At Harvard Business School, students pay top dollar to learn everything from how to manage international trade to scaling technology ventures. They’re also schooled in the art of venture capital. Among the case studies they learned last year is the story of Rothenberg Ventures (RV), a four-year-old seed stage firm.
Whether the San Francisco outfit should have been part of their curriculum is an open question.
Though RV was founded by HBS graduate Mike Rothenberg, the firm, which has raised at least $47 million over the years and employed upwards of 60 people at its peak, is on the brink of imploding owing to a “lack of controls,” in the words of one of its investors.
That the firm isn’t a breakaway success story isn’t necessarily the issue. Many case studies center of companies that make missteps. A larger problem, seemingly, is that the study about RV – which was funded by HBS before the firm’s troubles publicly surfaced last week — was also co-authored by two professors who have a “significant financial interest in Rothenberg Ventures,” as stated prominently in a curriculum footnote. (The study is available for purchase here.)
One of those professors has since left HBS and is now a visiting associate professor at MIT’s Sloan School of Management. He didn’t respond to a message seeking more information.
Asked about attracting students’ attention to a venture firm that he has funded, Professor Ramana Nanda, another of the study’s co-authors, wrote us yesterday that HBS has numerous, strict guidelines governing the relationship between professors and students, the most relevant in this case being that professors aren’t allowed to invest in ventures started by current students or to contract with them while students to invest after they graduate. Dr. Nanda notes that he made an investment in RV after Rothenberg graduated from HBS, as he sometimes has with other HBS alums.
Stringent ethicists might quibble with whether that’s sufficient, given that many HBS students attend the school with an eye toward getting a startup off the ground and that introducing them to certain brands may make it more likely that students will approach them.
It’s easy, too, to imagine a fund using the support of HBS professors (not to mention an HBS case study) to gain legitimacy with future investors.
HBS says that HBS cases are “developed solely as the basis for class discussion” and are “not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.”
In fairness, the study is far from a breathless account of RV. It dedicates one-and-a-half pages to founder Rothenberg’s accomplishments, citing a high-school tutoring company that Rothenberg says he grew to 25 employees while getting his undergraduate and master’s degrees at Stanford, and reporting that he “developed a reputation as someone with a shrewd eye for identifying successful entrepreneurs.” Yet much of the rest of the account is a straightforward look at the firm’s growth.
It reports on Rothenberg’s path from one-man shop to six-person team fairly early on. It recounts the bigger checks that RV began writing. It also quotes Rothenberg extensively as he walks the professors through his thinking. On eschewing board seats at any of the companies RV funds and partnering instead with experts who can help the startups, Rothenberg tells the professors, “We don’t have a paternal relationship with our founders; we’re more like peers.”
Rothenberg also explains that to build RV’s community, his “goal is to host 100 events a year.” Among those efforts is the firm’s signature Founder’s Field Day event, where in 2014, he says, RV hosted 400 people at AT&T Park in the afternoon, staged a “benefit concert” with the band Third Eye Blind that same night, and hired a ferry the evening before to take founder attendees to nearby Angel Island in San Francisco “so we could make the most of their time.”
Ultimately, Rothenberg tells the professors, the idea from the start was to borrow from the best of top venture firms to create a next-generation juggernaut:
“At times, I’ve said, ‘What if you could take the service-model approach of Andreessen Horowitz, and the founder-first community building offline and online approach of First Round Capital, with the processing power and reach of Silicon Valley angels, and the discretion of Floodgate, and the judgment of Sequoia?’ No one else can even make the claim that they are building those pieces. That’s what we’re doing.”
It sounds ambitious, of course. But the study doesn’t pass judgment on RV’s strategy, and that’s how it should be, suggests Dr. Nanda.
In RV’s case specifically, he says, the firm served as a jumping off point for discussing how the “falling cost of starting firms has democratized access to funding.” It was also used to explore the ways that newer VCs, including RV — which branded itself as the “millennial firm for millennials” — could potentially enable a “more diverse set of entrepreneurs” and ideas to get funded.
Certainly, RV quickly established a reputation for funding so-called frontier technologies – including virtual reality and augmented reality startups – in greater numbers than any other venture firm in Silicon Valley. It also began funding these companies a year or two before most firms would even consider backing the technologies.
Though overspending on marketing schemes — from season tickets to Golden State Warriors games, to converting a 1930’s bungalow in Austin into a swanky tech hub during this year’s South by Southwest Festival – seems to have led the young firm to the verge of failure, not everyone is ready to throw in the towel, either.
An investor we spoke with last night said the last thing he wants is to see RV’s positions sold for the sake of some liquidity. “Things happened that shouldn’t have happened, but I’m very bullish on frontier tech and many of the bets [that RV] has made.”
He’s hoping the situation can sort itself out.
In the meantime, we’ve learned that Nori Gerardo Lietz, a finance professor who will be teaching about venture capital models at HBS this coming school year, visited RV last month to update the school’s materials.
Lietz didn’t respond to questions about whether she still planned to include the firm in her coursework.
Pictured: a classroom at HBS, courtesy of the university.