Rothenberg Ventures has been the talk of Silicon Valley over the last two weeks, as the small venture-capital firm led by charismatic 32-year-old Mike Rothenberg has essentially imploded.
Jessi Hempel and Lauren Smiley have the story over at Backchannel, and Business Insider has learned some additional details from a letter sent to the firm’s limited-partner investors on Tuesday morning.
The firm, which had had about $50 million under management, has run out of operating money, and all its employees except its lawyer were on unpaid leave as of mid-August, according to the Backchannel report.
Now, according to an email obtained by Business Insider (duplicated below), Rothenberg has asked his investors – “limited partners” in VC lingo – for assistance in raising additional working capital and offered them a chance to join the general partnership. Rothenberg had been the only general partner.
The firm still exists but has changed its name to Frontier Tech VC.
Rothenberg says in the letter that the firm is cooperating with an inquiry by the Securities and Exchange Commission, and he laments the recent “unfortunate press coverage,” though he maintains a steadfast focus on the fund rather than “reacting to the press.”
The email also provides a recap of a phone call Rothenberg conducted with the firm’s limited-partner investors on August 29.
Missing from the email’s account of the phone call highlights, though, are what one person familiar with the situation described as some contentious moments: Rothenberg had signaled intentions to announce he was stepping down, but changed his mind.
According to this person, Rothenberg said on the call that the media was out to get him and that his only fault was being too ambitious. He then hung up without taking questions, this person said.
A representative for Rothenberg declined to comment.
How it came undone
According to accounts, the firm started to unravel after a whistleblower at the firm made a complaint to the SEC in July. Rothenberg began to explain the situation to top employees. That, along with growing financial troubles, led to a steady exodus from the firm, as first reported by TechCrunch.
Investors and employees were mainly concerned about a division called River Studios, which was devoted to creating virtual-reality content. According to the Backchannel report, as well a person close to the firm who spoke with Business Insider, investors were unaware that Rothenberg was funding this business with his own money, and it was not disclosed in annual reports.
In his letter to limited partners, Rothenberg says that an independent accountant, FTI Consulting, is “now analyzing our financials and advising on best practices.”
Backchannel and a separate report in TechCrunch described Rothenberg spending a lot of time and money bolstering his image. For instance, the firm hosted a “Founder Field Day” at the San Francisco Giants’ baseball stadium that featured a private set by the band Third Eye Blind, and he attended sporting events and awards shows in luxury boxes.
He hired several executive assistants, a driver, and a personal assistant, according to TechCrunch and a person who worked at the company.
While the costs of these events were often covered – in particular, Rothenberg told Backchannel, the Field Day was completely paid for by sponsorships – some investors and employees were concerned that his attention should have been spent more on building companies and less on these networking events.
Read the story of the firm’s recent troubles, and Rothenberg’s attempts to solve them, at Backchannel »
Here’s the letter sent to limited-partner investors on Tuesday morning:
“Dear Frontier Tech Limited Partners,
“What follows is an update of the latest LP meeting, an update on our process and our new name, and information on how you can help. Many of you have reached out individually over the last several weeks, and we would like to respond to every inquiry. In the meantime, time constraints make general responses like this more practical.
“Our first priority continues to be to protect investors. We have made good investments and those are performing for you.
LP Meeting Recap
“Recently we assembled more than 100 investors for a meeting and simultaneous conference call on Monday, Aug. 29th. Key points covered were:
1. Financing the companies in a much leaner, more focused organization 2. Restructuring the management team 3. Developing additional strategic resources to further facilitate this process 4. Creating advisory boards for each annual fund to address matters unique to each fund
“Today we announce the firm’s new name ‘Frontier Tech Ventures’ (Frontier Technology Venture Capital LLC), previously “Rothenberg Ventures Management Company”. I believe the current transition is an appropriate time for a rebranding to reflect the firm’s focus and thought leadership on Frontier Technology. Frontier Technology is a term and concept we helped develop and invest in. For simplicity, the individual funds will remain as named ‘i.e. Rothenberg Ventures 2016 Fund.’
“We acknowledge the unfortunate press coverage over the past few weeks as well as employee departures. We continue to focus on the fund instead of reacting to the press. Like other small venture capital firms, Frontier Tech Ventures now has a lean model that can relying primarily on contractors as-needed for the time being.
“Independent accountant FTI is now analyzing our financials and advising on best practices. CFO Dave Haase, who oversaw financial administration and reporting at the firm, is no longer with the company. We continue to cooperate with the SEC inquiry as well.
How You Can Help
1. LP Advisory Board. We are creating LP Advisory Boards for each fund. Please let us know if you would like to be on an Advisory Board or nominate an LP to sit on an Advisory Board for a fund you are invested in.
2. Experienced Chairman. Please let us know if you would like to nominate an experienced chairman of the board – including potentially an LP – to help us with the current transition.
3. Working capital. If you are interested in joining the GP or learning about other ways to invest in or support the transition please let us know.
“Thank you for your continued support and patience.
“Sincerely, Mike Rothenberg”