IEDC: Elevate Ventures August 4 partial payment = default
Following a lull in activity related to Indiana Economic Development Corporation ancillary entities as the six-figure, gubernatorially mandated forensic audit of Elevate Ventures plays out, early August bustled with a slew of interesting developments in the tangled web we brought to your attention in an exclusive special report in late April.
That report was a component of the decision by the Governor’s Office to quickly fund an independent forensic audit (to the initial tune of some $800,000) to trace assorted funds.
One item that we brought to light in April was that attorneys for IEDC informed
the entity’s executive team last year that in 2023 “we found out that one of two things happened: (1) Elevate never performed those functions outlined in their PSAs and loan agreements; or (2) Elevate stopped doing those functions when Elevate’s management changed in 2022. We have tried to engage them many times on coalescing an understanding of the outstanding liabilities owed to the State – at times, even with buy-in from their team – but those requests have always been met with the explicit assertion that they never intended to pay the loans back and accusations that we were only making those requests to intentionally stifle their attempts to stand up the Growth Fund.”
Well, they may not have intended to pay those loans back, but we’ve learned that on August 1, IEDC – the lender – formally requested payment on a $15 million+ 2011 loan and related financing that matured on August 2. The total outstanding amount due, according to IEDC, was $17,167,384.55. IEDC asked for “payment in full” on Monday, August 4, the next business day following the maturity date.
After what we believe was a scramble to assemble funds, Elevate on Monday actually repaid IEDC $12,864,121.36. On Tuesday, IEDC informed Elevate that the payment was short of the required amount by $4,303,263.19, and notified EV “of payment default.” IEDC requested payment in full of both the outstanding principal and accrued interest under the loan within five business days . . . and, in the interim, Elevate was told that the continuing default would accrue to the tune of $956.28 per day in (8.0%) interest alone. IEDC also reminds EV that it was reserving all other rights and remedies available to it within and outside the loan agreement and associated convertible promissory note.
In case you’re wondering where that $12.86 million payment went, we can tell you that the payment was deposited in the 21st Century Research & Technology Fund.
As the loan originated from the 21st Century Research & Technology Fund (IC 5-28-16-2), the payment has been deposited back into that fund. State law explains that among the components of the fund are loan repayments as well as earnings from loans made under this umbrella (and funds do not revert at the end of a fiscal year).
And the hits will just keep coming. The contractual maturity dates for the Indiana Seed Fund Holdings, LLC ($5.5 million) and Indiana High Growth Fund, LLC ($6.0 million) loans made circa 2011 are December 20, 2025. That means EV could be on the hook for another $11.5 million . . . on top of the $4.3 million it was short of repaying this week.
Meanwhile . . . we’ve learned that the Governor’s Office informed Elevate on July 3 that it believes there has been a material breach to the agreement between IEDC and Elevate Ventures. “As such, we are invoking the cure period of 60 days for the two teams to work through a satisfactory resolution,” EV was informed by Secretary of Commerce David Adams.
All of this plays out against the backdrop of a series of questions we raised in April and have yet to get answered – and we’re not alone in asking.
At Wednesday’s meeting of the State Budget Committee in Fort Wayne, Sen. Fady Qaddoura (D) fired a salvo of queries to the individual representing IEDC at the meeting – but it was someone no longer part of the agency, now responsible for another entity in the commerce cabinet vertical.
Sen. Qaddoura wanted to know whether the State had resumed paying $500,000 monthly in management fees to Elevate Ventures that we had told you in April would be frozen, seemingly pending the audit. “I would look to others to answer that,” he was told. “I don’t know the answer to your question, Senator Qaddoura.”
But we do. We learned Thursday that IEDC is making the monthly payments as they work through the required contractual remedies with Elevate.
Intriguingly, after more than an hour of faultless streaming of the meeting, the stream suddenly went dark as the Senate Democratic fiscal leader was asking his question. A few minutes later, BudCom leadership was notified of the glitch and took a recess to allow the streaming to be resumed; the entire Qaddoura colloquy was captured and retained for history in the BudCom meeting video archives by shortly after lunch time Wednesday.
