The central charge against the JIF is that it has lost a lot of money. But this was inevitable from the outset because of the way it was set up. Instead of taking shares in the ventures it financed, it was only allowed to make loans – or in certain circumstances, grants. Newly launched businesses of the kind backed by the JIF are inherently risky. The failure rate is high, and for this reason bank loans are hard to come by. Entrepreneurs soon discover that unless they are prepared to allow backers to take significant stakes in their fledgling firms – generally with strings attached – they will be unable to raise much capital.
Anyone who has watched Dragon’s Den knows the reason for this: investors expect to share in the substantial returns from a few successful ventures to compensate for the money they will lose on the rest, otherwise net losses are certain. By excluding equity investment from the JIF’s terms of reference, the States ensured that there would be no upside and only downside. If a venture succeeded, the fund would be repaid without profit. If it failed, as many were bound to do, the investment would be lost. Who in their right mind would risk venture capital on this basis?
One answer to that question might be that success or failure could have been redefined. The word ‘fund’ can have more than one meaning. For example, a fund for the rebuilding of a church steeple is not intended to show a return to those who subscribe money. Perhaps the JIF was intended to be that kind of fund – maybe success meant creating jobs, strengthening the nascent digital economy, or simply generating some positive headlines for
its promoters, rather than breaking even or showing a profit? If so, this should
have been explicitly stated at the outset – and most of the odium that has since
fallen on those involved could then have been avoided.
