Two years after being founded, and after raising $100 million in an initial coin offering (ICO) in 2017, one of Israel's largest blockchain companies is downsizing. Canadian social media company Kik Interactive, whose development center is in Tel Aviv, announced today that it was restructuring, and would lay off most of its employees and cut back its activity.
"Globes" attempted to find out how many of the Kik's employees who will be laid off work in Israel, but as of now, no response was available from Kik's development center in Israel. Sources close to the company in Israel, however, told "Globes" that all 70 of Kik's employees in Tel Aviv would be laid off.
In an article published this week by Ted Livingston, the company's Canadian founder, on the Medium website, entitled, "Moving Forward Boldly with Kin," he explains that Kik's restructuring is a result of the legal imbroglio in which the company has become entangled in recent months, which is liable to continue for a long time. Livingston states that the company had to make tough decisions, and therefore announced today the closing of its Kik instant messaging app, a reduction in its staff to an elite group of 19 employees, and a change in the company's business focus, so that users of its Kin blockchain network will become buyers of the Kin currency. "Over 100 employees and their families will be impacted," Livingston wrote.
According to Livingston, Kik's decision results from the costs of the legal battle it is waging against the US Securities and Exchange Commission (SEC). "After 18 months of working with the SEC the only choice they gave us was to either label Kin a security or fight them in court. Becoming a security would kill the usability of any cryptocurrency and set a dangerous precedent for the industry. So with the SEC working to characterize almost all cryptocurrencies as securities we made the decision to step forward and fight," Livingston writes. He criticized the SEC, adding, "While we are ready to take on the SEC in court, we underestimated the tactics they would employ. How they would take our quotes out of context to manipulate the public to view us as bad actors. How they would pressure exchanges not to list Kin. And how they would draw out a long and expensive process to drain our resources." Livingston wrote that the changes that Kik was now making would reduce its burn rate by 85%, thereby enabling it to continue the legal struggle with the resources available to it.
Moshe Hogeg among the famous investors
As "Globes" reported last June, Kik Interactive has become the most prominent company being prosecuted in the US for illegally raising capital in an offering of Kin, its cryptocurrency. The SEC alleges that Kik's ICO violated the investor protection laws in the US. If the SEC wins the trial, Kik will have to give the millions of dollars that it raised back to its investors. In several compromise settlements following recent SEC investigations involving ICOs, the investigated companies agreed to give investors back their money.
The development team behind the Kin digital currency, who worked on the ICO and the development of Kik's blockchain platform, is managed by Alex Frankel under his official position of general manager at Kin Ecosystem. A team headed by Daniel and Uriel Peled, founders of the Orbs company, were leading advisors to Kik's ICO.
One of the famous investors in Kik's ICO was Moshe Hogeg, founder and chairman of the Singulariteam venture capital fund and owner of the Beitar Jerusalem soccer club. Another investor in the ICO was Israel fund iAngels, managed by Mor Assia and Shelly Hod Moyal. Livingston visited Israel last July and met with the Kin community in the company's Tel Aviv offices.
Activity in Tel Aviv began in 2017
Livinsgton founded Kik in 2009 in Canada. The company raised $120 million in five financing rounds by 2015, including $50 million in the fifth round led by Chinese company Tencent, reflected a $1 billion company valuation.
In 2016, it was reported that the Kik Messenger app had 300 million registered users, and was being used by 40% of US teenagers. In a media interview, however, Livingston admitted that the app would have trouble competing with WhatsApp and Facebook Messenger. Furthermore, the US law enforcement authorities received complaints at the time that pedophiles were using Kik Messenger to distribute child pornography. The authorities alleged that Kik's management did not do enough to prevent this.
In early 2017, Kik acquired Israeli startup Rounds, founded by Dany Fishel, Ilan Leibovich and Dimitry Shestek in a deal believed to be for over $60 million. Rounds, which developed a multi-participant video chat platform, became Kik's first development center outside Canada, following the acquisition.
Since 2017, all of Kik's digital currency activity has been carried out in Israel, through its development center in Tel Aviv, led by Alex Frankel. Last December, Kik reported the expansion of the center in Tel Aviv, after renting 400 square meters of offices in Teddy Sagi's Labs shared workspace on the 60th floor of the Azrieli Sarona Tower for two years for NIS 4 million.
Published by Globes, Israel business news - en.globes.co.il - on September 24, 2019
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