At Rothenberg Ventures, the Rise and Fall of a Virtual Gatsby

Screen Shot 2016-08-29 at 9.40.19 PMRothenberg Ventures, the four-year-old, San Francisco-based seed-stage venture firm, may be on the brink of implosion, say several sources close to the firm.

We reported yesterday that several high-level employees had parted ways with Rothenberg, including its director of finance and the head of its SF office, who happen to be father and son (Tom and Tommy Leep). We’ve subsequently learned that firm departures run far more widely. Other top executives who’ve left include the company’s chief revenue officer, who quit yesterday; the company’s chief financial officer, who left in June; general manager James Taylor, who left very recently; and Fran Hauser, a former president of digital at Time Inc. Hauser was brought in with some fanfare as a venture partner in May 2014. Yesterday she updated her LinkedIn profile to reflect that she left Rothenberg in July.

Messages to Rothenberg have not been returned. According to one source, Rothenberg Ventures founder Mike Rothenberg has told those remaining that “very few people will be left.” In what appears to be a related development, the firm’s site has been down since last night.

Why the mass exodus? According to one source, Rothenberg Ventures is answering questions from the SEC after a lower-level employee alerted the agency to what this person reported as wire fraud and breach of fiduciary duty. This same source says the employee was subsequently fired and is now suing the firm for retaliation.

All SEC investigations are conducted privately. An investigation does not mean that the agency will file a case in federal court or bring an administrative action.

Either way, a much thornier issue for Rothenberg Ventures, say numerous former employees, is founder Rothenberg himself, who has sometimes seemed to live more like a billionaire than the manager of a modest venture fund — spending lavishly to attract moneyed individuals as investors and, over time, growing increasingly focused on becoming as famous as some of them.

Making a millionaire

It all began as a minor but inspirational story, proof that the American Dream can still come true.

Rothenberg, an Austin native who says he comes from humble means — “no one in my family has any money,” he once told us — was smart enough to nab undergraduate and graduate degrees from Stanford, then bootstrap a real estate fund with his brother before moving on to Harvard to secure an MBA.

Soon afterward, inspired by business leaders he had met while at Stanford, Rothenberg planted himself in San Francisco and got down to the business of trying to shake up the stodgy venture industry. Step one involved raising a $5 million fund from “friends, family, and former roommates,” as reported in a Bloomberg story about Rothenberg last year.

His timing was ideal as these things go. In 2012, the market was in the middle of a three-year upswing, following the financial crisis of late 2008. Some newer faces were also beginning to gain prominence in the venture industry, along with the trust of so-called limited partners — the individuals and institutions that fund venture firms.

Rothenberg is also a natural salesperson, and, as such, quickly evolved his pitch for Rothenberg from yet another seed-stage fund to a thought-leading outfit willing to make big bets on virtual reality before most people in Silicon Valley saw it as a major opportunity.

More here.

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