Anchorage Capital Committed Fiduciary Malfeasance
A private equity company called Anchorage Capital is suing Trustify. They think they were cheated. To my eye, it appears that Anchorage CEO, Lance Ulrich, and his flunky, Adam Besvinick cheated Anchorage’s limited partners. Anchorage Capital Committed Fiduciary Malfeasance when they invested in a steaming turd called Trustify. If you are a limited partner invested in Anchorage Capital, this tale might just give you pause.
In May 2017, Anchorage Capital invested slightly over $4.7 million in the A-round of a little DC-based company called Trustify. Trustify raised just under $7 million in their prior two seed rounds, $1.9 million on October 30, 2015, and $5 million in a second seed round on October 30, 2015.
The terms of the A-round bogle the mind. Sources say that a rookie VC, Adam Besnivick, shepherded the deal for Anchorage. Rookie-hood can be the only excuse for the unforced errors of that investment. Let us take stock of all the mistakes made by Anchorage and all the red flags they ignored.
- Lead Investor Malfeasance – At $4.7 million of a $7 million round. You would think that anyone making such a relative sizeable investment in the first institutional round of a company would have performed more than a modest amount of due-diligence. Read the rest of the blog and you will see they were asleep at the wheel.
- Bonehead Move: No Time For Due Diligence – according to the term sheet, Anchorage only allowed 30 days for due diligence. Legitimate and professional, Venture Capitalists require a “no-shop,” or exclusively period of at least 90 days to investigate the company (see no-shop clause). It takes more than 30 days to inspect the house to make sure that it is built on a solid foundation. You wouldn’t buy a home without a home inspection… well you can’t do a startup inspection in 30 days. To quote the Anchorage Term Sheet, “Exclusivity: 30 days of exclusivity from the date of this Term Sheet, concluding with the signing of the definitive document.”
- Red Flag: Bad Exits – Danny’s previous company Speek was a crappy exit for Danny and the investors. No investor, nor Danny received a penny. It was a pure acquihire exit. Danny wasn’t even part of the company when it exited… he was faired. Jive communications paid $150 thousand to the Speek employees. The investors lost $8 million dollars in that exit. Prior to that, Danny founded a software development company called Jaxara. He kind of sold Jaxara to Pantheon, it was a low-value acquihire of a company that had no investors. After the acquisition, Danny was pushed out of Pantheon because he provided no value to the acquihiring company.
- Red Flag: No Repeat Investors – The founder of Trustify, Danny Boice, claimed that he was an experienced serial entrepreneur who had previously raised money and profitably exited a prior startup called Speek. Successful founders tend to attract and retain past investors in winning investments. Did Anchorage miss that Danny’s former investors in Speek Investors did not participate in Trustify? Didn’t they ask past investors for a reference? The Virginia Commonwealth venture fund, CIT Gap Fund invested in Speek and they know Danny Boice very well. Why didn’t CIT show their confidence in Danny Boice and invest in Trustify? Why didn’tAnchorage ask former Speek investors Valhalla Capital and Middleland Capital why they took a pass on Trustify? I know why CIT, Valhalla, and Middleland didn’t invest. And Anchorage knows why…. now. Anchorage now knows no one invests twice with Boice and it only cost them $7 million of their limited partner’s money to find out. A simple google search might have been a cheaper lesson.
- Red Flag: Founder History – Did they not do a background check on the founder, Danny Boice? How did they miss that he was fired from his last two jobs? Didn’t they they ask anyone why he was fired from Speek, a company he co-founded? If they pushed 10 digits on a telephone and spoke to someone, they would have found out he disappeared for a week, charged$40 thousand on the company credit card to party in Las Vegas. If they asked his ex-wife, they would have found that she had called the police and made a missing person report while he was out partying. Danny was AWOL from work and life. Prior to Speek, he was a Vice President for the company that produces the College SATs, the Collge Board. He was fired from The College Board for lying about his Education (he was not a Harvard Grad as he claimed) and unethical conflicted contracting practices. He contracted a group of consultants who did personal business work for Danny’s stealth startup (Speeek) paid for with College Board money (see post).
