Climate-Data Startup With All-Star Investors and Roots in Africa Nearly Collapses

The former Morgan Stanley commodities trader attracted prominent investors such as TPG and Intel Capital, helping push the valuation of Gro Intelligence in 2022 to $850 million.

The company is now in disarray. Menker was fired as chief executive in February after Gro’s board discovered the company had been late contributing to employee retirement plans and missed paying some payroll taxes during a cash crunch, according to people familiar with the matter. Gro’s co-founder and chief operating officer, Sewit Ahderom, was also fired. The board hired an outside law firm to investigate what happened.

The startup’s valuation has dropped to between $20 million and $25 million after being bailed out by investors over the past week in a deal that could wipe out its earlier investors. On Friday, the company told employees it would lay off 60% of its roughly 150-person staff and would be able to pay employees again after missing payroll earlier.

Gro’s new chief executive and former chief technology officer, James Cariello, said in a statement: “We have a high level of confidence in what we will achieve. We have a unique product solving real-world problems."

Neither Menker nor Ahderom responded to requests for comment.

The recent events mark a stark reversal for a startup embraced by a who’s who of investors. Time magazine hailed it as one of its 100 most influential companies in 2021.

Existing investors also include Millennium Management’s Israel Englander, venture firm DCVC, the cosmetics heir Ronald Lauder and part of the Wasserstein family, related to the late Bruce Wasserstein of Lazard.

Menker was considered a rising star on Morgan Stanley’s commodities desk before she left to start Gro, which uses AI to forecast crop yields amid changing climate conditions. Investors describe the Ethiopian entrepreneur as knowledgeable, passionate and charismatic, with her background and Western training a plus for some.

Some praised her ability to navigate bureaucracy to get climate data from multiple countries.

In a 2017 TED Talk recounting her decision to leave Wall Street, Menker said the question of when agricultural demand outstrips supply became an “obsession when I realized through my research how broken the system was and how very little data was being used."

A 2022 article in the New York Times described Menker as growing up in a middle-class family and moving to the U.S. for college. She didn’t personally experience the famine but was deeply affected by it, she said. “Food, sugar, toilet paper was rationed no matter who you are," Menker said. She grew up “very much aware that you can’t take anything for granted."

Gro’s clients included Unilever and Bayer. Menker spoke at the World Economic Forum in Davos, Switzerland in 2023. TPG founder Jim Coulter would sometimes text or phone Menker, inviting her to events to speak with the private-equity firm’s clients.

But Gro, like many other startups, was burning cash. Menker had started to position Gro as a tool to fight global food insecurity and was courting “elephants," or larger clients. Those efforts were marked by repeated delays, several people said.

Menker in recent months had told the board and investors that Gro was in talks for several big contracts, including with Saudi Arabia. She said landing some could vault Gro’s valuation to more than $1 billion or even $2 billion. She personally lent the company millions late last year.

People familiar with Gro said the board had already begun losing confidence in Menker and Ahderom by the time it learned of the 401(k) and payroll-tax issues. A consultant who had come aboard flagged the issues.

Among the board’s frustrations had been Menker and Ahderom’s resistance to cutting costs and reining in their views of expected revenue, the people said. The founders also remained overly optimistic about the company’s ability to raise money in a historic venture-funding drought.

In the recent funding round, Gro raised at least $10 million. TPG and Intel Capital, among Gro’s most significant backers, participated, along with some new investors and Gro’s reconstituted management team. Some cited their belief in Gro’s technology as a reason they participated.

Common shareholders have been wiped out; Menker owns 80% of the common shares. Investors holding preferred shares have potentially lost their money; they would recover their principal if the company sells for about $200 million, a valuation some called plausible given the excitement around AI.

Irate investors are asking how Gro’s fortunes changed so rapidly.

Kobre & Kim, the law firm hired by Gro’s board, could look into how the irregularities with 401(k) contributions and payroll taxes came about and whether employees were hurt financially by the delayed contributions.

The law firm also could examine whether Menker and Ahderom made willful misrepresentations to the board or, like some founders, were simply too optimistic.

Write to Juliet Chung at Juliet.Chung@wsj.com