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The Meow Wolf ride that Nick Perry took was an investment on a crowdfunding platform, not the hallucinogenic thrill of the immersive art company’s Kaleidoscape at Elitch Gardens. But now that Meow Wolf is forcing a buy-back of shares from Perry and several other small investors, the Loveland resident feels like he’s been through a surreal experience.
Perry was among the 621 people who answered the call in 2017 when the Santa Fe, N.M.-based art collective took to Wefunder, a crowdfunding service. The up-and-coming art collective, now an expanding enterprise, raised $1.3 million in a little under 48 hours.
“They said, ‘What if you had gotten in early on Disney?’ That was one of the pitches,” Perry said.
Since then, the company has raised millions more, including $158 million from 87 investors, according to a Securities and Exchange Commission report filed in May. Meow Wolf has signed a 20-year, $60 million lease on a 90,000-square-foot complex to open in Denver in 2021 and plans to open a new venue for its interactive art-entertainment extravaganzas in Las Vegas in 2020.
The 37-year-old Perry, an artist and writer who has a remodeling company, previously made a small investment in Legion M, billed as the first fan-owned entertainment company, and he believed Meow Wolf was likely the next big thing. He was one of the first 100 investors who was able to buy 20 shares for $512. His brother, who pitched in later, paid $1,000 for the same amount.
Perry and his brother, a sculptor, were also among the investors who got an Aug. 1 letter from Meow Wolf CEO Vince Kadlubek saying the company was exercising its right to redeem the shares at $83.70 per share.
Perry, who is due $1,674, has heard from at least 25 other investors interested in pursuing a class-action lawsuit against Meow Wolf on grounds that the company misrepresented its intentions. The idea behind services like Wefunder is to invest in a startup and maybe down the road reap a good return on a small investment, Perry said.
“My brother and I feel we were really duped into investing in a company that had made us feel like we were a part of something, that we’d be able to hold that for the long-term,” Perry said.
“It’s disappointing, to say the least,” said Richard Quintana, who lives in Albuquerque, N.M. “It’s just not how you do business. It’s not how I do business.”
RJ Sangosti, The Denver Post file
Investors are protesting the move by Meow Wolf to forcibly buy back shares sold during a crowdfunding campaign in 2017.
Quintana paid $1,000 for 25 shares. His brother and sister-in-law also invested via Wefunder. Quintana might join if a lawsuit is filed.
“I’m not looking for a pay-out, per se. I just think you don’t treat people that way,” Quintana said. “Especially the people who help you out.”
Kadlubek declined to elaborate on the forced buy-back or say why the company is doing it other than to refer to the filing on the $158 million recently raised. It wasn’t clear if the buy-back is confined to those who used Wefunder.
“People will anywhere between double their investment upwards to quadruple their investment,” Kadlubek said.
Kadlubek declined to comment on a potential lawsuit by the investors. He said an agreement with the stockholders included the company’s right to “redeem” the shares.
Meow Wolf is facing a lawsuit filed in July in New Mexico by two former female employees who claim discrimination based on gender. Kadlubek has denied the allegations.
Nick Tommarello, Wefunder’s co-founder and CEO, said in an email Wednesday that the contracts investors signed with Meow Wolf allows the company to repurchase the shares. He said the clause is intended as an “escape hatch” in case a venture capitalist refuses to invest in a company because it used crowdfunding.
“This is the first time — to my knowledge — any company has repurchased shares,” Tommarello said.
Wefunder is lobbying Congress for new regulations that would prevent similar issues, Tommarrello added. The bill, which has passed the House, would allow people to invest through a single-purpose fund where one manager “has a fiduciary responsibility to fight for their interests,” he said.
Mac Clouse, a finance professor at the University of Denver, said the forced buy-back raises ethical questions. He said the practice is not common.
“For a startup, that first round of financing is by far the most difficult,” Clouse said. “You should have some loyalty to people who helped you when you needed it the most.”
Because the companies are private, Clouse said, crowdfunding investors typically don’t have access to financial information, so they are putting a lot of faith in the company. And it’s not clear how the Meow Wolf board of directors arrived at the per-share price of $83.70, he added.
The SEC approved rules in 2015 that allow nonaccredited investors like Perry and Quintana to participate in crowdfunding for startups trying to raise capital. Accredited investors are individuals whose net worth exceeds $1 million at the time of the purchase.
Meow Wolf is a public benefit corporation, which, as the company has said, means it has a dual mandate to focus on profits and social impacts. The company said on its Wefunder page that it wanted “to give space for smaller investors who may not fit the normal investor profile.”
Perry said when he hit “send” to invest in Meow Wolf, he didn’t see anything about the prospect of the company buying back his shares. Quintana said his brother remembers getting a document after the sale that the company reserved the right to take back the shares.
“It’s like, ‘Let’s get rid of all the small investors,’ ” Quintana said.
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