Earlier this week, Backchannel published a piece chronicling the “Trouble In The House of Rothenberg”.
For those unfamiliar with the story, Mike Rothenberg is – or, was – an uber-connected 31 year-old solo general partner of Rothenberg Ventures (which changed its name to “Frontier Tech Ventures” this week). He was known for being one of the best-connected “millennials” in Silicon Valley, his rapid turnaround on deals, throwing raucous and very expensive parties, unorthodox management fee structuring and carried interest distributions, and funding his (failing) startup project with $5 million of Rothenberg Ventures’s capital. (~10% of the entire firm’s AUM.)
TLDR is: His fund ran out of operating capital, his investors are Royally Pissed, and he’s facing possible scrutiny from the FBI and SEC.
The question is, is this a one-off event or a signal of more failures to come in the micro VC space. As I’ve previously written about there is a real explosion in the number of funds with less than $100 million in assets under management, many of which are raised by first-time fund managers.
How many of them are spending too much of their small management fees on marketing, events and providing services to their portfolio companies? Rothenberg is the apotheosis of “young VCs go wild” stereotypes. I mean, the guy inscribed his VC fund’s logo into his bathroom tile.
But there are surely many like him. Excess and irresponsibility exist on a gradient, and it’s worth identifying the funds on the darker grey side of the spectrum sooner rather than later.
There is a lot of good that small funds can do, but the VC community might want to proactively prevent stuff like this from happening again. In the meantime, those looking to raise should hope that one very public bad apple doesn’t sour LPs to the prospect of investing in smaller funds.