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MAGNOLIA VENTURECAPITAL FUND CASEANALYSIS

PRESENTED

AMBARISH (15), BIBHU (40), MARY (86) & SURE

G R O

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BACKGROUNDPURPOSE OF VC

To increase the rate of cformation,

To stimulate new growthoriented business formati

To create jobs for Missi

To develop new technolenhance tax revenues &

To supplement conventibusiness financing

VC Act1994

Private,Non-profit

MagnoliaCapital

Corporation

ProvidedCapital for

Private, forprofit MVCC

Creation ofprivate, for-profitLP VC fund MVCF

In addition, the act stipulated that 70per-cent of investments were to be instart-up businesses (less than threeyears old) with existing businesseseligible for the remaining 30 per-cent.

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FORMISSISSIPPIPROGRAM

1. DECD creates MCC and MVCC, inaccordance with Venture CapitalAct

2. DECD requests $20 M GeneralObligation Bond sale & proceedsare deposited into the VCF

3. DECD lends MCC $20 M requiringreinvestment of part in a ZeroCoupon Bond (repayment 15yrs)

4. MCC uses $13,823,400 for cost ofbond offering and purchase,support operations & capitalizeMVCC

5. MVCC creates MVCF (LP) to act asthe partner making capitalinvestment in business (70% startup and 30% existing business

6. MVCC sought a privateinvestment of $4.5 M

7. Prospective business submitapplications to MVCC.

Clements

LimitedPartners

hip

provided all

private

contributions to

the fund

($5,000,000).

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PROGRAM UNDER THEPREVENTIONFailure of MCC Board to oversee the activities of MVCC.

Lack of proper reward system.

No skilled management and ineffective management compensation.

Lax management and oversight by MVCCs board and questionable businesspractices by employees.MVCC incurred expenses of over $4,500,000 while approving only one venturecapital investment of $650,000.

$2.2 million for salaries, benefits, and bonuses for MVCC employees $1.1 million in management fees to a company owned by MVCCs chair and CEO. MVCC also spent lavishly on office furnishings, entertainment, and travel.

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IDEAL MODEL FOR MVCFMinimum political influence in investment decisions

First, political influence over investment decisions may occur. Second, private investors may be reluctant to invest in a fund when the state is a limited

partner, particularly when there are geographic restrictions on investments as well.No geographical restrictions

Prior analysis of whether fund size matches the market potential

Insure that fund size is consistent with fund goals and potential market sizeDefine explicit role for state in monitoring the performance of private funds.

Stringent monitoring of VC on regular basis by a regulatory body Salaries Based on performance of the fund invested

VC managers contribution to VC fund

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PROPOSED IDEAL

MODEL

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GOOD WISHES TO ALL!!!

THANK YOU