Tanmaya Kabra, the 25-year-old founder and CEO of LaunchByte, a design and development shop and self-titled “investment boutique,” was arrested at Logan Airport on Sunday on charges of operating a Ponzi-like fraud scheme, wire fraud and bank fraud.
Pitching himself as a serial entrepreneur, venture capitalist and startup mentor, Kabra allegedly lured investors to give their capital under the premise that it would be used to support startups, according to a press release from the U.S. Department of Justice. Instead, Kabra allegedly used the money that he received from investors to pay off existing debts to prior investors in his scheme and to fund his lavish personal expenses, including paying off credit card dues of over $80,000 and a boat purchase worth more than $200,000 over the Fourth of July holiday week in 2018.
According to a U.S. Securities and Exchange Commission (SEC) complaint filed against Kabra and LaunchByte, Kabra deceived investors and got their money with false promises — touting “investment opportunities” as having high returns (up to 32 percent) and advertised it as no-risk bearing “tokenized collateral.” The complaint, filed on Aug. 5, goes on to state that in one instance, Kabra told an investor that a startup was about to be acquired when the company wasn’t even in talks for selling.
A separate criminal complaint, filed against Kabra by the FBI and unsealed Monday, alleges that he committed wire fraud and bank fraud. Wire fraud carries a maximum sentence of up to 20 years in prison, three years of supervised release and a fine of $250,000 or twice the gross gain or loss, whichever is greater. The charge of bank fraud provides for a sentence of up to 30 years in prison, three years of supervised release and a fine of $1 million or twice the gross gain or loss, whichever is greater.
Both the SEC and FBI complaints identify at least four investors who were allegedly defrauded by LaunchByte. However, some entrepreneurs in Boston also claim to be victims of Kabra’s elaborate scheme. Over the past 12 months, BostInno spoke to several sources, including Kabra’s associates, ex-employees and entrepreneurs who worked with LaunchByte.
The LaunchByte Story
In June 2017, Tamer Mehanna was looking to network. The startup he had in mind—Scrybe, a company that would perform on-demand business research for clients—needed cash, and Mehanna needed investors.
Mehanna reached out to Tanmaya Kabra. At the time, Kabra was riding high as the founder of LaunchByte, “an incubator and micro-fund at the same time,” as he explained to BostInno in May 2016.
According to a Google Review Mehanna wrote later, it quickly became clear that Kabra was engaging in unprofessional business practices. The LaunchByte team asked about Mehanna’s budget for Scrybe; when Mehanna said it was between $100,000 and $240,000, LaunchByte took that to mean Scrybe’s startup costs would be the full $240,000, per the review.
Put off by this “pawn shop approach,” Mehanna disengaged—but he said LaunchByte’s employees followed up by text, email and call several times a week until Mehanna finally agreed to renegotiate.
Things went no more smoothly after that, Mehanna wrote in the Google review. LaunchByte turned around with a proposal that skewed heavily in Kabra’s favor: “[it] would have resulted in us giving up more equity with a lower post-money valuation when there was not even any cash actually changing hands,” Mehanna wrote. Negotiations quickly fell apart. By that time next month, Mehanna wrote, Kabra was threatening to sue and “wreck” Scrybe “digitally.”
“It’s audacious,” Mehanna said in a recent interview. “He’s the investor, but you really give him cash.”
Kabra and LaunchByte would continue to operate this way, according to several interviews with entrepreneurs and others who had come into contact with Kabra over the last 12 months. Kabra advertised LaunchByte as a design and development shop and “investment boutique,” one designed to champion local startups through its unique “reverse angel fund” method. At the helm, Kabra positioned himself as a serial entrepreneur, venture capitalist and startup mentor.
In reality, Kabra appeared to be operating an elaborate scam, according to authorities—one that would eventually pique the attention of federal prosecutors.
“[Startups] don’t have to pay for anything,” Kabra told BostInno when LaunchByte first began in 2016. Now, Kabra might.
By 2018, LaunchByte had taken several different forms. According to the SEC complaint, LaunchByte was incorporated as an LLC in March 2015. The company was under the legal name of Climax Entertainment Group LLC until March 2016. In January 2018, LaunchByte’s legal name was changed again to The Kabra Group LLC, with Kabra as the sole signatory authority and holder of bank accounts.
