Cronyism: Risky Business for Mississippi

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Taxpayers, watch out. Cronyism is risky business.

An article from the Wall Street Journal bemoans the workings of cronyism in the green energy field. It notes that several companies authorized for $9.5 million in Department of Energy grants just before the federal government shutdown had the same investor in common: Khosla Ventures, run by Vinod Khosla.

“The Silicon Valley investor has a knack for getting taxpayers to aid his companies,” the article comments.

Interestingly, Khosla Ventures has also tapped into taxpayer help from Mississippi, where the KiOR biofuels startup received a $75 million interest-free loan from the state in 2010. However, this was not necessarily to the firm’s benefit, since Khosla has recently had to bail out KiOR with two multi-million dollar stays of execution to keep the company going on its promised expansions. After balance-depleting delays, KiOR is fighting to stay afloat while increasing production levels. The situation looks precarious.

KiOR is not the only green energy company that Khosla has had problems with as an investor, but the venture firm was lucky enough to get its own bailout in the case of Range Fuels. The Wall Street Journal says of this other green energy investment,

“You won’t be shocked to learn that Khosla Ventures was a major investor in Range Fuels. The federal government lost more than $80 million on Range Fuels, and it is now investing another $4 million in a company buying assets of that previous failure. Mr. Khosla’s venture company gets help coming and going.'”

Government aid aside, why are these companies having so much trouble? For one, they tend to be risky. KiOR itself was supposed to have a 90 percent chance of failure just by being a high-tech startup. Combine that with crony capitalism, where the government hands out a sort of “corporate welfare,” and you put the risk on the backs of the taxpayers.

If this is the case, what happens if KiOR’s stay of execution isn’t enough and the company eventually folds? Who will pay Mississippi taxpayers for their $75 million loan? Will the collateral of a bankrupt biofuel plant and equipment be a satisfactory compensation? Or will the government offer more handouts to keep the startup going or to buy it out for another investor?

Taxpayers, watch out. Cronyism is risky business.

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