Background
Greenfield One III GmbH & Co. KG and other investors participated in the seed financing of Fancurve, a startup developing digital soccer jerseys and other NFT-based wearables. Greenfield invested $2.5 million through a Simple Agreement for Future Equity, or SAFE, and entered into a side letter with Fancurve, founder and CEO Chris Chaney, and two other founders. The side letter required Fancurve to use Greenfield’s funds for company business and granted Greenfield certain information and governance rights.
Within weeks of receiving Greenfield’s investment, Chaney transferred more than $2.7 million from Fancurve’s account to repay his personal loans. Fancurve later failed after the NFT market collapsed. The investors sued Fancurve and Chaney, but Fancurve defaulted after failing to obtain counsel. The remaining trial issue was whether Chaney was personally liable to Greenfield for breaching the side letter; the amount of monetary relief against Fancurve remained unresolved.
The Court’s Holding
The court entered judgment for Chaney on Greenfield’s contract claim. Although Chaney signed the side letter individually as a founder, the use-of-funds, observer, financial-information, and conflicts-policy provisions expressly imposed duties on Fancurve or its board, not on Chaney personally. His general agreement to the side letter did not make him a guarantor of every corporate obligation. The sole relevant provision that bound Chaney individually required him to devote substantially all his professional efforts to Fancurve, and Greenfield failed to prove that he violated it.
Fancurve’s default established that it breached the investors’ SAFEs by failing to make required dissolution distributions and breached Sections 1 and 7 of Greenfield’s side letter by misusing investment proceeds and withholding required financial information. The court rejected the observer-rights claim because the complaint did not allege that a board or shareholder meeting occurred. It reserved the amount and form of relief against Fancurve pending a supplemental submission addressing available proceeds, the SAFE distribution waterfall, overlapping recoveries, restitution, interest, and fees.
Because Chaney prevailed on the claims against him, the side letter’s fee-shifting provision entitled him to reasonable fees and costs. Greenfield’s request for fees from Chaney was denied, while its possible entitlement to fees from Fancurve remained reserved.
Key Takeaways
- An individual who signs a contract containing corporate obligations is not personally liable for those obligations when the agreement assigns them expressly to the company and does not provide a personal guarantee.
- A default establishes liability on well-pleaded claims, but the plaintiff must still prove the amount and proper measure of damages.
- The SAFEs did not guarantee repayment of the investors’ full contributions upon dissolution; recovery depends on legally available proceeds and the contractual priority waterfall.
Why It Matters
The decision underscores the importance of assigning founder and company obligations expressly in startup financing documents. Even evidence that a founder caused the company to misuse investor funds cannot support personal contract liability when the relevant covenant binds only the company.
It also illustrates the complexity of damages after a startup’s default. Investors seeking repayment under SAFEs must account for the company’s available assets, competing claims, and contractual distribution priorities, while courts must prevent overlapping recovery under related financing agreements.