Quartzy Froze Out Investors With Khosla Deal, Records Suit Says

Quartzy Inc. was sued for records in Delaware by a shareholder alleging “an extortionate pay-to-play offering, hatched in secret by insiders,” to squeeze out minority investors as part of a refinancing deal with billionaire venture capitalist Vinod Khosla.

The Chancery Court lawsuit accuses Quartzy’s CEO of agreeing to financing terms dictated by Khosla, founder of Sun Microsystems and Khosla Ventures, that “punitively diluted, on a 10-to-1 basis,” the equity of any non-participant holding at least 1% of the company’s preferred stock.

The deal was allegedly part of the tech startup’s costly but promising transition from an online medical supplies “drop ...