Over the past week, we’ve (the Hawaii tech startup community) all watched the drama that is the mbloom announcement of its first investments unfold. If you’re by chance just a friend of mine stumbling on my blog from facebook, not from Hawaii, or under a rock, I’ll break it down for you.
mbloom, a Maui based venture capital firm recently raised a $10mm venture fund. The fund was a direct result of a partnership with the HSDC, a Hawaii state agency created to stimulate and diversify economic development in Hawaii. The state of Hawaii, through the HSDC contributed to half of the $10mm with a matching contribution by private investors. This deal, done through HSDC’s Hi Growth Initiative was notable because of the relatively large size of the fund and contribution by the state.
Controversy arose late last week as mbloom announced via PBN of their first two investments; Flikdate and Ozolio both of which, though no connection was disclosed in the article, were both founded and owned by Arben Kryeziu and Nick Bicanic, the two founders of mbloom itself.
I, along with many others first heard about this via Eric Nakagawa’s Facebook feed as he uncovered the filings on the ehawaii’s (the state’s) online business filings.
This as expected, to many was a huge conflict of interest and abuse of state taxpayer money. Not surprisingly many were outraged and as we often do in Hawaii’s tech scene, the virtual pitchforks and torches were dusted off and we were off on the witch hunt du jour. I’ll admit, I was there early snarking it up with the rest of them. The flames were only stoked higher and higher with each successive press release, blog post, and damage control mbloom and HSDC attempted. It was a grand ole time in the virtual which hunt.
But after a day or so, the initial fun for me wore off. I saw many of the attacks become more and more personal on Arben and Nick. Some of which I thought was kind of unwarranted, especially the attacks on the quality of the startups. I decided it was time to reach out to them personally and ask Arben some of the questions I had which were some of the main sticking points I found concerning.
Arben and I had some correspondence and he shared with me many details that are not my place to disclose at this time which began to paint a much clearer picture of the whole situation. I came away with a much different take on what really went down.
Now before I go any further, and before any pitchforks get pointed at me, I’d like to clear up some things
1. I have absolutely zero vested interest in mbloom, I am not seeking investment from anybody for Ukulele Underground. We are bootstrapped profitable and proud as the old 37 signals blog used to say. We have what would be a
large small angel round sitting in the bank funded by profits. We have no need to give up any equity for money we just don’t need. So I’m not trying to kiss anyones ass with this post.
2. I admit, because I’ve only have personal experience with building bootstrapped companies, I do not know all the ins and outs of venture deals and the funding / fundraising process. I could by entirely wrong.
3. I have no proof Arben isn’t just lying to me. But… as a simple Kauai boy, who was born and raised on what I consider the friendliest island in Hawaii, I can’t help but to give them the benefit of the doubt for now. Especially when the details disclosed make the deal make much more sense. If in the future its uncovered that the wool was pulled over my eyes, I’ll be the first to admit that I was wrong.
With that out of the way, I’m here to let you down. I unfortunately can’t disclose much of what we discussed due to various reasons. I know I know, more confidentiality which was one of the big sticking points of this whole lack of transparency thing. What I will say is my takeaways from my discussions with Arben.
1. The initial press release to PBN was a huge snafu and they now realize it very clearly. One of my big sticking points that really rubbed me the wrong way about the PBN article was the quotes really did make it seem like there was a separation of church and state between mbloom and it’s investments which we all know now is not the case. One of my main questions was, why? why do this? Through our discussion, my takeaway was they had input and help from someone on the crafting of the release. This person may have thought these details were not important. On Maui, evidently the partners involvement with flikdate and ozolio is not a secret which may have caused the disconnect between their perception and our perception. If this is the case, obviously a huge mistake. A stupidly huge mistake but for now, I’ll have to take it as an honest one.
2. In their blog post followup, Nick mentions the investment into their two companies was a stipulation set forth by the private investor to contribute the matching funds. This was disclosed to Karl Fooks at HSDC and the LPs involved with the fund. The investment into flikdate and ozolio constitutes 7% of the $10mm fund. A sizable chunk no doubt, but once again though our discussion many details were told to me that makes a strong case for not only HSDC to be ok with these investments but also any LPs as well. My takeaway, once again not knowing everything about venture funds, was this was a highly unconventional unique circumstance that in this instance the deals made sense as a cost of capital. In the future, if what I was told is true, these details will come to light but I’m sure for many, this reasoning will still not be good enough.
3. A different timeline of events and a less terribly botched initial press release would potentially render many of the glaring concerns which have so many up in arms innocuous.
I know this is probably not going to help change anyone’s mind about this whole situation as this is vague at best. But to me, pretty much all of my questions as well as questions I have seen thrown out onto the internet had been answered satisfactorily by Arben.
Time will tell how this will all unfold but for the time being, I’m cautiously optimistic about the potential mbloom can bring to Hawaii’s startup ecosystem. And this is from the guy who called everybody clowns a few months ago.