In these intervening two years, it also altered its investing approach several times: In May 2016, LaunchByte was a reverse-angel fund, in July 2016, it billed itself as a “SaaS-based startup incubator” and in April 2018, referred to itself as an “execution-focused investment firm and startup hub.”
In reality, according to Mehanna and other entrepreneurs BostInno spoke to, Kabra’s scheme was to approach first-time entrepreneurs working at a proof-of-concept stage who are often in need of services that a typical startup incubator provides: product design and development, legal services, web development, marketing and press relations.
According to several sources, many of whom requested anonymity to speak frankly, Kabra would make some back-of-the-envelope calculation—as in Mehanna’s case—arrive at an estimated cost for the services provided, then bill the entrepreneur for those services upfront without delivering on the promise. Mehanna was so put off by the negotiations that he never worked with LaunchByte, but not all new entrepreneurs are that savvy. BostInno spoke to another entrepreneur, who requested anonymity based on an agreement signed with Kabra and LaunchByte.
“I have only now recovered some of my money from Tan Kabra,” the startup founder said. “But the lost time was a killer for me. He promised me a finished product, and it took two years, and I still got nothing from him.”
In this case, the founder said, Kabra promised him a minimum viable product — a platform for an edtech startup — and estimated the startup costs to be $125,000. Kabra then asked the founder to put their own money toward product development, according to the founder.
“He asked me to pay $40,000, which I’m sure was the actual development costs and he got equity in my startup for free,” the founder said.
“I thought he wanted me to have skin in the game. I thought they were legit.”
As it turned out, instead of having its own employees handle the project in New York, LaunchByte had subcontracted the work to a development shop in India for just $14,000, the founder said. The founder only discovered this when the shop contacted him.
“He never intended to deliver,” the founder said. “You cannot do it for that cheap.”
BostInno first spoke to this founder in September 2018. The startup has since made significant staff cuts, including its CTO, and has had to bear the costs of trying and failing to litigate against Kabra. In the meantime, the founder and their associates have started building the platform from scratch.
KV Ventures and other entities
The same month BostInno spoke with that founder, Kabra was working on another enterprise.
In September 2018, Kabra floated a new venture capital firm called KV Ventures. In an email to BostInno in November 2018, Kabra described KV Ventures as a “formal, more traditional LP/GP structure, making investments ranging anywhere from $250K - $750K.” KV Ventures was also set up to absorb investments from LaunchByte Ventures into its portfolio.
When BostInno asked Kabra to delineate the difference between KV Ventures and LaunchByte, he said, again via email: “With KV Ventures, LaunchByte will move to become the management company of the fund, much to the delight of the investors in the fund. LaunchByte’s experienced startup team, top tier engineers and designers led by the firm’s C-level staff that have exited a handful of companies works exclusively on.”
In the same email, Kabra seemed to contradict his own words, describing “LaunchByte Ventures [as] an investment arm that was funded solely by myself. We had a model where we co-invested with the founders of their companies, making pre-seed investments between $50K - $150K.”
According to the criminal complaint filed by the FBI, Kabra solicited $250,000 from an investor under the false pretext of using the funds for KV Ventures to buy LaunchByte’s investments. When that investor deposited $250,000 to LaunchByte’s account, Kabra promptly used the funds to repay existing debt owed to other two other investors worth $80,000 and $88,000, the complaint notes.
General Conduct
Several sources BostInno spoke to, including Kabra’s associates and entrepreneurs he’d worked with, expressed apprehension over speaking on record. Referring to Kabra’s litigiousness, another entrepreneur who requested anonymity said, “He keeps very good/strong legal counsel and most people don’t want to deal with that.”
Another former associate of Kabra’s was advised against taking Kabra to court given his temperament and legal resources, the associate told BostInno. Some of LaunchByte’s former employees BostInno contacted were unwilling to comment on their association with Kabra either for legal reasons or due to fear.
However, in almost all conversations with BostInno, sources had said that Kabra was “independently wealthy” and supported by his family in Singapore.
In the FBI complaint, prosecutors detail a text message Kabra sent to an employee of Brookline Bank in reference to a balance of negative $124,324.72. Kabra wrote: “My dad will send a wire from Singapore. I just talked to him.”
That wire did not take place. Eventually, many false promises and misrepresentations later, Brookline Bank closed Kabra’s account, taking a loss of $76,091.
An email to Kabra for comment returned an automatic reply that he was “on the move” and would “return to base” on Aug. 16.
