In summer 2022, in the wake of the murder of George Floyd and the political unrest that followed, Denver did something unusual.
The city set aside 1% percent of marijuana tax revenue from 2022 until 2025, totaling roughly $15 million, to support — sometimes in the form of direct investments — minority and women-owned businesses.
To manage and invest the tax dollars, the city picked New Community Transformation Fund – Denver, which now goes by DEMI Fund and is led by Danielle Shoots.
As a result, Denver taxpayers now own a small stake in a company that rates media outlets based on political bias and a website that helps people make small investments in the oil and gas industry.
But less than two years into the experiment, the relationship between Shoots and the city has deteriorated.
Last week, DEMI Fund sued the city, claiming it had stopped forwarding the tax dollars as contracted and is refusing to reimburse Shoots nearly $800,000 she said she fronted to contractors so the fund’s portfolio companies wouldn’t be impacted.
“I’m a small business myself closing in on $1 million in the hole,” Shoots said.
The tax dollars were supposed to be transferred from the city’s Herman Malone Fund, which is managed by the office of Denver Economic Development and Opportunity (DEDO). A DEDO spokesperson declined to comment on the lawsuit.
“The lawsuit came after trying to make it work, without doing anything on what I found to be illegal, or abuse, and fraudulent of the taxpayers’ money,” Shoots said. “And they just never got it together.”
10 companies in year one, per redacted annual report
DEMI Fund’s contract with the city states that, of the $15 million committed by the city, $6 million would be invested directly into startups owned by women or minorities, giving taxpayers an ownership stake in them, according to a copy of the contract obtained by BusinessDen through a records request.
Shoots said businesses eligible for investment can be owned by women or minorities, which also includes veterans, or have them in leadership roles. Businesses self-report that they conform with the requirements, she said.
Another $6.67 million of the $15 million was intended to provide “ecosystem” support, per the contract, which could come in the form of direct grants to businesses or giving money to other organizations that help startups.
The remaining approximately $2.5 million was to go to administrative expenses ($633,514), professional services ($1.27 million), marketing ($250,000) and personnel ($285,000).
Shoots has not previously worked for a traditional venture capital firm. She was previously the chief financial officer of The Colorado Trust, and before that vice president of finance and business operations for a division of Comcast.
To date, the city has disbursed $6.9 million to the DEMI Fund, according to the fund’s lawsuit. That figure should be more in the $10 million range, according to Denver’s contract with the fund.
“The first year I had a lot of hope,” said Shoots, who at one point called the arrangement “the coolest thing that’s ever been built.”
Denver’s marijuana tax dollars were invested in 10 businesses in the DEMI Fund’s first year from August 2022 to July 2023, according to an annual report Shoots provided to BusinessDen.
Those businesses are:
• Ad Fontes, which says its media bias chart will help advertisers support quality journalism
• Interview IA, which said its screens and reviews potential employees for an easier hiring process
• Gritly, which offers training and hiring programs to help match employees and employers
• PetroFunders, a website for entry-level oil and gas investors
• B-Konnected, a website that helps people find and retain housing
• Bondadosa, a food delivery company
• Sistahbiz Global Network, which offers business planning services for black women entrepreneurs
• ICONI, an outdoor apparel brand
• Impacto, a business consultant company
• One Purse, whose finance software lets people transfer money internationally
According to the report, the year one tax dollars also provided ecosystem services to 30 businesses.
The DEMI Fund — which stands for Domestic Emerging Market Investments Fund — has other investors, including Bank of America and Xcel Energy. But the city’s dollars are treated somewhat differently, partially to ensure they’re going only to companies actually in Denver. According to the annual report, the overall fund has invested $36.1 million.
Shoots provided the annual report to BusinessDen last week, more than two months after first requested. She redacted many of the financial figures in the report, saying she wanted to protect the fund’s other investors. The redactions make it impossible to ascertain Denver’s stake in individual companies and how the investments are performing.
Denver’s contract with the DEMI Fund specifies that DEMI Fund “will provide DEDO with annual reports and constant access to Contractor’s data system.”
But two city departments — DEDO and the Department of Finance — responded to BusinessDen’s public records request for all reports related to the fund in recent weeks by claiming they had none.
Shoots said the city should release that information.
“I’m not the one that should have to prove what I’m doing, the city should,” Shoots said. “This is the taxpayer’s money. They are the ones that should be transparent.”
The contract also stated a DEDO employee would sit on the DEMI Fund Board of Advisors. Michael Bevis, director of entrepreneurship and innovation at DEDO, held that position until January.
Bevis agreed to a BusinessDen interview in January, but canceled it an hour beforehand and did not respond to subsequent requests to reschedule. He also did not respond to requests to comment for this story.
Shoots: “No one inside the city knows about venture capital”
In an interview in January, two months before filing the lawsuit, Shoots told BusinessDen she was not going to renew her contract with the city, which had the option for two one-year renewals.
“It’s been really, really tough to execute since no one inside the city knows about venture capital,” Shoots said in January.
Speaking last week, Shoots said she has been fighting with the city since the contract started. She even asked to get out of it twice because it became clear the agreement was not working.
“We were always fighting back and having red flags,” Shoots said. “It’s been one thing after another.”
She often struggled to get timely payments, but in August payments stopped completely. By November, according to the lawsuit, Denver owed DEMI Fund $282,495. She sent additional six-figure invoices for reimbursement in subsequent months.
Because cities investing taxpayer money in this way is largely unheard of, Shoots said she had to make up the contract and legal structure for the fund. According to her lawsuit, Denver was originally supposed to be a limited partner in the fund, as is typical for investors, but that wasn’t possible because it was tax dollars. Instead, the nonprofit Impact Charitable was set up as something of an intermediary on Denver’s behalf.
Shoots claims that DEDO staffers have tried to refuse invoices because DEMI was not sharing the correct documentation. Shoots claims she was, and the city had access to all reports, but that the city needed to request them through Impact Charitable.
“It’s a pass through. You can’t go directly to my fund and ask for it because they’re not a L.P. (limited partner),” Shoots said. “They said we need a whole new, different type of documentation but no one has described what that actually means.”
Impact Charitable didn’t respond to a request for comment from BusinessDen.
Shoots claims that after requesting an invoice be paid, she was told twice that The Herman Malone Fund had run out of money, although the executive director of DEDO later told her that was not true.
DEMI Fund’s contract officially started in August 2022 under former Mayor Michael Hancock’s administration. Mayor Mike Johnston assumed office last July, but Shoots said she doesn’t believe the change in administration led to the current situation, saying there were issues before Johnston took over.
Attorney’s Laurin D. Quiat and Thomas A. Donaho with Baker & Hostetler are representing DEMI in the suit.
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This story was reported by our partner BusinessDen.
