The SIC's NM Private Equity Program: A Failure by Any Measure [Confirmed]

Data released by the State Investment Council confirm what we've been saying: its venture capital program is a flop, at the taxpayers' expense. The data largely confirm the Rio Grande Foundation's report: "A Failure by Any Measure: The State Investment Council's New Mexico Private Equity Program." You can read the entire report here. It is recommended reading for every legislator.

On June 30, 2009, the SIC released an update on its New Mexico private equity, aka venture capital, program. We had reported that only 1,000 full-time jobs in New Mexico can charitably be credited to the program. The SIC's number pretty much agrees with ours. Their number came in at 1,107.

Our report pointed out how each of these jobs has cost taxpayers $378,000. About $378 million has been committed, divided by 1,000 jobs, gives you $378,000 per job. Not a very cost-effective jobs creation program. Especially considering that by every traditional measurement of investment returns, the SIC's venture cap program has been a big bust.

Over fifteen years, as of September 30, 2008, the program has LOST 8.3%. In other words, it has never been in the black. Those figures were computed before the market crash last year, and before the collapse of the SIC's largest venture cap bet on Eclipse Aviation.

Now the SIC says its venture cap program over the past fifteen years has lost 12%, and even this number is unrealistically rosy. You see, of the 54 companies in which the SIC has invested hundreds of millions of dollars, none of them actually have a market value. They are not traded on any stock exchange. Their valuation is determined pretty much by Kentucky windage: wetting your finger and sticking it up in the breeze. A "value" is placed on the companies based on many guesses as to the price their assets could fetch, what the companies might be sold for (if there was a buyer), their predicted cash flow, etc. How reliable is this? For years the "value" placed on Eclipse Aviation pulled the entire portfolio up. As we know (and many of us were saying for years) Eclipse was a house of cards all along. It never had any "value." Right now, its "value" is finally being reflected in the fact it is bankrupt, going in the hole with a billion dollars of red ink.

So the actual return of the SIC's venture cap program could be computed as the amount of cash doled out minus any amounts received. Those are the only hard numbers in the equation. If you calculate it that way, with your eye on the ball instead of clouds, the true return on the SIC's NM private equity program over the past fifteen years approaches minus 100%.

Is this too grim a portrait? Let's just say the SIC continues to spin this program to hide the really bad news. It lists 55 companies it has funded. It pretends to identify the 11 losers by highlighting them in red. But that list of losers does not even include Eclipse, which is in bankruptcy liquidation, or Protalex, which moved outside of NM shortly after receiving SIC funding. It also does not list as losers companies with no employees or but 1 or 2 people still working in the same small office as when they got money from the state, have never grown, and have no prospects of ever growing.

Folk, this is your money, hundreds of millions of it, going down the tubes, producing no investment returns and doing less to create jobs than a healthy tax cut or smarter regulations friendlier to business would create. Is anyone out there angry about this? When will our legislators speak up?