My cardiologist, if I had one, would be shooting me with a tranquilizer rifle about now.
The legislative vilification of the Iowa Fund of Funds continued in today's Des Moines Register, with juicy quotes from elected officials like "We shouldn't pass things that we can't explain to each other" and demands that the Fund managers return large chunks of their administrative fees.
Informal feedback informed me that I was somewhat ambiguous in my last post, so I am going to be really unambiguous in this post.
- I appreciate the work that went in to reporting this by Donnelle, however I feel that this is less than 1/2 of the full story, and it's creating a bonfire that will scorch the earth for legitimate economic development priorities in this legislative session, which will only make matters worse than they already are, and speaking as one of many victims of an inconsistent legislative posture, we didn't really need any more obstacles to building companies in Iowa.
- The Fund of Funds is not a flawed approach. Having professional venture fund managers manage funds for the highest rate of return is always the best idea, especially when the alternatives are pundits like me, or government workers hiding behind their pensions with no personal compensation on the line (and therefore no reason to perform). Dividing the total investment dollars across multiple independent venture funds is portfolio diversification, which is a cornerstone of sound investment policy. Oh, and also the underlying foundation of the Fund of Funds approach.
- There were a number of issues with the implementation of the Fund of Funds, some on the part of Government support for it, and some by those who decided to pursue bank financing instead of the original plan of private capital. This is now a moot argument, because the bank financing was approved as the new approach and the Fund of Funds team went forth to execute on that. Second-guessing the decision seven years later is the acme of disingenuousness.
- Signing a contract, as an individual, a company, or a State Government, and then changing your mind years later when you are getting heat for the decision and demanding that you change the deal terms ex post facto, is not acceptable. This is the reason that the entire legal concept of contracts emerged, so you couldn't weasel your way out of a deal months or years later. Double bonus points if you try to weasel out of a contract once the services have been rendered, as they have been in this case with Cimarron Capital, the manager of the Iowa Fund of Funds. The suggestion that the legislature would demand a portion of the management fees be returned after services have been rendered, as a businessman, is distasteful in extremis. If an individual businessperson in Des Moines was guilty of this type of behavior, everyone in town would know about it in a matter of days, and that individual would find it exceptionally hard to find people willing to do business with him/her. Why would you think that being a state government behaving badly gives you a pass?
- As I stated in my previous post, these investments are still underway due to both normal market maturation times of venture funds, as well as the rocky start the IFOF got with the lack of funding availability. The investments have not matured, so stop measuring return. If you didn't know that this was a 15-year minimum attention span when you signed the legislation, you shouldn't have signed the legislation.
- Pulling the funding rug out from underneath the Fund of Funds, as was done with downshifting to $60M from $100M, put a whole bunch of agreements with banks and the invested venture firms/funds at serious risk. If those agreements require that we pay up or violate the contracts, we should pay up. We have our long-term reputation in the private capital markets to consider. If you really want to encourage young, entrepreneurial companies to grow in Iowa, then for the love of God would you stop pissing off every venture fund that tries to invest in them?
- It's not a bailout. Using that phrase implies that the Fund of Funds did something other than they were legislatively mandated to do, and were a poor fiduciary of the funds, neither of which was true. The 'bailout' is actually completing the funding commitments that were originally stipulated by the Legislature. Lets find another term for it, like 'Being an ethical and consistent business and following through on our contractual commitments', versus 'Being a weasel and trying to sneak out on our obligations like some deadbeat.'
- If you can't explain it to each other, then by all means don't create legislation. All you are doing is victimizing those people that are trying to build companies in Iowa by alienating the private investment capital they need to grow here. If you want them/us to leave, by all means please continue to starve us for venture funding. You will have single-handedly made true the myth that if you want to build an innovative small company, you have to move elsewhere to do so.