• A change in budget bill language restricted NCInnovation to funding university research, yet it still represents picking winners and losers in the marketplace
  • The group had not made a single research grant in its brief history, but it received a commitment of $500 million in taxpayer funding
  • It’s not too late to redirect the second half of its funding to more deserving programs

In a recent Locke Notes newsletter (subscribe here!) we alluded to NCInnovation, in part, as a “government program using taxpayer dollars to tip the scales in favor of select companies” and made reference to tech startup companies soliciting NCInnovation for funding. In response, a communications professional working for NCInnovation contacted us objecting to our description. In short, he pointed out that the language in our newsletter suggested that NCInnovation has been authorized to provide direct funding to private companies.

While the direct investment of taxpayer dollars in private companies by NCInnovation was included in several editions of this year’s budget bill, that specific provision did not make it into the final budget bill. Locke regrets any confusion or misunderstanding this may have caused. The budget bill signed into law limits NCInnovation’s funding to grants directed toward university researchers through the academic institutions at which they work.

Fair enough, though it doesn’t take elaborate mental gymnastics to assume that they want the products invented or created by grantees to turn into for-profit ventures.

Using Taxpayer Dollars to Pick and Choose Research to be Funded and Brought to Market

As the News & Observer reported last June, “NCInnovation aspires to create a massive endowment to help researchers at UNC System schools convert their ideas into revenue-generating businesses.”

Or as reported by WRAL in July:

The funding would help university researchers turn ideas and discoveries into companies that would have to stay in North Carolina at least five years, potentially bringing more jobs and tax revenue to the state.

The cash infusions would flow as grants. NCInnovation would also help researchers through the process of building a business. Neither NCInnovation nor taxpayers wouldn’t get an equity stake in return, though state universities typically get a slice of the profits their researchers see. That would stay in place, though those percentages vary.

Thus, our main critique of NCInnovation remains. NCInnovation gets to choose which applied research is deserving of the taxpayer seed funding and which isn’t, which means in turn they’re deciding which eventual corporation/business benefits. This, indeed, would be tipping the scales in favor of select products, and eventually, companies. It’s a distinction without a difference.

Another point of concern is that NCInnovation’s “pitchbook,” still posted on its website, refers to “angel-style capital investments.” This indicates that up until the eleventh hour of the budget bill’s passage, NCInnovation’s intention was to use taxpayer dollars as the vehicle for select business capital investments. In fact, it was still included in the fifth edition that was approved by the Senate and sent to the House in May.

All of this investment talk has us wondering, “What exactly has NCInnovation been funding since its inception?”

Or Is It Just Funding Its Lobbyists and Executive Committee?

A Carolina Journal article last month showed that NCInnovation has been busy paying $288,000 to lobbyists and doling out $175,000 bonuses to its executive committee.

What has NCInnovation not spent any money on? Grants to university researchers.

The CJ article’s author, Jeff Moore, had pored over NCInnovation’s financial documents and not found any such grants. Also, the communications professional confirmed as much.

NCInnovation’s website says that NCInnovation “began in 2018 as a discussion between North Carolina business executives with an interest in bringing C-suite leadership to impact North Carolina’s innovation future.” It “evolved” into a nonprofit formed in 2020.

According to its 2022 tax return, “2021 was a developmental year where NCInnovation began establishing initial partnerships with universities, nonprofit leaders and the private sector, resulting in contributions. These contributions will be used to fund future grants and other investments consistent with the organization’s mission.”

By summer of 2022, NCInnovation had net assets of $4.8 million and boasted of commitments of “more than $20 million.”

Yet as of March 2024 — three years after receiving the contributions mentioned in the 2021 tax return — no grants have been made.

With sizeable sums of money in the bank ($3.7 million in cash and cash equivalents as of June 2023), and hefty bonuses being showered on its executive committee, one would think that NCInnovation could have found time in the last few years to make at least one grant to a university researcher. After all, if their intent was to get a massive payday courtesy of the North Carolina taxpayer to fund university research, it would make sense to offer a proof of concept: Just one funding project they could point to as an example of what our tax dollars would go toward.

Instead, their literature pointed to “success stories” that NCInnovation promised to emulate in order to justify receiving half a billion in taxpayer funds.

For instance, their website prominently features Texas in its section titled “Other States’ Successes With Innovation.” However, Texas’ “Emerging Technology Fund,” created in 2005, was found to be “scandal plagued” and lacking transparency, and the “investments” suffered from a high rate of failure. The program was in such disarray that Gov. Gregg Abbott shut it down in 2015.

Also touted as a “success” is the Georgia Research Alliance. Unfortunately, this program was also found to lack transparency and carry a poor track record. An audit of the Alliance’s VentureLab program revealed that half of the 201 participants from 2003 to 2011 were either “inactive” or “had no evidence to indicate they were active in Georgia in 2011.”

Finally, in a promotional brochure, NCInnovation highlights a few recent “intentional innovation efforts” as success stories. One of those examples is the Vietnamese EV carmaker VinFast, which received a massive incentive deal from North Carolina that could be worth more than $700 million over the next 32 years.

This is the same VinFast that, as of the third quarter of 2023, had reported losses of $5.1 billion since 2021 and more than half of whose sales were made to another company owned by VinFast’s parent company.

In lieu of any demonstrated success of its own, those are the “success stories” NCInnovation props up as inspiration.

With no proof of concept nor a single example of a successful research grant to point to, perhaps the legislature was too hasty in awarding NCInnovation $500 million. The group already received $250 million in last year’s budget and is slated to receive the second $250 million in the new fiscal year that starts July 1. It’s not to late to redirect that second $250 million elsewhere and allow NCInnovation to demonstrate its worth before receiving any more taxpayer dollars.