Brookings entrepreneur Scott Meyer is somewhat concerned about the brewing scandal involving the Governor's Office of Economic Development, SDRC Inc., the EB-5 visa investor program, former GOED director Richard Benda, and former Governor Marion Michael Rounds. But Meyer is more concerned about the big-picture problem of South Dakota's focus on promoting big projects rather than truly small local start-ups.
Scott and his brother John are beneficiaries of GOED largesse: in 2009, they used a $15,000 state economic development grant to start 9 Clouds Inc. Here's the return Meyer says we got on that investment:
...In 9 Clouds’ case, we started almost five years ago with a $15,000 grant from the state. That startup money multiplied us in to two companies with a total staff of 15.
At that rate, a $400,000 investment would create 400 jobs in the state. Even with a small investment of $4 million from the state, one out of ten gazelle startups could fail and still create the same amount of jobs as one large company [Scott Meyer, "Powering the Economy with Local Gazelles," Medium.com, 2013.11.10].
Meyer compares South Dakota's return on investment on 9 Clouds to the state's ROI on Bel Brands, the giant French cheese factory coming to Brookings. Bel Brands will create 400+ jobs in Brookings. The state is committing $21.6 million to assist Bel Brands; the city of Brookings is contributing another $11.8 million.
Let's put the ROI in terms of the EB-5 program. Each EB-5 visa applicant invests $500,000 in a new American business. That EB-5 applicant gets to stay in America if that investment creates ten jobs. It took 160 of those investors ($80 million in EB-5 money) to get Northern Beef Packers going in Aberdeen. That slaughterhouse employed around 400 workers for less than a year.
Suppose just one of those EB-5 investors had instead provided seed money to startups like 9 Clouds. $500K would parcel out to 33 $15K grants. If half of those start-ups failed, and if the other half averaged the Meyers' success, that one investor would be responsible for creating 240 jobs, well over the EB-5 job creation requirement. Two such EB-5 investors, one million dollars, could create 480 jobs, putting more people to work and launching far more independent business owners than Bel Brands or Northern Beef Packers.
At that rate, all 160 EB-5 investors in NBP could have created over 38,000 jobs... although our EB-5 investors would have had to bring some friends to fill those jobs, since South Dakota currently only has about 17,000 people looking for work.
We have much more to learn about who did what, knew what, and broke what in South Dakota's GOED/EB-5 scandal. But as we can learn from the Meyers' 9 Clouds example, South Dakota's economic development model is wasting resources on chasing big, expensive elephants when it should be favoring the more economically nimble and profitable small local start-ups.