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E-mail, Feeds, 'n' Stuff

Monday, January 31, 2011

Handouts for Tweeters

And probably the stupider, the better:

The Portland Development Commission on Wednesday voted to commit $540,000 to the effort. The Oregon Growth Account committed $50,000 and the city of Hillsboro committed $250,000. The balance will be raised from individual investors, public agencies and other investors....

Even if an investment pays off, taxpayers will not directly benefit. State law prohibits governments from investing directly in private firms and any money repaid will be reinvested in future efforts....

"We do expect the majority of these companies to flame out or exit very quickly," said Jim Huston, a Bridge City partner.

The tattoo ink really never does run dry...

Comments (31)

Look at the bright side - it's an example of transparency in government spending. They're telling you right up front that taxpayer money is being thrown down a rathole.

Pretty unfair to imply through the headline that the money is. A handout and for Twitter type people or businesses.

I will be applying to the seed fund and my young company is developing future computing technology for the highest of high tech customers.

But what's wring with tweeters, anyway? The former chief architect of Twitter lives here in Portland and is the CTO of a banking startup that hasraised more than $4 million and hopes to modernize how individuals bank. If that's the type of innovation and economic impact you can expect from 'tweeters' then Portland will be ahead of the curve with this seed fund.

As one prominent member of the metro area software community has pointed out in other blogs, software and tech creates a substantial number of jobs for our community, jobs that pay much more than most. We could use more of that around here. Thas what the sees fund aims to do at a relatively low cost compared with other programs.

Gotta say this is probably one of the smarter ideas I have seen come out of Portlandia in some time. It only takes a couple of moderately successful companies for this program to be a winner.

It only takes a couple of moderately successful companies for this program to be a winner.

But can we trust government to pick those winners and/or not veto the choices of the contracted money manager? More philosophically, should government be playing the role of venture capitalist with taxpayer money? And why weren't taxpayers allowed a voice or vote in the decision to set this up, since it's their money?

I'm not against using government to incubate new businesses. But trying to pick the winning horse is unfair, ripe for abuse and cronyism, and ultimately a fool's errand. The best and most fair ways government can goose the private sector and catalyze new businesses is through supportive regulatory and tax incentives, investing in infrastructure and education that benefits all employers, and using its regulatory powers to create markets that the private sector then can fill.

The stupider, the better? I should be in like Flynn then.
Besides, it's about time someone around here recognizes the value of a Twitter web TV app. I've been working on it, and TweetDeck is interested.

Gummint (especially in Portland)has a big problem. If they don't find creative ways to p**s it away, more people might begin to realize that they really don't need all of those fees and taxes. Without voter owned elections to dump excess cash into, you end up with things like water houses and this. It's just a different form of money-laundering.

How the heck do you think Sam's slacker buddies will be able to raise money without this fund?

You know every friend of a staffer with a lame idea, that no one else would throw a penny at, will use this for funding.

YOu'd think after seeing how efficient BETC is they'd learn. Erm, it is govt and I'm probably assuming too much.

How do you say that taxpayers will not benefit? If the seed fund gets used and one or two business do make it, they pay taxes. Their employees pay taxes. Their success might attract other investors to our area, thus impacting us again. I don't see your argument as valid.

Eric

I agree with your points in the second part about ways to stimulate. I do not believe those are the only ways to do so however. I do not see how making a $25,000 investment in a business is "picking winners." If the investment was significantly greater, then I might agree. With all of the monies wasted up there, I just don't see this as being in the same class.

How soon we forget. Having government pick winners is a loser.

For example, the 10,000 biotech jobs in SoWhat that so far taxpayers have directly spent over $25 Million (not counting the $289 Million in just TIF dollars for SoWhat) in just biotech incentive dollars like the $5 Million for the OSHU Health Club building in SoWhat that was suppose to produce biotech jobs. Result? Zilch.

Is this the example we can rely on for twitter success? If it is a good idea it will sell itself.

lw

$25K is not really in the ballpark of $25M

Here comes Garage Wine, Inc. I have a website that sells hundred dollar bills for $95. Next year, I'll sell them for $96 and report a massive improvement in my operating loss. I'll buy a Tesla and eat sushi off strippers. And when asked where all the money went, I'll just say, I was meeting expectations.

"Lack of capital is a common lament of Oregon entrepreneurs attempting to start businesses."

That may be true, but there's a big difference between legitimate businesses that can back up best-and-worst case scenarios with hard numbers and the typical "groovy retail" business which is popular among the creative class. I've dealt with the end results of the latter far too often: the business plan consists of "it's GUARANTEED to make money," and the venue usually finds the locks changed about a month after the founder states "I have an understanding with the landlord. He's a big supporter of the arts."

Would the complaints continue if these funds were issued by the SBA?

"It's less wasteful than other government spending" doesn't inspire a lot of confidence. Another factor is if startups would even WANT public venture capital given the scrutiny and requirements that would be attached to it, particularly in the small amounts being dribbled out with this program. Then again, given the lax oversight our local agencies have heretofore shown over their investment schemes, working with them might be a nice break from the withering scrutiny private-sector VCs subject their funded companies to.

If it were anyone but the PDC it may not smell so bad.

But when the PDC spends $2.6 billion on buying and fixing up a building then sells it for 300K to a city insider firm, among many other shady deals,
they don't get to just hand out money to make them look good.

"I don't see your argument as valid."

If they were valid business ideas, they would get funded thru private channels. Using public money to fund businesses is inviting patronage.

If you can find me one publicly-funded (risk capital and NOT tax breaks) that actually did well enough to pay back the money, I might change my mind, but those are few.