- Clueless: Do They Not Know How To Google – You’d think they’d ask a question about all the negative stuff on the web about Danny Boice, his co-founder, 2nd wife, Jennifer Mellon, and the company. Here are just a few things they would have found at that time:
- Real Entrepreneurs Don’t Need No Stinkin Harvard Diploma – April 14, 2017
- Washington Business Journal – Mr. Cranky Is Raising Money for a Legal Defense
- Fact Vs Opinion – April 17, 2017
- The Danny Boice Trustify Demand Letter Affair – May 3, 2017
- Glassdoor Reviews – Prior to the funding there were 3 horrible employee reviews of Trustify and a bunch of fake looking, management driven reviews that companies submit so dumb investors miss the bad reviews:
- Bonehead: Overvalued – How do you put a $40 Million valuation on a company that is getting no traction? Did you look at the books? Did you check them for accuracy? Did you ask all the former CFOs who quit or were fired? Did it not worry you that there was no CFO? Did you even get a 1st year accounting drop-out from Strayer University to have a look at the books? Did they talk to the guy who was a customer?
- Bonehead: Board Formation – It is a norm that the largest investor in an institutional round obtains at least one board seat. A company that is valued at $40 Million should at least have 5 board members, 2 chosen by the company, 2 investors and one independent mutually agreed upon. These idiots at Anchorage did not ask for or receive a board seat and these fools let the board stand as previously constituted. What could go wrong? From the Term Sheet, “Board Composition: The Board of Directors of the Company will be constituted in the same manner as currently in effect.” Who was on the board and why did they trust them?
- Danny Boice – cofounder and CEO (why would he lie)
- Jennifer Mellon – and President, Retroactive Cofounder (why would she lie)
- Tim Gentry – long term friend of Danny Boice and Andy Powers. Tim has been involved in multiple shady deals and is currently named in a shareholder lawsuit against a company for which he was a corporate officer called Communiclique. UPDATE 4/12/2019: I have had conversations with several people and have been unable to uncover any intentional bad acts by Gentry. While I can’t confirm his innocence I suspect, he’s naive, gullible and guilty of being a poor judge of character.
- Bonehead: Audit Rights – No credible fiduciarily responsible professional investor would invest $5 million in a company and not require annual independent audits. Maybe if someone was watching over their shoulder, the thieves at Trustify would have tried to build a business instead of bilk investors. Opportunity leads to crime and Anchorage gave Danny Boice and Jennifer Mellon the opportunity and invited the Trustify team to steal by not providing any oversight. Put cameras in a store, let shoppers know that someone is watching and you reduce crime. Audits have a deterrent effect like that. Here’s the audit rights provision from the Anchorage term sheet, “Information Rights: The Company shall deliver to each Major Investor its unaudited annual and unaudited quarterly financial statements prepared in accordance with U.S. GAAP, consistently applied. The annual financial statements will be audited beginning in 2019 with respect to the 2018 financial statements. In addition, the Company will provide a copy of the Company’s annual operating plan within 30 days prior to the beginning of the fiscal year. Each Major Investor shall also be entitled to standard inspection and visitation rights. These provisions shall terminate upon a Liquidation Event or an IPO. Anchorage will not be considered a “competitor” of the Company for purposes of being refused access to these information rights under any circumstances (emphasis added).” Oh my! Imagine my surprise the whole thing blew up when the first audit was due… 2 years after leaving the fox in charge of the henhouse. After the fox ate all the hens.
- Red Flag: Executive Churn – These Anchorage clowns should have seen the big fat red flag of high employee turn-over. Especially as it related to the CFO. Here’s a list of investor presentation slides for the executive team and how it changed over time.
- Red Flag: CFO Churn – Trustify has never had a CFO on board longer than a year. The company acted with no CFO for more months that it had a CFO. Did that not give the Anchorage team pause?
- Bonehead: Incurious – Adam Besivick, of Anchorage Capital, didn’t become curious about all the red flags at Trustify until I tagged him in tweets and LinkedIn posts. Hahaha, I’m kidding. When I let him know this was taking place by tagging him in LinkedIn and tweeting to him, did exercised the fiduciary responsibility of blocking me. This monkey wanted to hear, see, and speek no evil.
- Red Flag: Suspicious Publically Available Real Estate Transactions – Check out this timeline and see if you suspect someone was purchasing real estate with someone else’s money.
- February 2012 – There was a $60k deposit on a $690k new construction house in Brambleton, VA that was tied to funding for Speek. Speek was expecting a large investment which was delayed. Therefore the deposit was forfeited.
- October 2015 – Trustify raises $1,926,000
- November 2015 – Danny Boice and Jen Mellon make a cash purchase on a $1,625,000 home in Alexandria
- October 2016 – The couple contracts to buy a beach house in Sea Isle NJ. for $880,000 at 205 85TH St
- November 2016 – Woopsi! New seed round delayed… deposit forfeited
- June 2017 – Trustify announces $6.5 million in funding
- July 2017 – Jen and Danny take out a $1.3 million mortgage on Alexandria home
- August 2017 – The Boices buy the $1.275,000 home putting down a down payment of $250,000
- Red Flag: Private Jets and Living The High Life -Danny Boice was broke when he started Trustify. According to his divorce documents from his first marriage he had no money to his name. Jen Mellon came from a middle-class family (Although she like’s to tell people she’s part of The Mellon family, she’s part of A Mellon Family like I’m part of the non-mayo Hellman family). Yet Trustify had a timeshare private jet account with NetJets that they used for personal travel. In 40 years of business, I’ve never seen a startup founder, even a successful startup founder of a pre-revenue, venture-funded company fly private for business and/or pleasure and charge it to the company.
- Red Flag: Personal Expenses on Company Payroll – included, housekeeper, nanny, landscaper, and a chauffeur
- Red Flag: How Many Lawsuits Are Too Much – Two? Three? Twenty?
I ask you? With all this public information available would you stroke a check to Jennifer Mellon and Danny Boice? Would you stroke a check to these two criminals?
If that’s not bad enough, the fools at Anchorage got suckered into participating in a B round that never was a B round. They admit they had trepidation and smelled a rat but still gave the rat the cheese. According to the lawsuit against Trustify and it’s officers,
6. Boice told Anchorage that the Series B round had a lead investor-Nfluence Partners (“Nfluence”), a well-established boutique investment bank for technology, media, and telecom transactions. Nevertheless, Boice and other Trustify officers simultaneously voiced uncertainty as to whether the Series B round would reach its $15 million target minimum raise, and thus actually close and issue Series B Preferred Stock.
7. Due to this uncertainty, Anchorage told Boice that it would only wire funds as part of the Series B round after Nfluence had done the same. Boice and Anchorage also agreed that any funds Anchorage wired to Trustify would be kept in a specific Series B-related bank account with Square 1 Bank in New York and that such funds would be returned directly to Anchorage if the Series B round did not meet its minimum investment target.
8. After both Boice and Nfluence’s Managing Partner, Gary Moon, told Anchorage that Nfluence had wired funds to Trustify as Nfluence’s participation in the Series B round, Anchorage wired $1,957,500.48 to Trustify with the understanding that Anchorage would receive 642,292 shares of Series B Preferred Stock at a price of $3.04768 per share if the Series B round met its minimum target-or Anchorage would receive its money back.
Surprise Surprise, according to Anchorage, Boice and Gary Moon of Influence lied. Anchorage was surprised to find that liars lie! According to the lawsuit, Moon assured Anchorage Capital that he wired the money… but he didn’t. According to Anchorage, they had misgivings but they wired the money anyway. Now they want their B-round cash returned. That money is spent. It paid for Boice’s and Mellon’s boats, booze, and Teslas. It paid Chauffeurs, Housekeepers, and Maids. It went to tuition to tawny private schools for the kids.
And who the hell is this Gary Moon guy? Did he tell Anchorage he wired a check that he didn’t wire? Is he stupid, a crook or a stupid crook? I emailed Nfluence asking to speak to or for a comment from Gary Moon, as of yet, it’s just been crickets and tumbleweeds. I’ll update you if they ever contact me. Nfluence calls themselves a boutique investment bank, not a venture capital investor. They say their mission is to,
“help good people with great businesses thrive”
and evidently, they also help bad people with crappy businesses bilk foolish investors.
I have a question for poor old Anchorage, if I pour gasoline on $7 million of cash and then light it… can I sue the flames for burning the money? What did these clowns at Anchorage think would happen to their money if they just handed it over to some unvetted tatted crook? Don’t they understand why banks keep their cash in a safe and don’t wire it to a Bank Robbers?
I am going to give the fools at Anchorage some free advice worth every penny. Save your money with lawyers and court costs. When you pour gasoline on $7 million in cash and light it on fire there are better ways to get it back than spend time in court. Here are just a few:
- Pull one of your teeth and put it under your pillow, then ask the tooth fairy for it.
- Write a note to Santa Clause and ask him for it.
- Play the lottery
- Write to a prince in Nigeria
- See if David Copperfield could help you out.
