For any founder, a term sheet valuing their stake at over $2.6m is a moment of triumph. For Davith Kahwa, cofounder of South African fintech LittleFish, that figure became the centrepiece of a legal battle that saw him sue his cofounder, his company and its new high-profile VCs, TLcom Capital and Flourish Ventures.

In a case that serves as a stark warning to founders navigating the exhilarating but treacherous waters of venture capital, Kahwa alleged he was the victim of “oppressive and unfairly prejudicial conduct” designed to squeeze him out after the ink on the investment deal was dry.

He lost.

A judgment from the High Court of South Africa in April 2025 dismissed his application, but the court documents lay bare the series of agreements that led to Kahwa losing his grip on the company he helped build. The story is a lesson in how a promising term sheet can lead to a founder’s nightmare if the subsequent legal agreements aren’t scrutinised.

From 50/50 Partners to a VC Deal

The story begins around 2019. Davith Kahwa and Brandon Roberts cofounded a venture to build a digital platform for SMEs, initially holding a 50/50 stake in their company, LittleFish App (Pty) Ltd. According to the court judgment, Roberts was primarily responsible for developing the intellectual property (IP), while Kahwa focused on bringing in customers.

In early 2023, the startup was gaining traction. Kahwa introduced the company to investors, which led to a $2.5m funding deal led by TLcom’s Tide Africa II Fund and Flourish Ventures last year.

A term sheet, signed on March 14, 2023, valued LittleFish at a “pre-investment” figure of $6.7m. At that point, Kahwa held a 40% stake (having previously brought in another partner). On paper, his shares were worth $2.68m — the figure he would later claim in court. This term sheet was the high point; from there, the ground began to shift beneath his feet through a series of “Transaction Agreements.”

The Devil in the Definitive Agreements

The initial term sheet evolved into several legally binding contracts that fundamentally altered the company’s structure and Kahwa’s position within it.

Corporate Restructuring

First, the company was split. A new entity, LittleFish International Inc, was incorporated in Delaware, USA, to hold the company’s valuable IP. The original South African company, LittleFish App (Pty) Ltd, was left to handle the remaining business operations. This is a common move for African startups seeking international investment, but it proved to be a critical complication in Kahwa’s legal case.

Dilution and a Diminished Role

Kahwa’s active role and equity were significantly reduced. He signed a Memorandum of Agreement on April 21, 2023, that stipulated:

• His shareholding would drop from 40% to approximately 11%.
• His cofounder, Brandon Roberts, “will continue to be actively involved and engaged in [the company’s] business operations.”
• Kahwa, in contrast, “will continue to support [the company’s] future business operations… in capacities that both cater to their strengths.”

The judge bluntly described the language defining Kahwa’s future role as “riddled as it is with tautologous business-speak” and “hardly a model of clarity.” Crucially, it established a clear difference between Roberts’ active management role and Kahwa’s more ambiguous “support” function.

The Vesting Trap

The most critical agreement was the “Founders Restricted Share Subscription Agreement” (FRSSA), signed on October 25, 2023. This agreement placed Kahwa’s remaining shares on a vesting schedule.

It introduced the concept of his “continuous service status,” which the company’s board — now including its new investors — could terminate. If terminated, the company had the right to repurchase his “unvested” shares for a nominal amount.

His role, whether as an “executive employee, contractor, consultant or advisor,” was to be determined by the board. The board also had the power to set the Key Performance Indicators (KPIs) against which his service would be measured.

This created a powerful mechanism: the board could define Kahwa’s role, set targets it knew he might not meet, terminate his service for failing to meet them, and then buy back the majority of his shares for virtually nothing.

The Fallout

By December 2023, Kahwa had agreed to resign as a director of both the South African and US companies. By April 2024, emails show he was growing anxious that the company could trigger the repurchase right over his shares.

Disputes over his proposed KPIs followed. Kahwa’s lawyers sent a letter on May 8, 2024, alleging a “vendetta” against him and a conspiracy to trigger the share repurchase clause. When an invitation to propose his own KPIs went unanswered, Kahwa filed his lawsuit two weeks later, seeking a compulsory buyout of his shares for the $2.68m valuation from the original term sheet.

The Verdict: You Signed the Papers

The court dismissed Kahwa’s case on several grounds, but the central theme was inescapable: he had willingly signed the agreements that led to his predicament.

1. Jurisdictional Problems: The court ruled that South African corporate law, specifically the section allowing for relief from oppressive conduct, does not apply to foreign companies like the Delaware-incorporated LittleFish International Inc. And because it couldn’t make an order against the US-based company holding the IP, this fatally flawed the request for a single buyout price for shares across two companies in different countries. This created an insurmountable barrier for Kahwa seeking a single order covering his shares in both entities.
2. Valuation Failure: Kahwa based his entire $2.68m claim on the company’s valuation before its most valuable asset — the IP — was moved to the Delaware entity. He provided no evidence for the current value of the South African company alone, leaving the court with no basis to determine a fair price.
3. The Killer Blow — Acquiescence: The judge ruled that Kahwa could not claim to be unfairly prejudiced by a situation he had agreed to. The judgment states: “The applicant’s reduced role in the conduct of the business… was with his acquiescence, in that he was party to the agreements… that left the determination of his role in the hands of the first respondent… As such, the applicant cannot complain that he is unfairly prejudiced.”

The breakdown of the relationship with his cofounder and investors was deemed legally irrelevant because the agreements he signed did not guarantee him a right to participate in the company’s management.

Lessons for Founders

The LittleFish saga is a sobering lesson for any founder about to sign a VC term sheet.

• A Term Sheet is Not the Final Word: It’s a statement of intent. The legally binding “definitive agreements” that follow are where the real power dynamics are set. The excitement of a great valuation can obscure onerous terms in the final contracts.
• Beware Vague Roles and Board Discretion: If your future role is vaguely defined as “support” and is subject to the board’s discretion, you are vulnerable. Post-investment, the board is no longer just you and your cofounder; it includes investors whose primary duty is to their LPs.
• Understand Your Vesting and Leaver Clauses: Clauses allowing the company to repurchase unvested shares for a nominal fee are standard. However, they become dangerous when combined with a situation where the board has total control over your employment status and performance metrics.
• Legal Structure is Strategic: The creation of a foreign holding company can have major implications for founder rights and legal recourse, especially for South African founders. The court’s finding that it lacked jurisdiction over the Delaware entity highlights a critical strategic consideration often driven by investor requirements.
• Get Your Own Lawyer: The company has lawyers, and the VCs have lawyers. Their job is to protect the interests of the company and the investors, respectively. As a founder, you need independent legal counsel whose sole job is to protect you and explain exactly what you are signing away.