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Executive Summary
Company. Gr8code LLC Industry. Technology education Key. Due diligence on partners and investors is essential.
Virginia Barnett knew there was a problem once she discovered her passwords no longer worked.
The Tampa-based computer programming education company she co-founded, Gr8code, was early in its startup period. It had just earned a $5.4 million investment commitment from a local businessman, with $100,000 in cash already due.
Yet here Barnett was, suddenly out of her own company with no warning.
“I had put money in the company's bank account to cover some of the bills,” Barnett says. “When I went back later to look in the bank account, my passwords had been changed. Our website was down. I didn't know what was going on.”
It was Jan. 9. Phuong Nguyen Cotey and Deborah Alvarez Neff, Barnett's startup partners, told Barnett she would have to sell her stake in the company in 12 months. Even worse: Those same partners would set the terms.
Barnett wasn't happy about it.
Barnett had alienated her partners in the days before, when she questioned the ability of potential investor Steve Brickner to come through with payment promises. Chairman of Tampa-based venture capital firm OmniElite Financial Group, Brickner was supposed to pay Gr8code $100,000 for an ownership stake Oct. 31, Barnett says. Three months later that payment hadn't been made.
“I told Phuong that I don't think this money is real,” Barnett says. “The next thing I know, no one is speaking to me.”
Days later, Barnett still had Gr8code LLC, but she was the only asset left. Cotey, Neff and Brickner had allegedly moved everything else into a new company called Gr8code International LLC. The new company launched a website that looked almost identical to the previous Gr8code site. It used the same curriculum and even the same people Barnett's company previously used.
For her former partners, this was moving on. But for Barnett, her company had just been stolen. And she was going to get it back.
Something new
The idea to create a company that would bring computer-programming education to both young and old came to Barnett after she saw little opportunity for her daughters, ages 10 and 13, to learn about coding.
Barnett wasn't a coder herself. In the early 2000s, she owned Neighborhood Title Services in Brandon, until it fell apart during the housing market crash in 2007. She later worked for The Walt Disney Co., where she was a sales and travel agent. In 2012 she was named director of operations at the Tampa-based Florida Next Foundation, a business incubator founded by former Florida CFO and onetime Florida Democratic gubernatorial candidate Alex Sink.
At Florida Next Barnett met Cotey, a former Tampa Bay Times reporter. Both knew Neff, director of operations at Tampa Bay Wave, a business accelerator founded in 2008.
Barnett shared her business idea with Cotey, and in February 2014 the pair formed Gr8code. “It was my kids who came up with the name,” Barnett says. “And all of it was based on my
18 months of research.”
Neff joined later that summer, and each took a third of the company, according to court documents.
Barnett, who invested $35,000, would get the slightly larger stake, giving her control, according to court records. Cotey invested $2,000; Neff contributed no money to the operation.
The business model: offer nine-week courses in computer programming for $10,000.
“It would be like a coding boot camp, where someone could end up getting an $11,000 to $15,000 salary bump just from that one skill set,” Barnett says. “It might be a big investment for a someone to make in taking the classes, but they would be able to recoup that pretty darn quick.”
But $37,000 in seed money wasn't enough to get the company going. Gr8code, like many startups, knew it would need some angel investment. That's when Brickner, and the problems, entered.
Court battle
The biggest obstacle facing Gr8code was financing loans for students taking the courses. Banks were not too keen on making such a risky investment, Barnett says. So the plan was to bring in an investor who could fund some of the loans to help get students in the classroom.
Brickner was Barnett's neighbor in Lithia's FishHawk Trails community. He was behind planned projects like The W Hotel and Convention Center in downtown Tampa and The Zoo Nightclub in Ybor City. Brickner also had his eye on vacant hotel property on Busch Boulevard in Tampa, just off Interstate 275. He planned to use the $5.4 million he pledged to the firm to buy the building. That hotel site would not only put up students outside the area, but it would also make Brickner a partner in a for-profit business accelerator Gr8code was going to host there.
The partners met with Brickner to discuss what the new ownership structure of Gr8code would be with Brickner's investment. Brickner's company would get a 50% ownership stake, Barnett would be reduced to 14% and her other partners would be reduced to 13%. Another 9% would be offered to two early employees who provided “sweat equity.”
“We were just 20 minutes before the meeting with the investor group, and I was not happy about it,” Barnett says about being shut out of the company. “I was trying to console myself. We were going to be building a campus, and it was very exciting. So was this really worth me being upset about?”
The other partners didn't like what they were hearing from Barnett, she says. And right after that Gr8code International was formed — without Barnett.
Within days, everyone was in court. Barnett sued to get her company back, and asked a judge for an injunction against the new Gr8code International.
In that suit, Barnett says the Brickner investment never materialized. Cotey and Neff had the same titles they did with her company. The website design, the logo, even the name, was virtually identical to what the trio originally put together.
Cotey nor Neff responded to requests for comment. Their attorney, Anthony Comparetto, also did not comment. However, in court filings, Cotey and Neff claim it was not them who shut down the first Gr8code, but instead it was Barnett. They say she unilaterally kicked out partners, and made fraudulent statements to investors.
Barnett denies those claims.
Cotey says she withdrew from Barnett's company last December, and Neff “disassociated” herself in November.
'Keep it legal'
Barnett claimed a victory, albeit a somewhat hollow one, in court in early April in the case in front of Hillsborough County Circuit Court Judge Steven Scott Stephens. The judge granted an injunction against Cotey and Neff, saying their new company unlawfully usurped Gr8code's business and assets.
The name, logo and assets all returned to Barnett, who is now trying to regroup and figure out her next step.
“When people say that partnership breakups are like divorces, they are not kidding,” Barnett says. “I don't wish my former partners ill will. I just hope they can go do their own thing, and keep it legal.”
Brickner did not respond for a request to comment. He is still pushing a coding school project on his website, but it's now called Re:boot, and says it will teach programming in nine weeks.
Due diligence
With Barnett moving on, or trying to, several lessons learned stick out for any entrepreneur, in any industry. One particularly good lesson: Be aware of everything out there about the people who write the checks.
“Entrepreneurs need to know where the money is coming from,” says Matt Price, a partner with Tampa-based Ballast Point Ventures, which was not involved in the Gr8code deal. “Just like how the investor is doing due diligence on them, they need to do their due diligence on the investor.”
Barnett, looking back, says her lack of due diligence is her biggest regret.
“If I had done my research on Steve Brickner and his company, I probably could've saved all of us from everything we went through,” Barnett says. “If I knew then what I know now, we might not have been able to save our partnership, but we probably could've just wound down the business, and gone our separate ways.”
Barnett has filed a separate suit against Brickner. She says she later discovered problems with Brickner's financials, including ongoing foreclosure proceedings against his $950,000 home in her neighborhood.
“For startups, we should never be so quick to please a VC,” Barnett says. “Never let them bully you, and do your due diligence. You owe it to your company.”
Barnett isn't sure what she's going to do next, despite now fully owning Gr8code. The Gr8code website today simply proclaims the new Gr8code is “coming soon.”
Barnett has considered seeking a new investor, or possibly selling her idea and product to a technology company. And despite her court victory, Barnett winces from what happened.
“You feel a little like your teeth got kicked in,” she says. “How could I have made such a mistake, and not seen what was going on?”
One thing Barnett is sure about is that no matter what she does next, it won't involve any partners.
“I won't do it,” she says. “It's like a doctor taking care of her own kids -- they are the worst possible person to do it. And there I am, I have a lot of good solid business experience, and the whole time, I was saying this would never happen to me. And it did.”
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