cuomo-canrock-150x150-3157481New York’s ongoing experiment in state-run venture capital investment appears—not for the first time—to have been ripped off.

During Governor Andrew Cuomo’s first term, seven VC outfits were given a total of $45 million in federal and private funds to invest in startups. One firm, Long Island-based Canrock Ventures, steered nearly all of the $1.67 million it received into companies it controlled and routed money back to its own coffers through fees and other gimmicks.

The Cuomo administration ignored concerns from a whistleblower investor, but a U.S. Treasury Department Inspector General investigation revealed $1.63 million in “gross misuse” of federal funds. In a report issued just before President Barack Obama left office, the IG recommended that the Department order New York State to repay the money. It’s not clear, however, whether the Department issued such an order—or, if it did, whether ESD ever recovered the money from Canrock.

The latest questionable use of taxpayer-backed venture funding in New York involves Tokenize, a Rochester tech startup.

Last year, as reported Sunday in the Daily News, Tokenize got $1.75 million from the New York State Innovation Capital Fund—a state-run venture capital fund seeded with $100 million in state funds to, as Governor Andrew Cuomo put it, help “budding entrepreneurs bring their ideas to market right here in the Empire State.”

Tokenize’s CEO, Melanie Shapiro, is accused of using the company as a “personal piggy bank,” the Daily News reports. From the newspaper:

Rochester techie Melanie Shapiro “egregiously misused corporate funds” for her company, Token, to buy groceries, booze, late-night Uber trips, clothes, flowers and even pay $25,000 in personal taxes, according to the suit filed in Delaware Chancery Court by board member Ken Seiff.

Digging further into details not mentioned in the newspaper story, the Tokenize investment was approved directly by Empire State Development, the state’s economic development agency, with minimal discussion at a December 2017 board meeting.

It’s also unclear what need the Cuomo administration is trying to fill in the VC space. New York venture capital firms reported at least $2 billion in fundraising each year since 2013, and took in $9.4 billion during 2018 alone.

Larry Summers, then President Barack Obama’s top economic adviser, in 2009 noted that government is a “crappy venture capitalist.”

The Cuomo administration is still trying, and failing, to prove him wrong.

About the Author

Ken Girardin

Ken Girardin is the Empire Center’s Director of Strategic Initiatives.

Read more by Ken Girardin

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The Empire Center is an independent, non-partisan, non-profit think tank located in Albany, New York. Our mission is to make New York a better place to live and work by promoting public policy reforms grounded in free-market principles, personal responsibility, and the ideals of effective and accountable government.