Dovi Frances seeks to sell Papaya stake at 90% discount amid judicial overhaul clash

Offer comes as investor is threatened with defamation suit by CEO Eynat Guez over public criticism of plans to withdraw funds from Israel due to government’s shakeup of judiciary

Sharon Wrobel is a tech reporter for The Times of Israel.

Dovi Frances, Israeli-American venture capitalist and founding partner of Group 11, a Los Angeles-based venture capital firm. (Courtesy)
Dovi Frances, Israeli-American venture capitalist and founding partner of Group 11, a Los Angeles-based venture capital firm. (Courtesy)

Investment firm Group 11, founded by Israeli-American venture capitalist Dovi Frances, is seeking to sell its stake in Tel Aviv-based global payroll and payment management platform Papaya Global, led by Eynat Guez, a vocal protest leader against the judicial overhaul.

In a letter to Papaya shareholders, Frances is offering to sell Group 11’s 2.82% stake in Papaya Global at a company valuation of $444 million, reflecting a 90 percent discount. In its last funding round back in September 2021, Papaya raised $250 million at a valuation of $3.7 billion. The proposal is valid until Monday September 4, according to the letter dated Aug. 28.

The offer comes amid a standoff in recent weeks between Frances and Guez over the proposed judicial overhaul plans. At the end of July, Frances received a warning letter from Guez’s lawyers threatening to take legal action against him for alleged defamation. In the letter, it was demanded that Frances issue a public apology and clarification for statements he made against Guez in a number of media interviews and public statements.

Guez announced at the end of January that Papaya planned to withdraw all funds from Israel if the contentious judicial overhaul, which she said threatens the country’s democracy and will damage its economy, is implemented as planned.

“No prior internal notice of this decision was shared with Group 11,” Frances wrote in the letter to shareholders. “I responded publicly as well, not in relation to the general matter at hand but in relation to the specific action involving the Company, and urged the CEO not to implement her decision to withdraw the Company’s funds from Israel.

“To my amazement and disappointment, this simple action of exercising my freedom of speech and daring to voice an opinion differing from the CEO’s in a specific matter concerning the Company, resulted in an extreme and harsh reaction by the Company’s CEO, who apparently decided to wage war against Group 11 and against me personally, while using and abusing her powers as CEO of the Company,” Frances added.

Eynat Guez, co-founder and CEO of workplace management platform Papaya Global. (Courtesy)

In recent months, prominent founders, executives and workers in Israel’s tech sector, including Verbit CEO Tom Livne and CEO Assaf Rappaport, have voiced strong opposition to the proposed judicial shake-up which would limit the High Court’s independent powers. The main fear is that a weakening of the judiciary system will create uncertainty and reduce the likelihood that foreign investors will inject funds into local startups. This in turn could force local and international businesses to leave and set up shop elsewhere.

Shortly after Guez’s announcement of the withdrawal of funds, Frances told Channel 13 in an interview on Jan. 26 that the CEO’s call was from “personal caprice – a whim that does not stem from a business motive but a political motive.”

In other press interviews and statements cited in the lawyer’s letter, Frances is alleged to have suggested that Guez was endangering the company’s funds by transferring them to the collapsed Silicon Valley Bank and was encouraging entrepreneurs and other investors to withdraw their funds from Israeli banks and transfer them to foreign banks in protest over the judicial overhaul.

In the letter to shareholders, Frances claims that since the start of 2023 Group 11 is encountering difficulties in  communicating with management and to receive full information of its business activities. Following the threat of legal action and allegations of lack of information provision, Frances in a letter to Papaya’s major shareholders dated July 18 announced his intention to sell the group’s entire stake in the payroll and payment management platform.

In what followed, Frances accuses Guez of hindering the group’s efforts in recent weeks to “sell our holdings in the Company, by refusing to cooperate not only with us but also with third and other parties and to provide the information required to facilitate a sale.”

In response to Frances’s letter, Papaya said the company approached Group 11 months ago seeking to buy its stake and that Guez was personally leading a group of investors.

Tech workers march in Tel Aviv to protest against the government’s planned overhaul of the judicial system, January 31, 2023. (Tomer Neuberg/Flash90)

“All attempts by Dovi Frances to tarnish Eynat following his recent remarks are simply ridiculous,” Papaya said in a statement. “The letter was shared with the media before it was received by Papaya Global, and demonstrates Frances’s conduct, and his choice to pursue personal battles over the benefit of his investors.”

In the statement it was added that a group of investors led by Guez is interested in buying the shares at “bargain prices.”

Most Popular
read more: