An Infamous Silicon Valley VC ‘Party Animal’ Was Just Convicted of Fraud

An infamous Silicon Valley “party animal” venture capitalist was convicted Thursday on 21 counts of defrauding investors and Silicon Valley Bank—the conclusion to a dramatic rise and fall that shares similarities to the stories of infamous fraudsters Elizabeth Holmes and Sam Bankman-Fried. 

Michael Rothenberg, 39, rose to prominence in 2013 when he raised $5 million for his virtual reality-focused VC firm at age 27. He described himself as a “millennial venture capitalist,” and his biography was like something ripped from the Silicon Valley playbook: Math genius. Stanford grad. Harvard Business MBA. Bain & Co. alum. He was close friends with one of Instagram’s co-founders, who he introduced to Mark Zuckerberg. One of his investors was the father of his Harvard classmate. 

With his story, Rothenberg charmed his way into positive press coverage, and his small firm quickly received outsized attention, becoming famous for its extravagant parties, with one of his annual bashes at Oracle Park (then named after AT&T) becoming the inspiration for a scene in the HBO series “Silicon Valley.” He reportedly organized rides in hot-air balloons, Napa Valley wine tours, and trips to Warriors games, where people sat in Rothenberg’s luxury boxes. At the time, Rothenberg defended all the schmoozing as a key part of his strategy.

“The way we build a scalable network is by hosting a lot of events,” he said in 2015.

The amount of money Rothenberg’s shop was spending led to whispered questions about where it was coming from. Former employees wondered how Rothenberg was able to “live more like a billionaire than the manager of a modest venture fund,” TechCrunch reported in 2016. In the same story, TechCrunch questioned how a firm of Rothenberg’s modest size was able to employ as many as 60 employees. “In fact, most funds of a similar size are run by two or three people,” the technology site wrote at the time.  

In one 2015 story, a Bloomberg reporter suggested that how, exactly, Rothenberg was able to afford the firm’s large staff and expenses wasn’t “entirely clear.” The Bloomberg story, headlined “The Valley’s Party Animal,” made Rothenberg so nervous that he reportedly had employees purchase airline tickets so they could go to San Francisco's airport and buy up all the copies of the issue. 

The magazine-buying strategy proved to be a failure. Privately and publicly, enough questions arose that the Federal Bureau of Investigation and Internal Revenue Service’s criminal investigation unit began a long investigation, which turned up a mountain of evidence that prosecutors presented at the trial. 

The central issue was that Rothenberg had pulled excessive amounts of money out of his venture funds, which he then used for illegitimate and illegal reasons that investors did not know about. Doing so led to a financial shortfall that he needed to cover so that investors would not catch on, and he attempted to do so through a series of deceptions including a money-moving campaign that shared similarities to the final days of the crypto firm FTX run by Bankman-Fried.

In 2015, for example, Rothenberg had founded his own VR company called River Studios. At the time, he had told employees and investors that he had “self-funded” the startup himself. In reality, he had used the venture firms’ money in order to do so.  

Because he pulled excessive amounts of money out of his own venture fund, he faced a “shortfall” that he did not want to tell investors about. Searching for a solution, he convinced one investor to throw $2 million in his VR content company, only to then turn around and use it to cover the money he had “misappropriated” from his own venture fund. He also went to Silicon Valley Bank and made various “false statements and misrepresentations” in order to get a $4 million line of credit to pay back even more of the money he had misused. 

The charges ultimately included wire fraud, money laundering, bank fraud and making false statements to a bank. An Oakland jury concluded Thursday that Rothenberg was guilty of it all. (Rothenberg previously settled related charges with the SEC in 2018.) A source had once told TechCrunch that “Mike wants to be famous.” And now, he is.

 Rothenberg is scheduled to be sentenced next March.