Freshworks faces lawsuit for allegedly misleading US market regulator

The US- and India-based SaaS company Freshworks is facing a class action lawsuit in a California district court for allegedly providing misleading offering documents ahead of the firm’s listing on the Nasdaq stock exchange in September 2021. Entrackr has reviewed a copy of the suit.

Scott+Scott Attorneys at Law LLP, a US-based law firm, has alleged that Freshworks’ registration statement and prospectus with the Securities and Exchange Commission (SEC) “contained materially incorrect or misleading statements and/or omitted material information that was required by law to be disclosed.”

The lawsuit further says that Freshworks’ revenue growth and billings had faced obstacles even though the startup maintained that the business “had grown rapidly” ahead of the IPO and that the company had recorded broad appeal of products to “customers of all sizes and geographies.”

“The Offering Documents [...] were false and misleading and omitted to state that, at the time of the Offering, Freshworks’ net dollar retention rate had plateaued while its revenue growth rate and billings were, in fact, decelerating,” the suit alleged. (emphasis theirs) The law firm has invited any investor who has lost more than $100,000 to apply to join the class action.

“We don’t comment on pending litigation and intend to defend this and any similar case vigorously,” Freshworks spokesperson Jayne Gonzales told Entrackr.

Founded in 2010 by Girish Mathrubootham, Shan Krishnasamy, and Vijay Shankar, Freshworks provides marketing, sales, support, and IT solutions. The company competes with the likes of Zendesk, Zoho, and Salesforce, among others.

In September 2021, Freshworks became the first Indian-origin software startup to get listed on the Nasdaq following a billion-dollar IPO. Freshworks recorded a 21% surge in its trading debut with its shares opening at $43.50 apiece compared with the IPO price of $36. Since then, Freshworks’ shares have plummeted to close at $12.24 on November 2.

On Wednesday, Freshworks also released financial results for its third quarter ended September 30, 2022. Its total revenue grew 37% to $128 million while operating losses stood at $3.1 million.

“We delivered a strong quarter of results with revenue up 37% on a constant currency basis and significantly improved our operating efficiency,” CEO and co-founder Mathrubootham said in a statement.

For the fourth quarter, Freshworks expects a 27% to 28% revenue growth. For the full year 2022, it is aiming for up to 34% revenue growth.