Sen. Qaddoura continued his line of questioning about how “Elevate Ventures, the nonprofit entity that has contracted with IEDC, gets $500,000 a month that the Governor kind of suspended back in April and announced an audit. Since then I want to get a confirmation. There are key employees of Elevate Ventures that could potentially be double dipping – senior staff making close to $500,000 annually by getting paid by Elevate Ventures, Elevate Management, LLC. Are you aware of any of these relationships or transactions with these staff members?”
The sympathetic IEDC stand-in told him, “I understand your questions. I think some of those questions are driving the idea of ensuring that we get a deeper look at this, but I don’t have anything to report to you today on what’s been.”
That’s when Qaddoura told him that “this is my only public forum space to ask these questions, because for the last four years, I struggled in getting answers from IEDC on these issues, and I was the broken clock among some of my colleagues on this committee raising concerns about IEDC behind-closed-door dealings.” He then turned his attention to Rally LLC, Rally Innovation LLC, and its relationship with the IEDC or with Elevate Ventures, but was unable to elicit “specifics of the relationship or that agreement.”
Then Qaddoura honed in on something that we had raised about potential conflicts of interest acknowledged by EV’s “Key Persons” team in an investment prospectus of sorts that was shared with some of their investors to solicit dollars. “[A]are you aware that their four names are of senior staff, who are paid through Elevate Ventures, who receive funding through the IEDC, are double dipping salaries from Elevate Ventures, paid for by the Hoosier taxpayers and other LLCs that are created under Elevated Ventures. Are you aware of any of that stuff?”
Then Sen. Qaddoura laid out the crux of his concerns, ostensibly to the IEDC proxy, but more so for his colleagues and those who may have been watching the meeting.
The same prospectus, the investment prospectus has language about conflict of interest and I will read it to you. It said, and this is from directly coming out of their documents that they sent to investors – and the subheading is ‘Potential Conflicts of Interest with the Management Company,’ personnel of the management company and Elevate. Although personnel of the management company shall devote such portion of their time during normal business hours to the management and operation of the fund as may be necessary to effectively manage the fund’s business, the management company and its personnel are entitled to and do engage in other business activities, and are not prohibited from engaging in activities that are, or may be competitive with the activities of the fund specifically. And I will skip the names they list for names of four employees who hold office or officer roles within Elevate and intend to continue in such roles for the foreseeable future. In these roles, these individuals have the authority to make investment decisions for the Indiana 21st Century Research and Technology Fund and other funds managed by Elevate. Therefore, it is highly likely that management company and its personnel will experience conflicts of interest with respect to the allocation of management time, services and functions among the fund and other activities.
This is not from me. This is from the investment prospectus that they are sending around. I was excited when the Governor announced that there will be an audit, even though it comes at the taxpayers’ expense – $800,000. I was actually pleased that there’s an agenda item that had a little bit more details about a potential incentive for a company that will be discussed a little bit later, more details than we have received in the past. But I’m extremely concerned that we’re not getting anywhere with holding IEDC accountable, and we’re not getting the answers. And I … hope that for those who are listening from IEDC, I demand that we as legislators need to know the answers to all of these transactions that are happening under IEDC, funded by the taxpayers going to IEDC ventures – from IEDC to Elevate Ventures, Elevate Management, LLC, Rally Innovation LLC – and the key employees are getting paid with conflict of interest that exists and acknowledged by their own prospectus investments. I don’t think this is right. It’s just not right for the taxpayers of the state.
The IEDC proxy responded, “I appreciate your questions. I think that I don’t consider them to generally be unfair. I wish I could provide more direct answers. I will say, you know, the Governor and the Secretary (of Commerce) are committed to increasing transparency here. And so that is ongoing, and I’m sure that there will be more information on that soon.”