/Mississippi wants to dole out tax dollars as venture capital to startups What could go wrong

Mississippi wants to dole out tax dollars as venture capital to startups What could go wrong

What could possibly go wrong? If history is any indication, there are many. Last time this was attempted, millions were stolen and misplaced, no new businesses were started, someone went to prison and the state spent many years trying to figure out what went wrong. It would have been better for taxpayers if someone had taken their money to the boats and gambled with it. The new proposal is the first. With the American Rescue Plan Act Congress allocated $10 billion to reauthorize State Small Business Credit Initiative. This initiative was created after the Great Recession in 2010. It was funded with $1.5 million in federal tax dollars. The purpose of this program is to stimulate small business entrepreneurship via loans and investments. FOLLOW THE MONEY: We have detailed data on Mississippi’s historic influxes of federal cash. Mississippi received approximately $13 million in that time and, like other states, created small-business loan programs. Other states used the money to invest in venture capital. Mississippi didn’t because it received a small amount of federal cash and because of its past huge boondoggle. More on this later. Mississippi will receive $52 million. The Mississippi Development Authority wants lawmakers to grant the agency the authority to create a venture capital fund and a private nonprofit with part of the money. According to Jamie Miller, Chief Operating Officer of MDA, the agency is asking for this authority as “the state constitution doesn’t allow the state to own an equity interest in private businesses.” The new nonprofit venture would seek to attract private venture capitalists, create a venture capital fund with part of the money, and find the next Google or Amazon in Toomsuba. Let’s look at the history. In 1994, MDA’s predecessor agency approved funding for Mississippi venture capital. Business leaders had long complained about the lack of it. They approved borrowing of $20 million and created a private nonprofit to channel the tax dollars to Magnolia Venture Capital Corporation. Magnolia Venture spent $4.5 million in overhead by 1997. This included what an investigation would have deemed “questionable” and “expensive” spending by its CEO, board and board. Later convicted of money laundering and fraud, the CEO had received $747,000 in salary and bonus payments over 18 months. He also awarded $1.2 million to companies he was associated with. Magnolia didn’t help any startup get started, and the only capital investment it made was $600,000. to an existing company. Magnolia was the only private investor that Magnolia accepted, and the state was left with millions of dollars in interest payments. Magnolia Venture was the first to be mentioned when the MDA’s latest proposal to set up venture capital (also known for “risk capital”, for good reason) was presented at the Capitol. MDA Interim Director Laura Hipp stated that these are different times and ARPA funds will be subject to both state and federal scrutiny. This is a far cry from the mid-1990s. The federal venture funds would need to be matched with private investments (but Magnolia Venture did, ostensibly) and MDA would closely watch the operation of the new venture capital venture. Two “mirror” bills were used to present the proposal, Senate Bill 2772 (and House Bill 1164). The House version was approved by the Ways and Means Committee last week without much discussion or debate. After much discussion and some reminiscing over Magnolia Venture, the Finance Committee removed the private nonprofit/venture capital language from the Senate version. It then sent it to the full Senate. Strange friendships were formed during the Senate debate. The venture capital proposal was criticized by both Sen. David Blount (D-Jackson) and Sen. Chris McDaniel (R-Ellisville), who are often at odds politically. Both agreed that the state should not pick winners or losers by granting tax dollars to finance speculative startups. Blount recalled Magnolia Venture as a “big scandal” that cost millions of dollars. “We had a scandal before… Who would manage this nonprofit?” Their salaries and records would be made public. Are they subject to open meeting laws? Bid laws? Are you familiar Magnolia Venture Capital? McDaniel asked, “Why should we do it again?” McDaniel stated that he was concerned about MDA’s plans for using ARPA money for small-business growth. McDaniel stated that some businesses could be eligible for loan forgiveness of up to 60%. McDaniel stated that this would encourage reckless investment and incentivize businesses to make poor decisions. The taxpayers would bear the brunt of the financial loss. Blount stated that a loan with a maximum 60% forgiven is likely to be a self-fulfilling prophecy. This is not our job.