The Fisker cliff: A story of 'self-serving groupthink'
Of all the arguments for the Obama administration's green-energy loan program, one of the worst is that federal aid leverages private capital.
Consider Fisker Automotive.
In August 2009, this wannabe plug-in electric hybrid car company was hard up for cash to pay suppliers and faced potential layoffs. A green-energy loan was the only hope, Fisker executive Bernhard Koehler explained in an e-mail to the Department of Energy — because it would help bring in private money.
“We are oversubscribed in this equity round with the DOE support — and nowhere without it,” Koehler pleaded.
A month later, in September 2009, the Energy Department approved a $529 million low-interest loan. Vice President Joe Biden stood before the proposed site of a Fisker plant in Delaware and described the department's program as “seed money that will return back to the American consumer in billions and billions and billions of dollars of good new jobs.”
Sure enough, private money started flowing in to Fisker by the tens of millions. Apparently, investors liked the idea of a firm that enjoyed access to cheap government funding.
All told, Fisker attracted $1.1 billion in private investment, the vast majority of which took place after it obtained the DOE loan.
Alas, government loans could not overcome Fisker's fundamental problem: no experience mass-producing automobiles, let alone the complex battery-powered luxury cars that it proposed to sell for more than $100,000. Today, the company is nearly bankrupt; taxpayers are on the hook for $171 million, and private investors are probably nearly wiped out. (The story is well told, with documents, at PrivCo.com.)
In other words, that's more than a billion dollars in capital that can't create jobs elsewhere in the economy but might have if the government had not propped up and promoted Fisker.
A committee of the Republican-majority House is searching for proof that Fisker received its loan because of its political connections. It's certainly true that the Silicon Valley venture capital firm Kleiner Perkins Caufield Byers was Fisker's biggest backer. And that KPCB's lineup includes such Democrat heavies as John Doerr and Al Gore.
It's doubtful the committee will find a smoking gun, though. This is a story of self-serving groupthink, not a blatant quid pro quo. Fisker's fool's gold took in members of the U.S. elite, from Leonardo DiCaprio to KPCB “strategic limited partner” Colin Powell. For the private investors, Fisker was about getting rich while feeling virtuous. For the Obama administration, it was about doing something for green jobs. The former will be held accountable financially; the latter, politically.
That doesn't make the Fisker debacle a victimless episode or a disaster only in the sense of opportunity cost. State university endowments and charitable foundations had exposure through KPCB investment funds. The College Illinois fund, a state-run prepaid tuition plan used by 30,000 families, sank $10 million into Fisker. It did so at the urging of Advanced Equities Inc. (AEI), a Chicago firm that Fisker paid to raise private capital after the Energy Department loan.
AEI did not enjoy a sterling reputation. A 2008 Forbes article portrayed it as an oft-sued operation, notorious for foisting dubious venture capital deals on its clientele. An anonymous ex-employee called it “a bucket shop.”
AEI eventually raised more than half of Fisker's private capital. “They are good at what they do,” Fisker board member (and KPCB partner) Ray Lane, no relation, told The Wall Street Journal.
San Diego businessman Daniel Wray typifies the investors AEI pulled in. He spent $210,000 on preferred shares prior to January 2012, when AEI told him that his stake would be downgraded to common stock unless he ponied up $84,000 more within a week.
Wray is suing, claiming that AEI took him by surprise, though it must be said that such “pay-to-play” gambits are not unprecedented in the venture capital biz, especially in “late-stage” start-ups desperate for cash, as Fisker was in early 2012.
Last September, Advanced Equities paid the Securities and Exchange Commission $1 million to settle fraud charges related to its fundraising for another KPCB-backed green start-up, Bloom Energy. Allegedly, one of AEI's top officials told would-be investors that the CIA had ordered $2 billion of its fuel cells, which it hadn't. Advanced Equities closed last year.
When government intervenes on behalf of specific technologies and specific companies, bad things happen — resource misallocation, windfall-seeking, even, sometimes, corruption. The Fisker debacle proves once again that, in the immortal words of former White House economist Larry Summers, “government is a crappy venture capitalist.”
Charles Lane is a member of The Washington Post's editorial board.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Steelers’ Roethlisberger reported symptoms that led to his exit vs. Seahawks
- Decisions backfire in Steelers’ loss in Seattle
- Nov. 29 — Steelers-Seahawks gameday grades
- Penn State coach fires offensive coordinator
- 40 years later, siblings of South Greensburg girl who disappeared still seek closure
- Police charge New Florence man in St. Clair officer’s killing
- Pennsylvania Game Commission reaps revenue from shale gas under game lands
- University of Pittsburgh researchers revisit war of electric currents
- Marshall’s Fluhme Glam Bar hopes to take beauty concept nationwide
- Sale of doll clothes to benefit Harrison library
- New Kensington man killed in North Buffalo crash