The meltdown at one of Silicon Valley's hottest young VCs could lead to more investigations, source says
Courtesy of Michael Rothenberg
The company has admitted to its investors that the SEC was looking into the company, according to an email obtained by Business Insider, although such inquiries do not automatically mean that any further action will be taken. At issue is how the company managed its money.
Now the SEC has asked people familiar with the company to speak to the FBI and the US Attorney's office, a person close to the matter told us, which could mean that more investigations are being considered. Again, that doesn't mean this will result in a full-blown investigation, or formal charges.
A representative from Rothenberg Ventures, now called Frontier Tech, told us, "The company is not aware of any criminal investigation."
In addition, sources tell Business Insider that multiple employees have filed wage complaints against the company to the State of California.
The firm, which had about $50 million under management, ran out of operating money, and all its employees except its lawyer were told they were put on "unpaid leave" as of mid-August, according toa lengthy account of the firm's troubles on Backchannel.
An employee we talked to more aptly described the situation as being "unemployed."
"You put yourself on unpaid leave. You can't put a company on unpaid leave," one person told us.
Some former employees are furious
Rothenberg Ventures has been the talk of the Valley for the past two weeks, as one bit of bad news after another leaked to the press. TechCrunch documented the mass exodus of employees; Jessi Hempel and Lauren Smiley published their report on Backchannel; Business Insider published the email sent to investors that included a solicitation for more working capital in exchange for a general partnership.
They used words like "vengeful," "a messed-up human being," "megalomaniac," "master manipulator" and "lack of empathy."
But they also described him as "charming" and "convincing."
For instance, one person confirmed to us a wild story first reported by Sarah Buhr and Connie Loizos at TechCrunch.
Rothenberg was "obsessed with being famous" and his own reputation, this person said. The company was known for its extravagance: wine tours of Napa Valley, sports events in luxury boxes, a race car, and its Founder Field Day, where it rented the Giants stadium, AT&T Park, and treated startup founders to batting practice on the field and free massages.
Last year, Bloomberg ran a story that questioned how the firm was paying for its "party" culture. After the story published, Rothenberg sent multiple employees to the local airports, so they would buy up all the copies of the issue, TechCrunch reported and one person confirmed to us.
Another person alleged to us that at least two times Rothenberg changed his mind and rescinded a job offer at the last minute, even after the would-be employee had left another job or moved from another state.
Rothenberg's representatives declined comment on these allegations.
We heard multiple allegations of wage disputes, too. As Backchannel reported, one employee filed a lawsuit alleging that Rothenberg had refused to reimburse $109,000 of expenses.
Nervous startup founders
None of the startup founders backed by Rothenberg that we reached out to responded to our requests for comments.
But former employees told us that many might still feel loyal to Rothenberg because he invested in them when others wouldn't.
But some of them could be nervous as well. CEO Coach Matt Mireles published a blog about a conversation he had with one of Rothenberg's founders.
"The founder was young. No professional experience outside of a couple menial summer jobs. But the business was surprisingly solid and well thought out. ... he'd just started raising money again. And here was his lead investor, the only brand name on a cap table littered with unsophisticated friends, family and randoms, going through a very public meltdown at the worst possible time."
Mireles advised the founder to find out if the investment note could be called or the stake could be sold, and beyond that, to simply step up, be honest about the connection, and take it on the chin.
It looks like a lot of other folks involved in the company will need to take that same advice.