Rothenberg Ventures, known briefly as Frontier Technology Venture Capital, was an American
venture capital
Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which ha ...
firm based in
San Francisco
San Francisco (; Spanish language, Spanish for "Francis of Assisi, Saint Francis"), officially the City and County of San Francisco, is the commercial, financial, and cultural center of Northern California. The city proper is the List of Ca ...
,
California
California is a U.S. state, state in the Western United States, located along the West Coast of the United States, Pacific Coast. With nearly 39.2million residents across a total area of approximately , it is the List of states and territori ...
, and founded in 2012 by
Mike Rothenberg. It invested in more than 100 companies, including ''
Bustle
A bustle is a padded undergarment used to add fullness, or support the drapery, at the back of women's dresses in the mid-to-late 19th century. Bustles are worn under the skirt in the back, just below the waist, to keep the skirt from dragging. ...
'',
Robinhood,
Revel Systems
Revel Systems is an iPad-based point of sale system co-founded by Lisa Falzone and Christopher Ciabarra. It is now majority owned by private equity firm Welsh, Carson, Anderson & Stowe.
History
Revel Systems was founded in 2010 in San Francisc ...
, and
SpaceX
Space Exploration Technologies Corp. (SpaceX) is an American spacecraft manufacturer, launcher, and a satellite communications corporation headquartered in Hawthorne, California. It was founded in 2002 by Elon Musk with the stated goal of ...
, and focused its investments on
virtual reality
Virtual reality (VR) is a simulated experience that employs pose tracking and 3D near-eye displays to give the user an immersive feel of a virtual world. Applications of virtual reality include entertainment (particularly video games), educ ...
and other frontier technologies. As of January 2021, the firm's status with the
California Franchise Tax Board
The California Franchise Tax Board (FTB) administers and collects state personal income tax and corporate franchise and income tax of California. It is part of the California Government Operations Agency.
The board is composed of the Californi ...
is "forfeited".
According to the
U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
, Mike Rothenberg "orchestrated a years-long, massive fraud and posed a substantial risk of loss to investors, with $18.8 million misappropriated."
Mike Rothenberg resigned from the firm in October 2018
and agreed to be barred from the securities industry with a right to reapply after five years.
On December 20, 2019,
Judge Jon S. Tigar for the U.S. District Court for the Northern District of California ordered Mike Rothenberg to pay disgorgement of $18,776,800, prejudgment interest of $3,663,323, and a civil penalty of $9,000,000.
In June 2020, Mike Rothenberg was arrested and charged with 23 federal felony fraud charges, facing decades in prison if convicted. The Department of Justice's news release states: "Magistrate Judge Westmore ordered Rothenberg released on $250,000 bond pending the outcome of the case. Rothenberg’s next appearance was scheduled for August 27, 2020, at 10:30 a.m. The case is being prosecuted by the Special Prosecutions Section of the U.S. Attorney’s Office. The case is being investigated by the FBI and IRS Criminal Investigations."
History
Founded in 2012, the firm began with a $5 million seed fund raised by Rothenberg.
[Meet Mike Rothenberg, The 28-Year-Old Whose Seed Fund Could Be The Best Bang For Your Cap Table Buck , TechCrunch](_blank)
/ref>
On November 4, 2013, data research company Mattermark awarded Rothenberg Ventures' portfolio its highest average ranking.
Rothenberg Ventures built the world's first virtual-reality startup accelerator, River,[Rothenberg Ventures Opens Virtual Reality Accelerator Offering 10 Startups $100K And A Clubhouse , TechCrunch](_blank)
/ref> and has invested in 30-plus VR companies to date, including AltSpaceVR, Fove, and Matterport.
In May 2014 Rothenberg Ventures hosted Founder Field Day at Oracle Park
Oracle Park is a Major League Baseball stadium in the SoMa neighborhood of San Francisco, California. Since 2000, it has been the home of the San Francisco Giants. Previously named Pacific Bell Park, SBC Park, and AT&T Park, the stadium's curre ...
, then known as AT&T Park. Hundreds of founders were selected, given customized schedules, and attended fireside chats by industry luminaries in Rothenberg Venture's network. The day ended in a Third Eye Blind
Third Eye Blind is an American rock band formed in San Francisco, California, in 1993. After years of lineup changes in the early and mid-1990s, the songwriting duo of Stephan Jenkins and Kevin Cadogan signed the band's first major-label recor ...
concert at The Fillmore
The Fillmore is a historic music venue in San Francisco, California.
Built in 1912 and originally named the Majestic Hall, it became the Fillmore Auditorium in 1954. It is in Western Addition, on the edge of the Fillmore District and Upper Fil ...
