Infighting is escalating at mental health startup Cerebral, and two of the company’s backers are now suing each other.
WestCap publicly filed a lawsuit in Delaware on Friday accusing Access Industries, an investment firm founded by billionaire Len Blavatnik, of costing Cerebral hundreds of millions of dollars in value.
The new legal action is a countersuit after Access sued both WestCap and Cerebral in April. Access’s representative on Cerebral’s board of directors, Nami Park, is also an individual defendant in the countersuit.
It’s a grim turn of events for Cerebral, a SoftBank-backed mental health startup that was once valued at $4.8 billion and has since faced multiple federal investigations.
The startup, which launched in 2020 to provide online mental health care and raised $462 million in two years, came under fire in 2022 for how it prescribed serious medications. Since then, at least three rounds of layoffs and faced a US Department of Justice investigationIn light of which, Access’s April lawsuit said: “Cerebral’s financial situation has become dire.”
The April lawsuit, which was first reported by Business Insider, alleged that WestCap had conspired to exert control over Cerebral through a series of secret consulting agreements and sought to gain more power through a proposed stock divestiture, which would have forced participating investors to give up their seats on the board.
WestCap’s countersuit says Park was aware of and even supported these consulting agreements all along.
It cites emails dating back to 2022 in which Park appears to acknowledge and approve of WestCap’s consulting services to Cerebral, despite Access’s April lawsuit claiming the company was unaware of the deals until February.
WestCap’s lawsuit further claims that Park cost Cerebral hundreds of millions of dollars by obstructing a share buyback, a financial proposal submitted in March that would have allowed the startup’s investors to exchange their Series C preferred shares for common shares.
The deal, called self-bid, could have removed up to $300 million in liquidation preference from Cerebral’s cap table, according to a source close to the company. That may have positioned Cerebral to raise more capital from new investors in the future. The company has not announced new venture financing since its $300 million Series C in December 2021.
But after Access filed its lawsuit against WestCap and Cerebral in April, that self-bid never occurred, the June lawsuit claims.
WestCap’s complaint suggests that Park obstructed the tender offer with a lawsuit in hopes of reaching a deal that would give Access Industries more money to give up its board seat than the company could have obtained through the self-tender.
Park and Access Industries has filed a motion to dismiss WestCap’s complaint. The motion calls WestCap’s countersuit “frivolous” and says the termination of WestCap’s tender offer and consulting services to Cerebral validates the claims in Access’s April lawsuit.
“We hope the Board resolves its disagreements quickly,” Cerebral told BI in a statement for this article. “As an administration, we remain focused on providing high-quality care to our patients.”
brain tether
Cerebral’s rise came during a renaissance in behavioral health companies: Startups offering mental health care raised $5.1 billion in 2021, according to rock health.
With $462 million raised by the end of 2021, Cerebral sought quickly scale your business. But BI research published in June 2022 found Cerebral violated clinical guidelines by prescribing serious medications for conditions like ADHD, putting some patients’ health at risk in the process.
Compounding Cerebral’s financial problems is its recent settlement with the Federal Trade Commission. Cerebral agreed to pay $7 million in April after the FTC said the company had instituted deceptive data-sharing practices and burdensome cancellation processes for patients.
Access’ April lawsuit said SoftBank, which led Cerebral’s Series C funding round in 2021, had “long sought to capitalize on its position in the company.” The lawsuit claimed that SoftBank intended to sell its preferred shares through the proposed self-tender.
With that offer buried, SoftBank still holds one of the six seats on Cerebral’s board of directors. A source close to the company told BI that after the self-tender was terminated in April, SoftBank filed an arbitration claim against Cerebral to seek payment for its board position.
SoftBank did not respond to a request for comment for this story.
