A Finger Lakes meal-kit company closed its doors suddenly this month after New York state government had sunk upwards of $14 million into the operation. It’s not the first time officials have placed bad bets in the name of job creation, but the company’s closure says more about the people who wagered on it than about the business itself.
Real Eats, based in Geneva on Seneca Lake, had been a darling of state and local economic development officials, and just last year had moved from a government business incubator to a new government-subsidized factory. In the six years before closing its doors March 1, the company got a smorgasbord of public aid:
- $7.8 million in investment from the state’s largest public pension fund, the New York State Common Retirement Fund, through its In-State Private Equity Investment Program;
- $2.45 million in venture capital, in multiple rounds, from the state-funded FLXFWD Venture Fund, a state-backed venture capital fund;
- At least $1.24 million in Excelsior job-creation tax credits, as part of an award for up to $3 million;
- Up to $1 million through Grow-NY, a state-funded food and agriculture business competition (it’s unclear how much of the $1 million award was paid out);
- $550,000 in subsidized loans from the City of Geneva IDA and the Ontario County Economic Development Corporation;
- $500,000 grant from Empire State Development;
- Participation in START-UP NY, exempting it from sales, income, and property taxes.
This does not include about $1.7 million in public funds spent to upgrade the company’s original location, the Geneva Enterprise Development Center, primarily for Real Eats’ needs.
There are two takeaways from the company’s closure.
First, it reflects poorly on New York’s business climate. Real Eats was particularly vulnerable to recent state policy changes that hiked labor costs. The state minimum wage was ratcheted up from $9.70 when it opened in 2017 to $14.20 today, and undoubtedly bit into Real Eats’ bottom line. Proposals in the Legislature would propel the wage far higher than their recent hiring rates for some positions, pushing profitability even further out of reach.
But Real Eats’ closure reflects even worse on the small army of state and local economic development luminaries who seem to have universally misread the situation. (Taxpayers will likely get a clearer read on the leadup to the company’s closure as litigation by private investors unfolds).
Real Eats was trying to break into what by 2016 was already a crowded market, albeit one that had no problem attracting venture capital. State officials understood that: years prior they had helped bankroll Plated, a rival meal-kit company—which terminated its subscription service in 2019, and on which the state’s investment arm had posted only a modest return upon cashing out.
It’s not clear whether Real Eats ever turned a profit. But economic development officials kept pouring funds in, betting as late as 2022 that it had the secret sauce, so to speak, to compete with established incumbents. Excell Partners, the firm that steered state venture capital funds from FLXFWD into Real Eats, wrote in a blog post, the 2020 decision to give the company another infusion of (taxpayer) cash was “easy.” And Real Eats got its most recent round of state venture capital in October 2022, court papers show.
As Professor Lawrence Summers, President Barack Obama’s chief economic advisor, warned more than a decade ago, government is a “crappy” venture capitalist, and Albany has spent a decade—and $135 million in taxpayer-funded venture capital—proving him right.
New York lawmakers, governors, and economic development leaders for decades have looked to help businesses, especially flashy start-ups, overcome the state’s difficult business climate, dispensing various subsidies and tax breaks in hopes of inducing investment and hiring that happens more organically in other parts of the country. This scheme has been politically easier than tackling the state’s high tax burden or its regulatory or tort climates would have been. But the problem with this cosmetic approach to weak economic growth has become especially visible in recent years: among other things, New York still hasn’t recovered its lockdown-driven job losses and job creation has been especially slow in some regions.