. The day was free for all attendees. The firm hosts 8-10 curated networking events a month. The event was the subject of a Harvard Business School
Harvard Business School (HBS) is the graduate business school of Harvard University, a private research university in Boston, Massachusetts. It is consistently ranked among the top business schools in the world and offers a large full-time MBA p ...
case. The case study was covered in a ''TechCrunch
TechCrunch is an American online newspaper focusing on high tech and startup companies. It was founded in June 2005 by Archimedes Ventures, led by partners Michael Arrington and Keith Teare.
In 2010, AOL acquired the company for approximately ...
'' article titled "For HBS students, a case study in what not to do."[For HBS students, a case study in what not to do , TechCrunch](_blank)
/ref>
Portfolio and exits
Rothenberg Ventures invested early in unicorn companies such as Revel, Robinhood, Gusto, and SpaceX
Space Exploration Technologies Corp. (SpaceX) is an American spacecraft manufacturer, launcher, and a satellite communications corporation headquartered in Hawthorne, California. It was founded in 2002 by Elon Musk with the stated goal of ...
, among others, including Patreon
Patreon (, ) is a membership platform that provides business tools for content creators to run a subscription service. It helps creators and artists earn a monthly income by providing rewards and perks to their subscribers. Patreon charges a co ...
, August Locks, Luxe, Bustle
A bustle is a padded undergarment used to add fullness, or support the drapery, at the back of women's dresses in the mid-to-late 19th century. Bustles are worn under the skirt in the back, just below the waist, to keep the skirt from dragging. ...
, SOLS, Matterport.
The firm has had 20 liquidity events to date: including Swing by Swing, Propeller, and 1-Page
1-Page () was a company that developed and marketed software products for Human resources, HR departments to support them in sourcing and qualifying job candidates, as well as in engaging their current workforce. 1-Page Limited (Australian Securit ...
. 1-Page went public gaining a 20x return for Rothenberg venture's investors.[Why the 1-Page Ltd share price has crashed in 2016 , Motley Fool Australia](_blank)
/ref> Robinhood, valued at $5.6 Billion, is poised for an IPO in late 2019.
Controversies
Rothenberg Ventures became the subject of an investigation by the U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
in 2016, and multiple lawsuits have been filed against the firm. In 2018, the SEC charged Mike Rothenberg and Rothenberg Ventures with fraud. In July 2016, the U.S. Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
(SEC) opened an investigation into Rothenberg Ventures' financial management practices, centering on allegations of excessive executive compensation without investors' knowledge. Media reports have cited bank fraud
Bank fraud is the use of potentially illegal means to obtain money, assets, or other property owned or held by a financial institution, or to obtain money from depositors by fraudulently posing as a bank or other financial institution. In many ins ...
, breach of fiduciary
A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...
duty, whistleblower
A whistleblower (also written as whistle-blower or whistle blower) is a person, often an employee, who reveals information about activity within a private or public organization that is deemed illegal, immoral, illicit, unsafe or fraudulent. Whi ...
retaliation, and wire fraud
Mail fraud and wire fraud are terms used in the United States to describe the use of a physical or electronic mail system to fraud, defraud another, and are Federal crime in the United States, federal crimes there. Jurisdiction is claimed by the ...
as possible areas of investigation, which the SEC has not confirmed.
Several executives left the company during July and August 2016, including Fran Hauser, who had served as a venture partner since May 2014.[ Multiple lawsuits have been filed against the company, including one by a former ]chief of staff
The title chief of staff (or head of staff) identifies the leader of a complex organization such as the armed forces, institution, or body of persons and it also may identify a principal staff officer (PSO), who is the coordinator of the supporti ...
alleging Rothenberg Ventures owed payments to 50 employees, and another by a former chief financial officer
The chief financial officer (CFO) is an officer of a company or organization that is assigned the primary responsibility for managing the company's finances, including financial planning, management of financial risks, record-keeping, and financ ...
who claimed he was never paid back for more than $100,000 in business expenses. Rothenberg was ordered to pay its former CFO $166,000 in damages on October 30, 2017.[
Mike Rothenberg has been accused of investing $5 million from Rothenberg Ventures' second and third funds in his own startup company, River Studios, a VR production house established in May 2015.][ River Studios' first contract was with ]Birchbox
Birchbox is a New York City-based online monthly subscription service that sends its subscribers a box of four to five selected samples of makeup, or other beauty related products. The products include skincare items, perfumes, organic based pro ...
