In early March, a startup meal-kit company in the Finger Lakes region of New York closed its doors suddenly. You think this isn’t news because startups fail all the time. You would be right for thinking so in most cases, but in this case, the collapse of Real Eats made news because the New York state government had sunk upwards of $14 million into the operation.
Amazingly, it’s not even the first time New York officials have placed a bad bet on another meal-kit company, Plated, which closed in 2019.
Real Eats, based in Geneva on Seneca Lake, had been a darling of state and local economic development officials and moved from a government business incubator to a new government-subsidized factory just last year.
State and local officials poured millions into Real Eats in the name of job creation, but the company’s closure says more about the government as an investor than anything else. In other words, the failure of Real Eats highlights why the government should never invest taxpayer dollars and why government officials make poor venture capitalists.
Professor Lawrence Summers warned over a decade ago that the government is a “crappy” venture capitalist, and New York state government officials are proving him right.
When the government makes bets and loses, it’s the taxpayer that pays the price. Many of these government ventures are funded not only with taxpayer dollars but with government pension dollars as well. Ineffective government pension managers are a real cause of concern for many public workers relying on their pensions for retirement.
It’s no laughing matter, as one recent article in Bloomberg titled “Investing Novices Are Calling the Shots for $4 Trillion at U.S. Pensions” highlighted. These pensions are bleeding money from bad bets, and the retirees are paying the price depending on these pensions.
Some of you probably think you have nothing to worry about because government officials are not controlling your money. You think you don’t have anything to worry about because your money is with a 401(k) being managed by mutual fund managers, or an IRA is managed by a custodian.
You have everything to worry about in light of the fact that in at least one study, 90% of professional fund managers underperform the market. Rosenberg, E. (n.d.). Most investment pros can’t beat the stock market, so why do everyday investors think they can win? businessinsider.com
Smart investors don’t leave their retirements to chance by trusting their investment capital with novices and professionals who fail miserably at their jobs. They are not content to leave their retirement in the hands of fate. They want to know their money will be in good hands so that they can retire early in an ideal world.
Smart investors aren’t necessarily smarter than everyone else. They aren’t spending all their time running fancy financial models or doing anything sophisticated or complex. They’re smart because of where they put their money and are mindful of a few basic investment criteria.
Smart investors take control of their retirement by putting their money with partners and managers who know what they’re doing.
Instead of entrusting their hard-earned money to nameless, faceless mutual fund managers, government managers, or public company CEOs, smart investors prefer private company investments that offer more transparency and access to the decision-makers.
For smart investors, some of the most important considerations that go into an investment decision are the track record and competency of the decision-makers. The one similarity between public and private companies is that the investors typically have little voting power and no say in the company’s day-to-day operations. Where they diverge is access to the officers and directors of the company. Whereas with public companies, there is no access, the situation is different with private companies.
Private companies set themselves apart from their public company counterparts by offering greater transparency to potential investors in the form of access to members of management and ownership before, during, and after making an investment decision.
This transparency allows potential investors to question management about everything involving the investment opportunity that isn’t spelled out in the offering documents. This transparency helps clarify a company’s investment objectives and philosophy for potential investors to align their own philosophies and objectives with that of the issuing company. The transparency offered in the due diligence process allows potential investors to put all the facts on the table to properly assess the decision-makers skills, knowledge, and expertise and their likelihood of success.
If you have your retirement in a government pension, 401(k), or IRA, watch your retirement account. It’s likely the managers overseeing your money are not doing their jobs.
For those who don’t want to worry about their retirement and the competence of fund managers, consider investing in private companies that make management available to potential investors to answer questions and address concerns. No more wondering if those watching over your retirement are on the same page. Pre-screening them helps ensure this.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.
