Betaspring Blames Commerce Corp, Denies Responsibility for $800K in Misspending
Friday, September 22, 2017
On Thursday, GoLocal published a damning report from the U.S. Treasury that found, via a federal audit, that Rhode Island's venture fund Betaspring "intentionally misused $803,644 in State Small Business Credit Initiative (SSBCI) funds — and that Rhode Island's investment in Startup Investments, LLC was not approved by the U.S Department of Treasury.”
The state stands to lose $2 million in additional funding it was supposed to receive from the program.
Read: RI's Betaspring Found to Have Intentionally Misused $800K of Federal Funds
GET THE LATEST BREAKING NEWS HERE -- SIGN UP FOR GOLOCAL FREE DAILY EBLASTNow, Betaspring refutes the charges.
SLIDES: READ THE U.S. TREASURY REPORT BELOW
Betaspring says the errors are solely the fault of RI Commerce Corporation.
“Any insinuation that we misused funds is unequivocally false and hugely insulting to our legacy of work and commitment to Rhode Island's startup community,” said Allan Tear, Managing Partner at Betaspring.
According to the Rhode Island Secretary of State’s corporate database, Betaspring’s corporate entity has been revoked. Betaspring is also doing business as Founder’s League. And, investor Bill Cesare and Betaspring own a new company called Rev-Up. It provides funding to revenue-generating start-ups, stating, "We do not take equity in the companies we invest in. Instead, companies return investment as a percentage of revenue over time.”
Commerce to Review Federal Audit (Again)
On Thursday, Commerce said they will review the findings.
“This is a report on a program that was applied for and managed by a previous administration. We will examine these findings and discuss them with Treasury in order to bring this matter to a conclusion,” said Commerce spokesman Matt Sheaff.
But in August of 2017, Darryl Early, President and COO of RI Commerce, wrote a four-page letter to Treasury after reviewing the report and asserted that the Corporation “has taken protective measures to strengthen its compliance and oversight to ensure that it is fully compliant with Treasury requirements.”
Read Commerce's Letter to Treasury in Addendum BELOW
Betaspring Says Mistakes are Commerce’s and Treasury’s
Betaspring worked with dozens of early-stage companies, including NuLabel Technologies, which has grown and now operates in East Providence.
It also tried and failed to launch more than 100 companies that have closed. Companies like StudyEdd.com — “Want to crush exams without a single cram session? Want to remember more of what you learn? StudyEgg is the answer!” It ceased operation in 2014.
“When the RIEDC asked us to accept SSBCI funding in 2010, we trusted that they were deploying the funds in a way consistent with the federal program guidelines, a program into which we had no visibility nor direct contact,” said Tear.
The relationship between Betaspring and Commerce (then EDC) started under the Administration of then-Governor Don Carcieri, but carried through the Lincoln Chafee Administration to the Gina Raimondo tenure.
“We were informed in 2013 that the RIEDC's decisions around distribution of SSBCI funds was under review. After fully complying with the review, then-Director of Administration Richard Licht issued a letter stating that we were not at fault for any discrepancy between RIEDC and the Department of the Treasury. The letter affirmed that we invested funds exactly as agreed. RI Commerce Corporation's response in the OIG report reiterates that we deployed funds as we said we would,” added Tear.
“Had we known that the RIEDC plan for SSBCI would not be in compliance, we never would have accepted the funding as offered. And, if in 2010, the Treasury should not have accepted an accelerator into the SSBCI program, the burden of that error is not ours,” said Tear.
But, Treasury’s Report refutes Tear’s claims. “Rhode Island’s investment in startup investments was not approved by Treasury. Rhode Island’s SSBCI application and the Allocation Agreement named the fund as an approved state program and did not disclose that the State would first invest SSBCI funds in Startup and that Startup would invest in the Fund,” write Treasury.
Most damning is that Treasury assets, “Nevertheless, RI invested $2 million of SSBCI funds in Startup, an entity established in November 2011, after the allocation agreement with Treasury was signed. RI did not seek approval from Treasury before making the investment.”
Related Slideshow: U.S. Treasury Report on Betaspring
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