Now Anchorage may be the biggest loser and the dumbest of the so-called “smart VC investors,” but they are not the only suckers in this story.
According to Pitchbook, Trustify Raised $17 million dollars in four rounds from October 2015 until August 2018. Today, all the money’s gone and the investors have nothing to show for it. Nothing. This company that was hemorrhaging cash, a revolving door of CFOs and other senior executives was valued at $75 million pre-money prior to its series B. Hey anchorage, remind me to stop flushing my toilet because I can probably get you to value the bowl contents in the millions!!!
|Round||Date||Raised $ In Millions||Post Valuation|
|Series B||08/23/2018||$ 2.99||$ 77.99|
|Series A||05/18/2017||$ 7.00||$ 43.59|
|Seed-2||06/23/2016||$ 5.00||$ 13.50|
|Seed||10/30/2015||$ 1.93||$ 5.50|
According to Pitchbook
Shareholders participating in the current lawsuit include:
- Adam Besvinick, Anchorage Capital
- Kevin Ulrich, CEO, Anchorage Capital
- Jacob Chapman, Gelt VC Fund I, LLC
- Andrea Turner Moffitt, Plum Alley Management, LLC
- Alexandra Stanton, Empire Global Ventures (just 3 months earlier she was betting her reputation on Trustify… snake eyes)
- Sam Natapoff, Empire Global Ventures
Investors (according to pitchbook)
Plum Alley Investments and Seed Invest acted as advisers and presumably were compensated to help Trustify cheat some of these invstors.
- 500 Startups
- Andy Powers
- Bradley Feld
- Brian Fitzgerald
- Carthona Capital
- Chris Sang
- Correlation Ventures
- Dean Parker
- Forefront Venture Partners
- Gelt Venture Capital
- Interplay Ventures
- JD Fagan
- Jim Brandt
- Kam Desai
- Lowercase Capital
- Matt Henderson
- MD Pham
- Mellon Family Fund
- Plum Alley Investments
- Ranch Ventures
- Ron Mahabir
- Rosecliff Ventures
- Sazze Partners
- Slow Ventures
- SoGal Ventures
- Sovereign Capital
- Structure Capital
- Tim Gentry
I give Anchorage credit for one thing… and that is publically acknowledging their naivete. When Boice cheated the College Board by lying about his educational background, cheating on his expense reports and using College Board funds to contract with outside programmers to work on Danny’s private project… the College Board punted. They didn’t take him to court. They swept it under the rug. They enabled Boice to continue on to his next scam.
When John Bracken, Danny’s co-founder and the CEO of Speek and the board fired Danny for charging his little $40 thousand, party trip to Vegas, they didn’t press charges. The swept it under the rug. They join the College Board as enablers. Had any of these enablers reported Boice’s previous actions, he and Jennifer Mellon would not have been in a position to harm so many employees, customers, vendors, and investors and I would have nothing to write about and the world would be a better place!
Just since November 2018, there is a huge list of people damaged by Trustify, Danny Boice and Jen Mellon.
- March 2019 – Anchorage Capital Sues to install a receiver
- March 2019 – Court date for garnishment of over $260,000 by Landlord JBG Smith
- January 2019 – Trustify Evicted. The company owes $57,829.50 in attorney fees and $205,648.21 in back rent to JBG Smith
- January 2019 – Negative Glassdoor Reviews Pile Up to new lows
- January 2019 – Cash strapped Danny Boice and Jen Mellon forced to put their house for sale
- January 2019 – 8 Former Employees sue for $35,000 in back wages
- November 2018 – Dini von Mueffling Communications LLC sues for $240 thousand
- November 2018 – Phone for Trustify are terminated
Next time anyone reading this wants to invest in someone, do a little background check. Talk to former partners, former investors. Ask past investors why they aren’t participating in this venture. Do a background check (not with Trustify). Do some due diligence.
Disclaimer: I volunteer my time and am an independent contractor for many organizations. The Views on my blog post are my own and do not represent the views of any of the organizations with whom I dedicate my time. That includes my clients in my coaching practice, the members of my Driven Forward ThinkTank, the University of Maryland. Mach37, The Founders Institute. These views also do not reflect the opinions for any organization that I was formerly associated with including, James Monroe Elementary School, where I graduated with distinction from 6th grade, Lexitron which I left in 1982, Montgomery Youth Hockey or Vistage an organization was grateful to be a part of and happily parted ways in 2014.