Sunday, October 16, 2011

Solyndra fallout: a "culture of corruption" and DeVenCi

Set aside your ideological suppositions. Ignore the R's and D's by people's names. Forget which party is in charge, was in charge, or will be in charge and read this article in the WSJ.

Apparently, an investment firm--Rockport Capital--that is a major investor in Solyndra succeeded in convincing the US Navy to give Solyndra a very lucrative deal (though it has fallen apart, due to the latter's bankruptcy). How? Easy:
Solyndra was promoted to the Navy by RockPort Capital, one of the firm's largest investors and board members, which has a seat on a Pentagon panel that helps the government find emerging technologies.
This mysterious "Pentagon panel" is the Defense Venture Catalyst Initiative panel, or DeVenCi. The FAQ page for DeVenCi makes for an interesting read. The current goals of DeVenCi, as given:
  • Identify technologies and expose government users to emerging commercial products that meet war-fighter needs
  • Facilitate experimentation and testing of emerging commercial products
  • Fielding emerging commercial products from non-traditional DoD suppliers
That's actually a reasonable set of objectives. But--as is usually the case--it's not the goals that are the problem, it's the means used to achieve them.

In the case of DeVenCi, the "means" is allowing venture capitalists to simply apply to become members of the DeVenCi board. Then, they have a direct line to DoD heavyweights. People in the DoD think this is workable:
The venture capitalists on the panel serve two-year terms and aren't paid. They must disclose any "financial or other business relationships" with companies they recommend, according to military officials. Mr. Hicks [Deputy Assistant Secretary of the Navy for Energy] said the "overwhelming majority of technologies recommended were not ones the venture capitalists had a financial stake in."
But--as this defense of DeVenCi makes clear--some minority of the recommendations involve companies/technologies that the venture capitalists on the board DID have a financial stake in. Like Solyndra. And the problem there--aside from the conflict of interest--is that DeVenCi apparently doesn't require the venture capitalists to disclose pertinent information on companies:
Mr. Kopczynski said RockPort disclosed its $47.5 million investment in Solyndra to the Pentagon panel, though it didn't disclose that Solyndra was in financial trouble and said it wasn't required to under the panel's rules.
Now, if Rockport chose not to disclose Solyndra's problems--because it wasn't required to--what is the obvious conclusion? Rockport didn't come clean because it was more interested in saving it's investment in Solyndra than in helping the DoD. And on what basis are we to assume that the other venture capitalists on the board would behave any differently, given human nature?

The creation of DeVenCi (by Donald Rumsfeld) may have been an honest attempt to help the DoD stay abreast of emerging technologies, but that's not enough. It represents yet another government entity that provides opportunities for cronyism, back door dealing, and corruption.

Cheers, all.

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