Penn Mezzanine, TL Ventures and their ties to Safeguard Scientifics

Tom Paine

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I found it curious that both the local (Philadelphia) and national press, in reporting on donations by a principal of VC firm TL Ventures to Mayor Nutter and Governor Corbett that the SEC said violated "pay to play" regulations (a settlement was reached with the SEC late last month), did not mention those firms' past and present ties to Wayne-based Safeguard Scientifics (NYSE: SFE).

I'm not implying wrongdoing on any one's part. In my own mind I'm not sure this isn't a
nitpicking application of an overbearing regulation. I just wanted to point out the connections.

TL Ventures, founded in 1988, grew out of the extended Safeguard Scientifics family when it was nearing its zenith; Pete Musser and Ira Lubert were cofounders. TL Ventures has been called a "zombie VC firm" in recent years, meaning it is no longer actively raising new funds, but is simply managing and winding down its existing portfolio (although it has made a few new investments). TL Ventures raised a fourth fund for $259 million in 1999, and a fifth fund for $685 million a year later. That was pretty much the end of major fundraising.

According to the SEC, TL Ventures and an affiliate, Penn Mezzanine Partners Management, separately claimed exemption from registration (for reporting donations) in 2012, for different reasons. Penn Mezzanine said it was below the minimum asset level required for filing, and TL Ventures said it was exempt since it was only advising VC firms, which were exempt from those reporting requirements.

One fairly recent financing that TL Ventures led (in 2011) was a $1.3 million round in StreetWise Media, the Boston-based publisher of BostInno and some other east coast websites focused on local cultural and tech news. It wasn't very similar to its past investments. In 2012, American City Business Journals, publisher of the Philadelphia Business Journal and other similar business publications, acquired Streetwise Media.

In July 2011, Safeguard Scientifics announced it had acquired a 36% stake in Penn Mezzanine.

State and City records show TL founder Robert Keith Jr. gave $2,000 to Pennsylvania Gov. Tom Corbett that fall, and $2,500 to Philadelphia Mayor Michael Nutter during the spring primary campaign of that year, the same amounts and dates cited by the SEC. TL Ventures violated so-called "pay-to-play" rules by collecting fund-related fees from the city and state within two years of the political donations. Those pay to play prohibitions were put into law as part of the Dodd-Frank legislation of 2010.

The SEC, in its investigation of Penn Mezzanine and TL Ventures, found the two were to a large extent "overlapping entities without any policies or procedures designed to keep the two separate." (pdf)

TL Ventures agreed to a settlement in which the firm would disgorge $256,697, pay prejudgement interest of $3,197 and a penalty of $35,000. The firm has neither admitted or denied the SEC’s findings, the agency said.

Corbett plans to give his donation to charity, a Corbett spokesperson said, and Nutter plans to return his donation to Mr Keith, according to a Nutter spokesperson.