received a letter from the investors, saying they were putting everything on hold. In 2 or 3 months, we tried to resume negotiations, but during COVID no one dared to invest,” he says.
Another blow to Kwambio was the quarantine and disturbances in New York, which were literally paralyzing the city since the spring of 2020. New York is the place where Kwambio’s product distribution office is located.
“All our turnover was coming from the US, and we couldn’t keep a full complement on the payroll, because New York plunged into a deep crisis, and we simply had no working capital,” Bart explains.
“Since our product is not an essential commodity, it is targeted at designers and IT, demand dropped quite badly,” Usov confirms.
Dmytro and Alex tried to apply for anti-crisis support from the American authorities but were refused, because the employees whose wages Kwambio was going to pay with that money, were located in Ukraine, not in the US. In Ukraine, there was no business support program in place.
“The investment money has run out. The new round has failed. The sales have stopped. There was no support from anyone. Therefore, we had to stop all processes,” Skomorokhov summarizes.
As Bart explains, Kwambio had to cut the workforce from 25 to 10 people, some of whom were transferred to ADAM.
UPD: On November 23, after the publication of the piece in Russian, Kate Kolambet, who worked at Kwambio from 2014 to 2020 as a marketer and PR manager, contacted the editorial team. She stated that the collapse in New York could not have caused the closure of the company.
“I was the only employee of the company in the New York office, and I can confidently state that no distribution of goods has ever taken place in this office. This office was a small room at co-corking space where potential customers could come to see models and ask questions. I held 2-5 meetings per month from its inception until February 2020, when I stopped working for Kwambio because the company didn’t pay me my salary for seven months, and the guys didn’t even think it was necessary to get in touch and talk openly about repaying the debt, they just changed the password on my work email. So the riots in New York or the crisis caused by the pandemic are not the same reasons why Kwambio was paralyzed.”
Kwambio 2.0. Will the startup come out of the tailspin?
Kwambio has just resumed the investment negotiations now. Bart says, they are in their final stage. Besides, according to Skomorokhov, one of Kwambio’s investors has agreed to allocate a small sum just to start the printing process.
“On launching the service, we will get at least some cash flow to invest in the most pressing needs of the company. On launching the service, we will be able to seek the investments that we couldn’t obtain during the lockdown,” Skomorokhov explains.
“Now, with people accustomed to the quarantine, investors understand that COVID is not going to end soon, but one still needs to work and live. If we show that we have survived and we work, we have demand and sales, then our business will be eligible for investment.”
In September 2020, the company moved to a new location and is preparing to relaunch its printing lab in the IT hub at 93 Kanatna str., Odesa. The premises were provided to the startup free of charge for the first three months. It is currently under repair, but according to Skomorokhov, the team hopes that in December it will be possible to move in and start printing.
“We will feel our way and see how our business goes in a post-COVID era, whether there will be orders or not. We have many clients waiting for us to launch, but we cannot know, how they themselves will be doing in the future and whether they will be able to purchase our service,” Dmytro explains.
“We do everything to start working, albeit with a reduced team, to return to what we had (before the crisis – Ed.), and maybe do even better.”
Kwambio still has pre-orders for printers with 10% advance payments. Skomorokhov says, there were about 15 pre-orders for the smaller printer costing $7,000 and about 10 for the bigger one at $45,000. According to him, the demand was greater, but the startuppers decided not to take too much pre-orders, because after shippings to the first clients, additional issues might arise, which would require more polishing.
Skomorokhov has also revealed plans to franchise Kwambio so that entrepreneurs could open its partner offices in different countries for a royalty. Kwambio’s main customers are in the USA, but the company has received service requests from across the world, for example from Dubai, the UK, Italy, and Singapore. The franchising program should come as a response to those.
Furthermore, progress is being made towards obtaining licences for ADAM in the US. If ADAM shows traction in the next two months, the plan is to extend the startup team.
What about the debts?
Alex Bart claims the company does not give up its obligations and intends to pay off its debts to everyone. He says he has already discussed this in person with 5 or 6 employees.
“Recently, we have paid part of the arrears, first to the current employees,” says Bart.
Kseniya Shokhet, who left Kwambio in February 2020, confirms that she has no complaints against the company.
“There are no arrears on my wages. As for the imminent closure of the company, the rumors seem implausible. Not long ago, I was asked to provide advice for a new marketing department member. Social networks have begun to revive. Longtime staffers call me from time to time to clarify something. Life is going on actively, as far as I can judge. From a distance, of course,” she told AIN.UA in her commentary.
Anton has not been contacted yet. He stays in touch with his colleagues through the work chat room and has no more expectations as for the debt repayment or his returning to Kwambio. “I have gone through all the stages from denial to acceptance. We have long been promised jam tomorrow, and there is still no progress (in paying the arrears – Ed.).”
There are people among his colleagues who still hope to come back to the much loved work. Mykola (not his real name) is one of them.
“After a long break, the company is preparing to start production at a new site in Odesa in a few weeks. The team hasn’t scattered away, except for 2 or 3 persons. The company has begun to settle up accounts, but there are still debts,” Mykola says.
Anton partly confirms the information. According to him, the work chat room has revived lately. Some employees have been hired again. It mainly concerns printing operators who were dealing with ceramic products. The employees who were developing the printer have not been hired back, and there has been nothing to hear about repayment.
To motivate employees to stay with Kwambio and ADAM during the hard times, the company intends to issue additional shares and distribute them as options.
“We will hand them over to the management and employees upon reaching the set targets. This way, we want not only to motivate people with wages but, put crudely, to help them work for themselves, being shareholders, even if only minor ones,” CEO of Kwambio explains.
The startuppers promise to pay off their debts to those who have quit as well. For this to happen, Kwambio needs to resume sales. Whether Svitlana will make the list, is unknown.