Inc. Magazine has removed Capture Education from its 2015 and 2016 rankings of America's fastest growing private companies.
Financial statements submitted by the company's CEO in order to qualify for inclusion on the Inc. 5000 list were falsified, according to Capture Education's chairman, Dan Quigg. The company appeared in the print edition of the magazine, which went to press before the misrepresentations came to light, but is no longer part of the online version.
Capture Education, a student-scheduling software business based in New Albany, Ohio, first applied to the Inc. 5000 in 2015, submitting a document that purported to be a 2014 tax return stating revenues of $2,118,462. A corporate return is one of three options Inc. uses to verify an applicant's numbers. The others are a revenue verification form certified by a licensed professional (such as a CPA, certified financial analyst, or attorney) and financial statements audited by an independent accounting firm. Capture Education debuted on the Inc. 5000 in 2015 at #295.
This year Capture submitted a revenue verification form signed by CEO and founder Mike Neubig and by an outside attorney. That form stated revenues of $3,265,784, landing it at #188.
Quigg says that the tax return provided to Inc. "doesn't jive" with the tax return submitted to the IRS by Capture's CPA. He stopped short of calling the attorney's signature on the verification form a forgery but points out that her name is misspelled. "You can do amazing things with PDF documents," says Quigg.
Quigg was guarded in his comments because of ongoing investigations of wider fraud by state and local authorities. At the end of June, a bounced check raised the suspicions of board members, who discovered "complete and utter misreporting--and not just misreporting but alterations" of financials," says Quigg. "Disclosures were false. Financial statements. Pipelines. Revenue activity. We had to get the true bank statements and the true activity directly from the bank."
Initial attempts to reach Neubig through his lawyer and through Facebook were unsuccessful. Subsequently, Neubig informed Inc. that he refiled Capture Education's taxes for 2014--after applying to the Inc. 5000--once he discovered some errors. "I provided the company's financial status and projected future revenue to Inc. and to board members to the best of my ability, while balancing the unpredictable income of any startup. I did not forge any documents or signatures on documents without consent," he wrote in an email to Inc. "I am proud of what my team accomplished and my only regret is that it ended on such a sour note."
The board placed Neubig on leave the day irregularities were discovered and fired him a week later. The company laid off more than half its employees--it is down from around 24 to eight--and moved to smaller, less expensive quarters.
Capture Education has not yet fully corrected the books, but Quigg calls the financials "a major, major overstatement." Quigg says Neubig also took on unauthorized debt, which he characterizes as "substantial." An article in the newspaper Columbus Business First reported that Neubig had "encountered a series of personal financial setbacks." (In an email, Neubig stated that there is nothing in the company's operating agreement that prevented him from taking on debt.)
Inc. got wind of the situation from the Columbus Business First reporter, whom Capture Education had contacted in an effort to get out in front of the story. Patrick Hainault, Inc.'s group vice president of marketing who manages the Inc. 500 project, requested from Capture clarification and--if necessary--a correction of its numbers.
Quigg responded to Hainault's email: "I deeply apologize for the inaccurate and deceptive application and communication. These events caught us all very off guard and we have moved quickly to rectify the situation."
Capture subsequently affirmed that information on the documents submitted to Inc. was false. On August 2, Inc. removed Capture Education from the online version of its 2015 and 2016 rankings. (The list was already in print, so the publication decided to leave intact the numbering rather than move those companies above number 188 up one spot.) It also took steps to prevent Capture from promoting itself as an Inc. 5000 company.
In the process of compiling each year's ranking, Inc. routinely digs into--and often disqualifies--dozens of companies that present red flags: for example, those that report pass-through revenue as real revenue or where the ratio of employees to revenue is far out of whack with industry norms. With Capture, however, "the path they represented following was reasonable for a company in that industry," says Hainault. In other words, Capture didn't stink enough to fail the smell test.
"We get thousands and thousands and thousands of applications," for the Inc. 5000, says Inc. Editor James Ledbetter. "No institution would be in a position to independently audit and verify every single number submitted to us. We would never be able to produce the list."
"We do a fair amount of spot-checking," says Ledbetter. "We check documents for the No. 1 [company] in every category. We check documents for any company we are going to profile in the magazine. In this case, we now understand that the figures that were given to us were later revised in an amended tax return."
Meanwhile, Quigg and the remaining team at Capture are working to right the ship. The lead investor, North Coast Angel Fund, provided emergency funding to keep the business afloat, and creditors have signed forbearance agreements.
The week Neubig was fired, the company released a product to help teachers track students' progress toward college and careers, which Quigg says has been well received by customers. Michael Sayre, a technology industry veteran, is serving as interim CEO and will remain "based on his desires and where the company is," says Quigg.
Quigg emphasizes that the misconduct at Capture Education was the work of just one person and that the business still has a promising future. "This is a real company," he says. "There are real customers. There are real products. And there are real employees that are trying to get out of something that they had nothing to do with."
He points out that Capture--while not one of America's fastest growing companies--is still growing. "Our motivation is to give the company a fighting chance to not only survive but thrive," says Quigg. "Hopefully we will have a real submission to Inc. magazine two or three years from now."
This article was updated in 2017 after Mike Neubig consented to be interviewed by Inc.