Parent company of venture capital group Madison fined $700,000 for misleading investors over fees | Economic news
The parent company of a Madison-based company investment group who claims to solicit money for UW-Madison alumni-related businesses even if not affiliated with the university settled with the Security and Exchange Commission at the end of last week for allegedly deceptive investors, among other charges.
New Hampshire-based Alumni Ventures Group, which has affiliates across the United States, including Madison, has agreed to repay $4.7 million to the affected funds, along with a $700,000 fine for the accusations. Group CEO Mike Collins must also pay a $100,000 fine, according to the March 4 SEC report. ordered.
The regulator found that the company’s website and ‘other marketing communications’ told investors they would be charged an ‘industry standard’ management fee, typically a rate of 2% per year over 10 years with carried interest of 20%.
People also read…
Instead, Alumni Ventures charged 20% up front â which several local investors interviewed by the Wisconsin State Journal over the past week called unconventional.
Management fees are what keep a venture capital fund operational and help pay salaries and other costs, said John Neis, chief executive of the Madison-based firm. Venture capitalistswho has 38 years of experience in the venture capital industry.
The SEC also found that the company allegedly mixed funds without telling investors.
The SEC order lists three funds as Bascom Ventures, a Madison-based subsidiary of the group. Bascom, according to its website, operated a total of five venture capital funds, which appear to have invested in companies both in Madison and nationally for at least half a decade. It is unclear how many of these companies have ties to university alumni.
Bascom’s Twitter bio reads, “UW-Madison alumni make smart, simple investments in businesses related to UW alumni,” and his LinkedIn bio similarly reads, “Bascom Ventures is a community of accredited UW-Madison alumni who pool money into a venture capital fund to invest in UW-Connected Businesses.
A Wisconsin Alumni Association Web page says the company is “not affiliated with the UW.” Both Wisconsin Alumni Research Foundation and Wisconsin Foundation and Alumni Association said in separate email statements that they also had no affiliation with Bascom, declining to comment further.
The name connects to what UW-Madison describes as the symbolic center of campus â Bascom Hill and Bascom Hall, named after former UW president John Bascom.
University spokesman John Lucas said in an email that “upon its launch, UW-Madison worked with Bascom Ventures to make its separation from campus clearer.”
“These are conversations with the (Bascom) team to ensure their logo and website images don’t lead people to assume a campus affiliation,” Lucas wrote, declining to comment on why UW -Madison didn’t go any further than that.
The group “may use publicly available mailing lists to solicit (on) campus” and “the ability to request these lists is open to anyone under state public records law,” wrote Lucas.
The company’s investment portfolio includes a few Madison businesses (which it refers to as “Midwest” on its website) such as Quantitative Quivera Madison-based alternative data startup launched by two UW-Madison graduates.
Other investments include cultured seafood startup Cultured Decadence (now Upside down food) as well as the Janesville-based nuclear technology company SHINE Medical Technologies and recently shuttered music streaming startup Live Undiscover Music, or LÃM. Even more seem to come from Texas, California, New York and other places in the United States. No UW-Madison affiliation is mentioned.
“AV is a different type of venture capital firm designed to provide individual investors with an easy way to access large…investments – which were historically a proprietary and hard-to-access asset designed for technical and institutional investors. â, Alumni Ventures said in an emailed statement Wednesday in response to the SEC order and on behalf of Bascom. “Over two years ago, AV quickly made its marketing materials clearer when regulators asked these disclosure questions.”
âSince updating all operations to comply with this agreement in early 2020, over 4,188 knowledgeable new investors have joined AV because they love the access we are giving them to great deals. . and the simplicity of how we do it,â the company added.
“It’s quite unusual”
Carry Thome, who is the general manager of Madison NVNG Investment Advisors and the former chief investment officer of WARF, said that in her career years she hadn’t seen many examples of the SEC indicting an investment fund.
Of a company charging a 20% management fee up front, Thome said “that’s pretty unusual.”
âThe typical structure is that you pay on the committed amount while the investments are made,â she explained, adding, âHopefully (the order) doesn’t set back the ecosystem that we have growing in Wisconsinâ and that building trust is important to the venture capital world.
Ken Johnson, also a WARF alumnus and Madison’s general manager Kegonsa Capital Partners, expressed a view similar to Thome’s, calling the SEC’s $700,000 fine “substantial.”