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Texas Governor's Startup Fund Is Not All It Seems
Texas Governor's Startup Fund Is Not All It Seems
By Paul J. Weber Like this on Facebook Tweet this Link thison Linkedin Link this on Google Plus
PUBLISHED:
JULY
25
2014
Texas Gov. Rick Perry has distributed $205 million in taxpayer money to scores of technology startups using a pet program designed to bring high-paying jobs and innovation to the nation's second most-populous state.

But a closer look at the Texas Emerging Technology Fund, one of Perry's signature initiatives in his 14 years as governor, reveals that some of the businesses that received money are not all they seem. One actually operates in California. Some have stagnated trying to find more capital. Others have listed out-of-state employees and short-term hires as being among the jobs they created.

A few have forfeited their right to do business in Texas by not filing tax reports.

An Associated Press review of the program found that some of the same companies credited with creating a share of the program's 1,600 new jobs have actually stalled and in some cases blamed Perry's office for their struggles.

Perry, the longest-serving governor in Texas history and a possible 2016 presidential candidate, has for several years travelled the country extolling the strength of the Texas economy and bragging about his efforts to bring new investment to the state, including the tech fund.

His office insists that it conducts regular compliance checks of the fund and defended the accuracy of annual reports given to Texas lawmakers, saying fluctuating business activity and employment numbers are the nature of startups.

"Because these are Texas taxpayer dollars, our office takes very seriously the need to ensure they are being used as efficiently and effectively as possible," Perry spokeswoman Lucy Nashed said.

The tech fund works like this: In exchange for money, startups give the state an equity position in their businesses. If the companies are successful, the state recoups its investment or even makes a profit. If they go bankrupt or shut down -- and at least 16 have so far -- the dollars are lost.

Those failures represent only a fraction of the fund's full portfolio of more than 130 companies, some of which are clearly thriving. Venture capital funds are risky by nature and often endure losses. About 1 in 4 venture-backed startups fail, according to industry groups. Some studies put the rate of flops much higher.

But questionable job-creation figures and undisclosed business struggles in the fund's annual report heap fresh doubts about transparency onto the fund, which has long been criticized as too opaque, including in a scathing 2011 report by state auditors.

Julia Sass Rubin, a venture capital expert who studies economic development at Rutgers University, said the lack of transparency runs counter to the private sector, where investors get more detailed information about performance. (continued...)

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© 2014 Associated Press under contract with NewsEdge. All rights reserved.
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