, and the company has subsequently created VR content for Björk
Björk Guðmundsdóttir ( , ; born 21 November 1965), known mononymously as Björk, is an Icelandic singer, songwriter, composer, record producer, and actress. Noted for her distinct three-octave vocal range and eccentric persona, she has de ...
, Coldplay
Coldplay are a British rock band formed in London in 1997. They consist of vocalist and pianist Chris Martin, guitarist Jonny Buckland, bassist Guy Berryman, drummer Will Champion and creative director Phil Harvey. They met at University Col ...
, the Denver Broncos
The Denver Broncos are a professional American football franchise based in Denver. The Broncos compete in the National Football League (NFL) as a member club of the league's American Football Conference (AFC) West division. The team is headquart ...
, and the Sacramento Kings
The Sacramento Kings are an American professional basketball team based in Sacramento, California. The Kings compete in the National Basketball Association (NBA) as a member of the Western Conference Pacific Division. The Kings are the oldest ...
.[ A third party ]forensic accounting
Forensic accounting, forensic accountancy or financial forensics is the specialty practice area of accounting that investigates whether firms engage in financial reporting misconduct. Forensic accountants apply a range of skills and methods to d ...
firm was able to reconcile the finances and confirmed that they were consistent with the agreements with the LPs. In 2017, Transcend VR sued Mike Rothenberg on allegations of breach of contract
Breach of contract is a legal cause of action and a type of civil wrong, in which a binding agreement or bargained-for exchange is not honored by one or more of the parties to the contract by non-performance or interference with the other party ...
and settled out of court. "We look forward to a continuation of Mike's highly ranked performance as a venture fund manager and are pleased to continue as an investor with Rothenberg Ventures", said Dominic Polizzotto, manager of Transcend VR and affiliate Transcend Frontier, LLC.
The company's name was briefly changed to Frontier Tech Ventures, from September 2016 to February 2017.[ In October 2016, San Francisco's Planning Department received notification that the firm was operating from a building not properly permitted for use as general office space. The property, which was reportedly purchased in 2015 for $4.5 million, also housed co-working space for startup and portfolio companies, including Liquidspace.] In late 2016, Rothenberg Ventures was mentioned in year-end stories about corporate crises by ''Bloomberg Businessweek
''Bloomberg Businessweek'', previously known as ''BusinessWeek'', is an American weekly business magazine published fifty times a year. Since 2009, the magazine is owned by New York City-based Bloomberg L.P. The magazine debuted in New York City ...
'', ''Forbes
''Forbes'' () is an American business magazine owned by Integrated Whale Media Investments and the Forbes family. Published eight times a year, it features articles on finance, industry, investing, and marketing topics. ''Forbes'' also re ...
'', and ''Business Insider
''Insider'', previously named ''Business Insider'' (''BI''), is an American financial and business news website founded in 2007. Since 2015, a majority stake in ''Business Insider''s parent company Insider Inc. has been owned by the German publ ...
''.
in 2018, Rothenburg filed a lawsuit against Silicon Valley Bank
Silicon Valley Bank is an American commercial bank. SVB is on the list of largest banks in the United States, and is the biggest bank in Silicon Valley based on local deposits. It is a subsidiary of SVB Financial Group.
History
Silicon Valley Ba ...
, which accuses them of negligence, deceit, fraud, and unfair business practices. The suit, which seeks a jury trial, alleges the bank "created the false appearance that the management company and Mr. Rothenberg had wrongfully misappropriated missions in investor funds." The firm intended to use the deposited fees as collateral for a loan, which it wanted to complete before the end of the year, according to the suit. On Dec. 23, Rothenberg instructed the bank to set up an account owned by the 2015 investment fund for that purpose, according to the lawsuit, and the bank did so on the same day. The bank, however, didn't have enough time to complete its customary three-week internal control process before the year-end, the suit says. So it took a shortcut, the suit says, creating a new account owned by the management company without telling Rothenberg.
On August 20, 2018, the SEC charged Mike Rothenberg and Rothenberg Ventures with fraud. Rothenberg settled the charges without admitting guilt, and has stepped down from his position. As part of the settlement, Rothenberg does not admit guilt but has agreed to be barred from the brokerage and investment advisory business with a right to reapply after five years.
In August 2019, Deloitte completed a financial audit, resulting in the SEC seeking over $31m in penalties from Mike Rothenberg. In January 2020, Mike Rothenberg was ordered to pay $31.4 million to settle a court ruling favoring the SEC allegations. Rothenberg was found to have funneled millions of dollars from investors to support his flashy lifestyle, building a race car team, and to fund a virtual reality studio.
References
{{Reflist
External links
AngelList profile
Financial services companies established in 2012
2012 establishments in California
Venture capital firms of the United States