Tag Archives: TNInvestco

Lobbyists float, then drop, new state-supported investment plan

In a second article on the state’s TNInvestco program, The Tennessean’s Jamie McGee reports on legislative approval of the effort in 2009 and a move afoot for follow-up legislation – with more state spending – that has been pitched by lobbyists in Tennessee but won’t be pushed in 2016.

TNInvestco is a modified version of what is known by the acronym CAPCO, or “certified capital company.” Major companies involved are Enhanced Capital, based in Manhattan, and at least two other out-of-state investment groups — Advantage Capital Partners in St. Louis and Stonehenge Capital Company in Baton Rouge, La.

Tennessee passed an improved version of the CAPCO model in 2009, one that yields more returns for the state and includes more oversights, but it still carries high costs. Enhanced, which partnered with Nashville-based Council Capital, was the only CAPCO fund chosen to participate in the state’s $200 million TNInvestco program.

Despite failing to secure more lucrative terms for investors, the CAPCO funds have not abandoned their interest in Tennessee. In November lobbyists for Enhanced and Stonehenge reached out to lawmakers and economic development officials to gather support for other capital programs that leaders in other states and policy analysts have described as expensive, exploitative and lacking results to justify the amount of state spending.

… The CAPCO groups’ new concept for Tennessee, which would have targeted rural areas, is no longer on track to be filed this year. While the state has avoided this legislation in 2016, these funds could resurface in the coming years. (Note: There’s a review of similar legislation approved in other states, including Arkansas and Georgia.)

… Enhanced, Stonehenge and Advantage brought a CAPCO bill to Tennessee in 2009 and hired a team of lobbyists including Bo Johnson, Baylor Swindell, Anna Windrow and Nathan Poss. State Sen. Doug Overbey, R-Maryville, and state Rep. Charles Sargent, R-Franklin, who saw benefits in a jobs bill in the wake of the recession, sponsored the bill. Former Tennessee Revenue Commissioner Reagan Farr and Matt Kisber, Economic and Community Development commissioner in former Gov. Phil Bredesen’s administration, also worked on developing the bill.

… Throughout the TNInvestco bill process, only a handful of lawmakers, namely state Rep. Susan Lynn, R-Mt. Juliet, asked questions about how it worked, and they were often met with misleading responses. In 2009 Lynn expressed skepticism that the state would reap returns, and she was the only lawmaker not to vote for it. By 2010, several lawmakers had objections to the law.

“I am very concerned about some of these deals that put the state at risk and a private company comes out a winner no matter whether the deal flies or folds,” said state Sen. Randy McNally, R-Oak Ridge, who voted against additional funding for the program in 2010. “TNInvestco is a good example of that, and I was very concerned about it.”

…When asked about a potential New Markets bill in Tennessee, Economic and Community Development Commissioner Randy Boyd said his office had been approached in November by Johnson, who was acting on behalf of Enhanced Capital. Boyd said he was told that a similar structure had been developing in Ohio.

An Ohio Rural Jobs Act, supported by Enhanced, Advantage and Stonehenge, has passed in Ohio’s Senate. In a structure that resembles New Markets legislation, the rural jobs bill would lead to $75 million in investments, incentivized by $45 million in tax credits, with insurers securing the transactions.

State Rep. Cameron Sexton, R-Crossville, said in mid-November he would be sponsoring a bill that had moved away from the New Markets model to a rural development bill that would be a $100 million investment program.

“Based on what other states have done and what Tennessee has done in the past, we have a very good blueprint of what not to do and what has not worked and (are) putting in place a plan that we think is very successful,” Sexton said. Investments would go “toward existing rural businesses, to help them expand and grow when they might not have enough capital or borrowing power to do it.”

The day after Sexton’s comments, lobbyist Johnson, hired once again by Enhanced and Stonehenge, said the rural jobs proposal was no longer moving forward.

Johnson said the “idea of a New Markets bill in Tennessee was discussed but never proposed.” I

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.

Auditors Find ‘Serious and Pervasive’ Problems With TNInvestco

News release from state Comptroller’s Office:
Tennessee’s TNInvestco Program, which is administered by the state Department of Economic and Community Development (ECD), has serious and pervasive problems, according to report released today by the Comptroller’s Division of State Audit.
TNInvestco was launched in 2009 as a program that provides tax credits to businesses which invest in certain types of start-up companies. The program was launched as a way to create jobs, foster entrepreneurial activity and infuse fledgling companies with capital. Recipients of the tax credits are chosen through an application process that requires them to meet certain criteria in order to qualify.
The Comptroller’s report details that the program was launched without adequate safeguards in place to determine that the companies receiving start-up funding were actually eligible to do so. Those safeguards are still lacking.
Auditors found that ECD failed to:
· complete adequate annual reviews;
· complete its annual report; or
· evaluate program risks in its annual risk assessment.
Auditors also found that ECD did not ensure that the companies receiving tax credits:
· completed statutorily-required investment strategy scorecards;
· provided required accounting reports of specific procedures; or
· provided audited financial statements in a timely fashion.
Without adequate documentation, top ECD officials might have difficulty determining if the required investment strategy benchmarks are being met and if investments are free from fraud, waste or abuse. Furthermore, the lack of documentation raises questions about how accurate reports can be provided to the governor’s office.
The audit also highlighted some other issues with ECD that are unrelated to the TNInvestco program.
To view the report online, go to: http://www.comptroller.tn.gov/repository/SA/pa12060.pdf

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On Bredesen’s TNInvestco and Haslam’s INCITE

Tennessee’s pioneering TNInvestco venture capital program – set up under former Gov. Phil Bredesen — is hitting a pivotal point financially and politically now that Gov. Bill Haslam is overseeing it, along with Haslam’s own INCITE, another state-financed venture capital fund
The Nashville Business Journal suggests the situation is summed up thusly: In with the new, not quite out with the old.
Early results show the proportion of private investment (in TNInvestco) fell by 30 percent in 2011, and state lawmakers are gearing up for sharper scrutiny.
In its second annual report, TNInvestco — which generated a pool of venture capital through $200 million in state tax credits — continues to show surging amounts of public and private investment in an array of companies. But that growth comes as the public dollars take up a larger share of the investment pool than in 2010

Also, TNInvestco is undergoing an audit at the request of ECD Commissioner Bill Hagerty.

