Sunday, January 3, 2016

TNInvestco almost out of money. Only $17 of $200 million left. Uncertain borrowed money will ever be repaid.

Today's Tennessean ran the first of a three part series that examines TNInvestco. TNInvestco was established with $200 million in state taxpayer funding to finance startup companies. It is almost out of money and it is difficult to determine what we got for our money.  Here are some excerpts from the article:

Just $17 million remained as of 2014 — the most recent year financials are available. The state’s $30 million INCITE program, a federally funded initiative run by Launch Tennessee, is down to $2 million as of 2015.

Six years into the program, TNInvestco has become a sparkplug for Tennessee’s startups and it has spurred job creation across the state. It has also put private investors on track to make millions and yielded millions in tax savings for insurance companies. But TNInvestco is a long way from repaying taxpayers.

In 2009 Tennessee lawmakers approved $200 million to fund TNInvestco. By enlisting private fund managers to invest the state’s money and insurance companies to help pay for the program, TNInvestco would support small business growth and create jobs. There was also the expectation that the state would recoup its massive investment.
The article goes on to report that at the time TNInvestco was proposed it had almost unanimous bipartisan support and was presented as a jobs bill, "but the descriptions that bill sponsors and state officials provided were often confusing, misleading or incorrect." More:
The problem is in TNInvestco’s design: It forces the state to bear all the risk and see only half of the proceeds, providing far more profits to the managers of 10 TNInvestco funds than they would make in the private markets. Tennessee also loses millions through the sale of tax credits to fund the program, tens of millions that could be spent on funding schools, roads or more early-stage companies.
This is complex but it looks like the taxpayers got the short end of the stick. In a nut shell, this is what happened. The State made available $200 million to ten INvestco venture companies, they sold the tax credits to insurance companies for $146 million, so right off the bat the state lost $54 million.  After some cost incurred by the venture firms and other professional fees are paid, $117 million was left available for investors to borrow. Loans were made to 175 companies. Since then, 50 of them were sold at a loss or closed, a few sold at a profit and the others are still struggling.  If the company is sold at a profit, Tennessee shares in the profit but that may not be sufficent to recoup Tennessee's investment.  It is unclear how many jobs were created in Tennessee. To read the full article follow this link: State needs big wins to see returns from TNInvestco.

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