"Would the complaints continue if these funds were issued by the SBA?"

No, because SBA funds are funded by private banks who underwrite them and make sure the borrower is capable of paying back money. SBA just provides insurance, but the bank is on the line.

The PDC funds are "hey, we think your neat and like your tats/piercings and we want to give you money" - Not very rigorous.

Besides, SBA is not used for startup funds, but to buy inventory or space.

This reminds me of all the smart folks who said that micro-finance would change the world by making small loans to (usually) women in developing countries like India and Bangladesh.

That industry has utterly collapsed and has proved to be totally useless.

It would have been a much better plan if the money were for existing businesses that already have a track record and would like to expand.

Dear Garage Wine Inc Where is your website? I will try to convert online, or drive to your house and trade my credit card $95 for your Benjamins. This is a one time offer and I might not want your Benjamins after the Chinese New Year.

If we know anything it's that the PDC is run by a bunch of inept, arrogant fools just like Mayor Creepy.

The idea that they would be prudent about anything is a joke.

What a waste of public funds; SBA financing is available for this exact purpose. I have made numerous SBA-guaranteed loans for start-up businesses, and the program is not limited to banks. The PDC could set up a lending entity to funnel SBA loans to new business ventures - a $25K loan comes with an 85% guarantee from the SBA, limiting PDC's liability to $3,750 per loan. Collateral is not required, only a well-reasoned business plan (with help on that requirement available from SCORE and the SBDC's located in all 3 of the metropolitan counties). But I really don't see the need. We have very active SBA lenders in Portland including US Bank, B of A, and most community banks.

For all y'all claiming that there are no examples of government money successfully funding private startups, maybe you don't realize that virtually every Venture fund in the world has municipal and state Limited Partner investors. Money from Oregon's state pension fund IS routinely funding startups, via professional managers who know the business of high-risk investing.

You can argue whether Portland needs a seed fund (it does) and whether Bridge City can invest that fund wisely (remains to be seen) but your tax dollars are already at work funding startups. At least this time the startups will be here in Oregon, unlike the last few LP investments the state has made.

The original post and many of the comments here seem to indicate a knee-jerk reaction to the PDC and government action but I think these sentiments are uninformed. I was skeptical that area governments and the PDC could or should play much of a role in promoting private sector business. But after observing and participating in the PDC run process myself, my opinion has been transformed. I believe that the efforts of the PDC, including some of the financing efforts, are to be applauded. I have seen a lot of smart people from government and industry working hard and effectively to create jobs in several desirable sectors. So contrary to the cynics, my observations lead me to the conclusion that the PDC’s efforts in this area are collaborative, effective, and absolutely worth pursuing.
It’s easy to be cynical, which really doesn’t serve anyone. Instead, I suggest attending some of the meetings and see if observing the process in action changes your mind too.

I would support Chris's suggestion, with one amendment:Without the "observation only" aspect. It is not a spectator sport.

From the other side, these groups should be more than a platform for the members'extemporaneous speaking practice.

And I would expect that those with dissenting opinions be welcome, in an open and vibrant and respectful discussion, with no suppression of voices in those groups.

Everyone wants growth and stability in the business sector; No one wants to see economic decline> even for the scruffiest-looking startup with a product or service that can support itself.

Voices of opposing view point must be fed,nurtured, and valued in the community or we dumb down and miss the curve.


Bankerman,

Am I correct in assuming that many or most SBA loans are also coupled with a personal guarantee from some individual for any corporate applicant? There are cases where student loans and SBA loans are treated in like manner, in the event of default, where the issue is government set-off of anticipated personal tax refunds and other payments such as part of Social Security and the like.

Any SBA comparison, to be valid, must include such *enhanced* collection powers.

I praise the PDC for its forward thinking economic development plan and actions. The Software Industry, one of the 4 key industries targeted, creates new jobs and is credited for paying the average wage earner over $85K vs. only $46K as an average for other industries. That spending power then also plays out as those wage earners pay for local products and services.

Organizations such as the OGA exist to create jobs and to foster economic growth. Not investing in such job creation programs and industry growth programs could lead to PDX following in the shoes of cities like Detroit as other industries continue to downsize and fade away in to the night...

One local startup received funds from a similar program just over 10 years ago, grew to over $30M in annual revenues, handles mission critical transactions for companies of all sizes (including 5 of the Fortune 10), exited for 5x revenue (in a down economy no less), and continues to employ over 150 folks in the PDX metro area to this day.

I think it is easy to take pot shots at how this money is wasted, but PDX has a problem of not championing its wins as to educate how/where these funds have been well spent as is evident in some of the posts here.

-Mark

This is a step in the right direction. Anyone who's gone through the startup process in Portland endures the hardships because we love this city, and want to remain here. That being said, Portland has served as a poor incubator in the recent past because of the relative lack of local funds in the private sector.

This is a very small first step in the right direction. Portland's burgeoning tech scene needs to feel the support of the community at large. If we do this right, you'll see an influx of young innovators setting up shop here instead of elsewhere.

I can say from personal experience that this type of investing created jobs. We received support in a very similar form in 2010. We made one key hire at the time and expect to make another soon.

The quote you have used at the end is taken way out of context. Yes, many investments do not turn into winners, but it it not like that money goes away. A failure is when they only pay the money back. A win is when they pay back plus interest and a home run is pay back, plus interest, plus jobs, plus long term business growth.

We are only 7 months old and we are paying back plus interest and jobs. We may still "flame out" or exit but it is worth the effort, trust me.

One other thing I failed to mention in my previous post: The fund manager is not local government but seasoned fund investors who are making the funding decisions...


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