Free massages for startup founders, hot-air balloon rides in Napa, box seats at Golden State Warriors games: Such was the life for those in the constellation of Rothenberg Ventures, a venture capital firm that was the toast of the Silicon Valley world during its brief heyday in the mid-2010s. The company’s excessive practices became notable enough to be skewered by an episode of the HBO tech satire Silicon Valley.
At the height of its power and influence, Rothenberg Ventures—founded by San Francisco venture capitalist Michael Rothenberg—masqueraded as an industry power player, known for holding opulent celebrations.
But the party is over. Rothenberg, the man decreed by media and local officials as “Silicon Valley’s party animal,” was convicted of 21 counts of fraud and money laundering Thursday, bilking investors out of nearly $19 million.
Over a trial that spanned weeks in Oakland federal court, Rothenberg was revealed to have committed multiple counts of wire fraud.
Rothenberg Ventures, founded in 2013, had four funds targeting startups, particularly those in virtual reality. The $5 million funding that got the company off the ground, according to Bloomberg, came from friends, family and former classmates at Stanford University and Harvard Business School.
Rothenberg strategy to attract funders and media attention? Throwing lavish functions—and branding himself as a Gatsby-like “Millennial VC.” (His handle on Instagram and his defunct X page is @virtualgatsby.)
“When Rothenberg took the stand, he talked about how it gave him access to people,” Anthony Ghio, special agent for IRS Criminal Investigation, told The Standard. “One of the points he made was he wasn't able to get in to see certain presidents of companies and things like that, and then, when he offered them seats at the Warriors or something, all of a sudden they were willing to go.”
But even then, skepticism in the press and the broader VC community mounted about how Rothenberg was able to fund this lifestyle—and grow the company to have up to 60 employees—within a matter of years. At the time, Rothenberg told Bloomberg that the firm had “four sources of noninvestment revenue” but declined to specify three of them. The fourth was office space rentals.
After the largely critical article published, Rothenberg deputized employees to pay for a flight to San Francisco International Airport so they could remove copies of the magazine from airport kiosks, according to TechCrunch.
The scrutiny intensified when Rothenberg Ventures launched River Studios, a VR content startup that bragged about partnerships with the likes of Beyoncé, Coldplay and the Denver Broncos. The move seemed to have been the company’s undoing.
Evidence displayed at trial found that Rothenberg deceived employees and investors by suggesting that River was self-funded—and that none of the money from Rothenberg Ventures was used to fund River’s operations. That turned out to be false. He also took “excess fees” from the funds he managed.
Rothenberg assured one investor, who put $2 million into River Studios in early 2016, that their investment would be put into the company; in actuality, he used much of that money to pay back funds that he borrowed from.
By the end of December 2015, Rothenberg had deceived Silicon Valley Bank, another recently fallen star in the tech ecosystem. He sought to obtain a $4 million credit line from the bank so as to cover up a shortfall he didn’t want investors to know about; in doing so, he apparently made “false statements and misrepresentations” to the bank. He misrepresented the size of the company’s 2015 fund and the fees they collected in connection with managing the fund, Ghio explained.
By this point, it was clear that something was up. In July 2016, the U.S. Securities and Exchange Commission opened an investigation into the company—after an employee tipped the agency off to the company’s misconduct. Come August 2016, Rothenberg Ventures faced an exodus of top brass—including two C-suite executives and a partner.
Rothenberg was forced to pay $31 million in federal court following the investigation by the U.S. Securities and Exchange Commission but did not deny or admit to any of the allegations in the complaint.
At the time, he called the judgment “historically excessive and vindictively punitive.” He was indicted by a federal grand jury on 23 counts of fraud and money laundering just months later.
Rothenberg’s sentencing hearing is scheduled for March 1, 2024. He did not respond to a request for comment.