Gov’s Cash Grant Bill Passes; Campfield Sees ‘Crony Capitalism’

Sen. Stacey Campfield cast the sole vote against Gov. Bill Haslam’s proposal to begin giving corporations cash grants for expanding or locating in Tennessee after declaring they could be a step toward “crony capitalism.”
The bill (HB2344) was approved by the Senate 29-1 and now goes to the governor for his signature. It was approved 96-0 in the House. The “FastTrack” grants would be in addition to tax credits and infrastructure improvements that no go to companies moving into Tennessee.
Campfield, R-Knoxville, defined crony capitalism in a floor speech as “when governments start using taxpayer dollars to gamble with.”
Couching some of his comments in the form of questions to the bill’s sponsor, Senate Majority Leader Mark Norris of Collierville, Campfield compared the proposal to the national controversy over Solyndra Inc., which received huge federal grants and then went bankrupt.

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TNInvestco: $27 Million Spent So Far, 60 Jobs Created… With More to Come

The Tennessean has reviewed 38 ventures receiving $27 million in funding through TNInvestco, established by the Legislature two years ago to steer seed money to Tennessee’s young startup companies at a time when money has been tight.
But the several of the ventures “have been trying to find funding for a decade or more — beyond the point in time when would-be entrepreneurs can usually hope to find investors willing to back their startup plans.”
Reports released to The Tennessean show that 60 jobs have been created by the program, though participants and supporters say that figure is a poor yardstick for TNInvestco’s progress so far. Instead, they say it should be measured by the investments and their potential.
“There are going to be winners and losers, and to be honest with you, there will probably be more losers than winners,” said Townes Duncan, a veteran venture capitalist investing through the program. “The size of the winners will more than outweigh losers, but it’s certainly not going to take three months or six months.”
The ideas that have been funded range widely, from a startup that is trying to fuse the online fields of social media and e-commerce to a company that has been trying to win investors over to a vision-screening device that uses technology from the first Gulf War. They also include a company that makes misting fans, a company developing a fat-burning dietary supplement and a company that produces information screens and ads for medical offices.
The Department of Economic and Community Development is scheduled to release its first report on TNInvestco this week. Gov. Bill Haslam says he’s “anxious to see the results” before deciding whether to expand the program, initially funded with $145 million raised through selling state tax credits to insurance companies.

TNInvestco Gains Blessing of House, 79-13

The House joined the Senate Thursday in authorizing use of another $80 million in tax credits to finance the state’s TNInvestco venture capital program.
The bill by Republican Rep. Charles Sargent (SB3049), pushed by Gov. Phil Bredesen’s administration, was approved 79-13.
It had cleared the Senate 24-7 earlier under sponsorship of Sen. Doug Overbey, but returns for concurrence on a House amendment intended to encourage selection of minority-owned businesses for TNInvestco funds.
TNInvestco was created last year with $120 million in insurance tax credits which were sold to insurance companies with proceeds going into a venture capital fund. Six firms participate in the selection and distribution of money to startup companies. The new infusion will push the total to $200 million with 10 firms operating.
Advocates say the program is a jobs creation vehicle, bringing venture capital money into a state that needs it. Further, the program calls for successful companies to return part of the profits back to the state so that, if all goes well, the state gets a return on taxpayers’ investment.
But there has been some criticism of the program. On Friday, Rep. Frank Niceley, R-Strawberry Plains, said his vote in favor of creating the program laws year “was the worst vote I’ve made since I’ve been down here.”
“We don’t need to be taking taxpayer money and competing with banks,” said Niceley.

TNInvestco Secrecy Goes to Court of Appeals

The state Court of Appeals has been asked to overturn a lower court ruling that allows state officials to keep secret documents related to the award of $120 million in TNInvestco funds, reports the Tennessean.
The appeal by Larry Coleman, president of Coleman Swenson Booth, seeks information about how six firms were selected by state officials to participate in the TNInvestco program. He wants copies of 25 scored evaluation matrices showing how state officials picked the winners, as well as documents that would show tax credit purchase agreements.
A Davidson County Chancery Court ruled on March 2 that that documents were exempt from the Tennessee Public Records Act because they are commercially sensitive. Coleman said the lower court was wrong to shield documents that merely “might harm” — not actually “would harm” — the state’s commercial interests.
Coleman asks the court to make the documents publicly available immediately.

The appeal comes with legislation to expand the TNInvestco program (HB2927/SB3049) still pending in House and Senate committees. It barely got out of a House sub (5-4 vote) and votes in the House Commerce Committee have been postponed a time or two. It’s up again Tuesday.
For background on criticism of the program, Tennessee Watchdog Clint Brewer has been chewing on the proposal for some time. The Tennessee Center for Policy Research, watchdog’s parent organization, has run radio ads on the matter.