MAGNOLIA VENTURE CAPITAL FUND CASE ANALYSIS

PRESENTED BY, AMBARISH (15), BIBHU (40), MARY (86) & SURESH (155) GROUP C

BACKGROUND
Private, Non-profit Magnolia Capital Corporation Provided Capital for Private, for profit MVCC Creation of private, for-profit LP VC fund MVCF

PURPOSE OF VC ACT 1994

To increase the rate of capital formation, To stimulate new growth oriented business formations,

VC Act 1994

In addition, the act stipulated that 70 per-cent of investments were to be in start-up businesses (less than three years old) with existing businesses eligible for the remaining 30 per-cent.

To create jobs for Mississippi,

To develop new technology, enhance tax revenues &

To supplement conventional business financing

1. DECD creates MCC and MVCC, in accordance with Venture Capital Act 2. DECD requests $20 M General Obligation Bond sale & proceeds are deposited into the VCF 3. DECD lends MCC $20 M requiring reinvestment of part in a Zero Coupon Bond (repayment 15yrs) 4. MCC uses $13,823,400 for cost of bond offering and purchase, support operations & capitalize MVCC

FUNDING FOR MISSISSIP PI PROGRAM

Clements Limited Partnership provided all private contributions to the fund ($5,000,000).

5. MVCC creates MVCF (LP) to act as the partner making capital investment in business (70% start up and 30% existing business
6. MVCC sought a private investment of $4.5 M 7. Prospective business submit applications to MVCC.

REASONS FOR PLACING THE PROGRAM UNDER THE PREVENTION

Failure 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 business practices by employees. MVCC incurred expenses of over $4,500,000 while approving only one venture capital 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.

IDEAL MODEL FOR MVCF

Minimum 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 size

Define 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

PROPOSE D IDEAL MODEL

THANK YOU
GOOD WISHES TO ALL !!!