StrongRoom AI will live on under new management with Queensland pharmacy entrepreneur Joe Zhou acquiring the Melbourne healthtech startup from the administrators in a deal finalised late on Thursday.
The sale follows a last minute battle for control of the business last week when an early investor, InterValley, and one of the company’s cofounders, make a play to acquire the business under a Deed of Company Arrangement (DoCA), which was opposed by administrator HLB Mann Judd, as well as EVP, the VC firm at the centre of an ongoing legal battle of its $10.4 million investment in the startup
EVP backed Zhou’s acquisition with an additional $1 million loan towards the $3m sale, as it looks to use the courts and the former entity’s liquidators to recoup its investment.
Zhou, who’d already bought a $1 million loan to the business, hopes the acquisition will bring renewed stability to the business and its customers across the community pharmacy sector.
“This provides clarity for customers, partners and staff,” he said.
“Our focus now is on continuity, listening to our users, and ensuring StrongRoom remains reliable, secure and well-supported.”
The StrongRoom brand will be retained, with renewed focus on customer support, product development and governance.
Zhou also took to LinkedIn to say it was “one of the hardest things and painful processes I have ever gone through”, noting the human toll the company’s widely publicised failure has had on all involved.
“This process became more than just a transaction after being on the ground and dealing with everyone that has been affected. When the transaction changes from a number on a spreadsheet to people’s livelihoods, it hits hard on so many levels even coming in as an outsider,” he said.
“The one thing that surprised me particularly is how amazing the StrongRoom Team is. I have only met the current team during the licensing period but what I can see, the team is a great bunch of super talented people that has been caught up in this unfortunate event. I am super thankful for everyone past and present for their resilience during this period and helping the company survive through this period.
“Real work begins now and I am committed to making the company healthy and focus on the core fundamentals of getting the company back on track. StrongRoom has a great product, highly loyal customer base, and a talented team that’s poured so much into building something meaningful. The company has tremendous potential and I am excited to take it to the next level.”
Zhou, a StrongRoom customer who uses the platform in multiple pharmacies he owns, says he sees clear opportunity to unlock its potential.
“These tools are embedded in the day-to-day operations of modern pharmacies,” he said.
“They support not only compliance, but also better service delivery and patient outcomes. We’re committed to making sure they’re well-supported and continue to evolve.”
The founder of Aceso Pharmacy Group, which specialises in rare diseases, also previously founded the “Uber Eats of pharmacy”, Chemist2U.
Lquidator Todd Gammel from HLB Mann Judd said the sale prioritised continuity and value realisation following multiple offers, with the buyer representing the best available option for creditors.
“It was a competitive sale process and the final sale outcome delivers the best opportunity for a return to creditors as well as certainty and stability for customers and as many staff as possible as the business continues as a going concern,” Gammel said.
The former business will now go into liquidation following a decision by creditors last week, with the liquidators now diving deeper into what caused the collapse of StrongRoom amid the possibility of recovering more funds from those involved for creditors.
EVP has been funding the ongoing operation of StrongRoom during its administration that saw the VC strike interdependent agreement with the administrators for its sale. Freezing orders against the administrators were dropped from the legal action when the sale went through.
But the VC’s freezing order remains in place against two of the founders, and the directors, as well as multiple investors, as the fund tries to law back their $10.4m investment they made just weeks before alleged discrepancies emerged
StrongRoom announced a $17 million raise in March, led by EVP at a $70 million valuation. Just 10 days later, the VC launched legal action to recover its funds, and StrongRoom’s board placed the company in voluntary administration,
EVP applied to freeze the company’s assets, along with several defendants, including the administrator, cofounders Max Mito and Christopher Durre, as well as fellow directors Peter Bruce-Clark, from fellow investor Kalytix and Divesh Sanghvi.
EVP says that it was ‘profoundly misled’ about the investment and the warranties given by the founders were ‘false, misleading or deceptive’ and may involve ‘deliberate fraud’.
EVP alleges in court documents that StrongRoom AI CEO Max Mito admitted to fraud using fake revenue numbers, a claim Mito denies.
When StrongRoom announced its raise, the business claimed it had around $13 million in annualised revenue by the end of 2024.
Court documents put the revenue at around $1.7 million in the 12 months to January this year. EVP had believed the annual revenue was around $6.1 million.
The administrators found that StrongRoom AI’s combined net losses after tax since the 2020 financial year exceed $18.5 million – and sat at around $800,000 a month – and formed the view that the company may have become insolvent in late October 2024.
An insolvent trading claim would result in creditors being owed $3.4 million.
HLB Mann Judd’s final report outlines a litany of issues with the company’s financial actions, including unfair preference payments worth $9.89 million (“there may be more”) unreasonable director-related transactions, potentially uncommercial transactions and the failure to paid around $2 million to shareholders from the EVP investment.
“From the records provided to date, the accounting process does not appear to have been accurately implemented to manage the revenue accounting accurately,” Gammel wrote.
Also under scrutiny is the acquisition of loyalty program, Members Benefits Australia (MBA), from Divesh Sanghvi, a StrongRoom director and defendant in the EVP case.
MBA was acquired before EVP’s investment, in August 2024, in a transaction that involved related parties and created a material vendor finance loan position, although it was not listed as one in the StrongRoom accounts. The deal was worth between $9.8m and $10.5m, including $8.82m in cash. EVP’s funds allegedly went towards settling that debt
A case management hearing for EVP’s ongoing court case is listed for August 21.
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