TNInvestco has run through $200M, results unclear

TNInvestco, established with $200 million in state taxpayer funding to finance startup companies, is almost out of money, reports The Tennessean, and so is a similar federally-funded program called INCITE.

After citing a startup that got $4 million from TNInvestco and INCITE and is doing pretty well, the article goes on to raise questions about whether taxpayers will ever get their money back, which was part of the TNInvestco plan sold to state legislators when it was approved.

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.

TNInvestco and INCITE have been critical drivers in developing the state’s startup growth, helping to build accelerator programs and attract more private capital to Tennessee companies — more than $325 million to date.

…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 TNInvestco program was pitched to Tennessee lawmakers as a jobs bill, but the descriptions that bill sponsors and state officials provided were often confusing, misleading or incorrect. But in a time when the national economy was still reeling, the bill received nearly unanimous bipartisan support.

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.

..As of 2014, 10 of the 175 companies that have received TNInvestco funds sold for a profit, and if returns were distributed, the state would lose money on all but four of those deals. Fifty more companies have closed or sold at a loss. The reinvestment period extends until 2017, which means that the TNInvestco investors’ early returns still have the potential to strike gold in a new investment or to fizzle in a failed company. But, if the 10 funds had to distribute returns in 2014 on those 60 company sales or writedowns, the state would gain close to $10 million on $21 million invested, booking a more than $11 million loss.