Venture capital fund sues Denver
An equity venture capital fund investing in minorityowned and women-owned firms has sued Denver, alleging the city has violated its contract by cutting off funding and leaving disadvantaged businesses at risk.
“I am out of pocket for nearly $800,000 of my own money to pay other subcontractors,” said Danielle Shoots, managing director and founder of the Denver-based Domestic Emerging Market Investments or DEMI Fund. “I need to be reimbursed to keep the overall work going.”
In October 2022, Denver created the Herman Malone Fund using revenues from a 1% tax on marijuana sales. The fund was dedicated to investing in and supporting Black, Indigenous and People of Color or BIPOC entrepreneurs. In October 2022, after issuing a request for proposals, the Denver Economic Development & Opportunity office hired the New Community Transformation Fund, which does business as DEMI and is led by Shoots, the former chief financial officer of the Colorado Trust. The city in its contract pledged to provide $15.2 million through June 2025, adding to the $9 million Shoots raised from other investors including Xcel Energy, Bank of America, and the Colorado Housing and Finance Authority.
The goal was to help 1,000 disadvantaged businesses initially and eventually double the fund’s size through the return of capital and future renewals from Denver, creating a selfsustaining pool of capital.
Besides finding qualified businesses to support and investing in them, DEMI was tasked with providing mentoring and support services through nonprofits and subcontractors.
The city’s involvement, however, was complicated from the get-go. A public entity, Denver couldn’t act as a limited partner in a venture capital fund because it put taxpayer funds at risk. That forced Shoots to create a workaround whereby Denver directed its money into the nonprofit Impact Charitable via a donor-advised fund. Impact Charitable became a limited partner, maintaining compliance with securities laws.
Limited partners normally take a passive role, and even though it was one step removed, DEDO started requesting what Shoots described as “unnecessary” contractors, reducing how much money could go to support businesses. In one case, DEDO asked that DEMI hire a subcontractor based in Houston, which Shoots refused to do.
She argued that supporting an out-of-state firm violated the terms of the contract and misused Denver tax dollars. She filed an open records request with the city and learned the person in question was a relative of a city employee.
After that confrontation, the city stopped meeting capital calls and reimbursing expenses, citing insufficient documentation, even though each invoice was accompanied by hundreds of pages of documentation, Shoots said.
In 2022, the DEMI Fund received $1.06 million of the $5.7 million it requested from the Herman Malone Fund. In 2023, it received $5.86 million of $8.9 million due from new and unpaid requests. This year, DEMI hasn’t received any funds and is owed $6.8 million, according to a complaint filed in Denver District Court.
The lawsuit alleges the city is not honoring its contractual obligations by creating a pretext for not paying.
DEMI is looking to recoup $800,000 in outstanding invoices under its contract, as well as additional damages, attorney fees and associated expenses, arguing the city’s actions, or lack of action, have put minority and women-owned enterprises at risk of failing.