Advanced Equities, an investor in a number of high-profile greentech startups, is in trouble with the Securities and Exchange Commission (SEC).

Advanced Equities (AE), sometimes referred to derogatorily as a "bucket shop," is a source of funding that venture firms use to fill in the gaps in later-stage financing. AE acts as follow-on money and has little actual domain experience and so rarely plays a board-level role at the firm. The group calls itself a "Venture Capital Investment Bank."

According to Crain's Chicago Business, "The co-founders of Advanced Equities Inc., a Chicago investment firm, may face federal enforcement action related to a 2009 private offering." The co-founders, Keith Daubenspeck and Dwight Badger, received Wells Notices earlier this year, an indication that the SEC is looking to bring charges against a firm or individual. 

Here's a link to an SEC filing for a targeted $150 million private offering from Advanced Equities for a fund called GreenTech Investments III and here's the filing on GreenTech Investment IV, also for a targeted $150 million, dating from March 2009. The minimum investment in these funds for investors was $100,000. These are not necessarily the funds that are being questioned by the SEC and the Wells Notice might have nothing to do with the GreenTech funds, Fisker, Bloom, or Serious -- but the timing is right.

Getting a privately held automobile company like Fisker, a building materials energy efficiency company like Serious Energy, or a fuel cell company like Bloom Energy from lab to mass market takes enormous amounts of capital -- typically hundreds of millions of dollars. 

AE's pitch is that it allows high-net-worth individuals (i.e., wealthy people) to participate in the high-risk, high-reward world of venture capital investing. Despite a sometimes-shaky reputation, AE is aligned with a number of top-tier VC firms, such as:

  • Apex Venture Partners
  • Benchmark Capital
  • Khosla Ventures
  • Kleiner Perkins Caufield & Byers
  • New Enterprise Associates


Collectively, that stellar list of names manages billions of dollars.

In 2010, AE established a fund, 2010 CleanTech LLC, to provide their clients the chance to invest in Bloom Energy, Fisker Automotive and Serious Materials Energy.

The fund was divided up as follows:

  • 40 percent series A-1 preferred shares of Fisker Automotive
  • 40 percent series D preferred shares of Serious
  • 20 percent series F preferred shares of Bloom Energy


On the surface, this appears to be a reasonable way to raise capital for a late-stage startup -- and a good way to summon more capital for a VC investor without having to deal with a pesky new board member. But the participation of Advanced Equities, as Greentech Media reported here, is a red flag for some investors. 

The danger is that AE's clients invest in startup firms without an understanding of the severe risk profile attached to these VC-backed technology firms that aspire to scale big and fast in the energy field. The upside, of course, is that it allows others to get the kind of returns traditionally reserved for the venture capitalists.

The other downside is that the SEC comes down on the firm and its co-founders with a federal enforcement action. SEC spokesman John Nester declined to comment on the case, according to Crain's.