Madison venture capital group’s parent company fined $700K for misleading investors on fees | Business News

New Hampshire-based Alumni Ventures Group, which has affiliate firms all over the U.S. including in Madison, has agreed to repay $4.7 million to affected funds, as well as a $700,000 penalty per the charges. The Group’s CEO, Mike Collins, is also to pay a $100,000 penalty, according to the SEC’s March 4 order.

The regulator found that the company’s website and “other marketing communications” told investors that they would be charged “industry standard” management fees, typically a rate of 2% annually over 10 years with 20% carried interest.

Instead, Alumni Ventures charged 20% up front — which several local investors who the Wisconsin State Journal interviewed over the past week say is unconventional.

Management fees are what keep a venture capital fund operational, and help pay salaries and other costs, explained John Neis, managing director of Madison-based Venture Investors, who has 38 years of experience in the venture capital sector.

The SEC also found that the company allegedly comingled funds without informing investors.

The SEC order lists three funds under the name Bascom Ventures, a Madison-based affiliate of the Group. Bascom, according to its website, has operated a total of five venture capital funds, which appear to have invested in businesses both in Madison and nationally for at least the past half decade. It’s unclear how many of those ventures have connections to university alumni.

Bascom’s Twitter biography reads “UW-Madison alumni making smart, simple investments in UW alumni-connected ventures,” and its LinkedIn bio similarly states “Bascom Ventures is a community of accredited UW-Madison alums who pool money into a VC fund to invest in UW-connected companies.”

A Wisconsin Alumni Association web page does say the company is “not affiliated with the UW.” Both the Wisconsin Alumni Research Foundation and Wisconsin Foundation and Alumni Association said in separate email statements they also have no affiliation with Bascom, declining to comment further.

The name connects to what UW-Madison describes as the symbolic center of campus — Bascom Hill and Bascom Hall, named after former UW President John Bascom.

University spokesperson John Lucas said in an email that “upon its launch, UW-Madison did work with Bascom Ventures to make its separation from campus more clear.”

“It was conversations with (Bascom’s) team to ensure their logo and imagery on their website didn’t lead people to assume a campus affiliation,” Lucas wrote, declining to comment on why UW-Madison didn’t go further than that.

The group “may be using publicly available email lists to solicit (on) campus,” and “the ability to request these lists is open to anyone under state public records law,” Lucas wrote.

The company’s investment portfolio includes a few Madison businesses (that it denotes as being from the “Midwest” on its website) such as Quiver Quantitative, a Madison-based alternative data startup launched by two UW-Madison graduates.

Other investments include cultivated seafood startup Cultured Decadence (now UPSIDE Foods) as well as Janesville-based nuclear technology company SHINE Medical Technologies and recently closed music streaming startup Live Undiscovered Music, or LÜM. Even more appear to be from Texas, California, New York and other U.S. locations. No UW-Madison affiliation is mentioned.

“AV is a different kind of venture capital firm built for bringing individual investors a simple way to access great … investments — which historically had been an exclusive, hard-to-access asset built for technical, institutional investors,” Alumni Ventures said in an email statement Wednesday in response to the SEC order, and on behalf of Bascom. “More than two year’s ago, AV quickly made its marketing materials more clear when regulators reached out with these disclosure questions.”

“Since updating all operations to be compliant with this agreement in early 2020, more then 4,188 well-informed new investors have joined AV because they love the access we bring them to great … deals and the simplicity of how we do it,” the company added.

Carry Thome, who is the managing director for Madison-based NVNG Investment Advisors and the former WARF chief investment officer, said that in her yearslong career, she has not seen many examples of the SEC indicting an investment fund.

Of a firm charging 20% up front for management fees, Thome said “that is pretty unusual.”

“The typical structure is that you pay on the committed amount while the investments are being made,” she explained, adding, “I hope (the order) doesn’t set back the ecosystem that we have growing in Wisconsin” and that ensuring trust is important for the venture capital sphere.

Ken Johnson, also a WARF alumni and managing director of Madison-based Kegonsa Capital Partners, voiced a similar view to Thome’s, calling the SEC’s $700,000 fine “substantial.”