Stripe layoffs pose awkward questions for sovereign wealth fund ISIF and its dual investment and employment mandate

Stripe’s decision to lay off 14 percent of its global workforce has exposed the dangers of the state-funded job creation policy, which has channeled €42 million in taxpayers’ money directly into the private company.

It should be a wake-up call for policymakers that trying to micromanage economic winners is impossible, rather than setting conditions that will help all types of businesses thrive.

In March 2021, the Irish Strategic Investment Fund (ISIF) invested €42 million in the Collisons’ fast-growing digital payments company in a funding round that valued the company at a staggering €80 billion.

The pledge of 1,000 jobs has certainly fulfilled ISIF’s so-called “Double Bottom Line” mandate, which requires the investment of taxpayers’ money to both generate a financial return and increase employment in the domestic economy.

Significantly, Stripe was ISIF’s first direct investment in a company and must have seemed like an unmissable opportunity.

Founded by Limerick brothers John and Patrick Collison, Stripe took off like a rocket. Hailed as the largest private technology company in the world, it would follow a growth trajectory like Google or post-iPhone Apple, eventually listing on Nasdaq for €100 billion or more.

One doesn’t have to be too cynical to wonder if Silicon Valley’s glamorous success has turned the state agency’s head.

It was not for nothing that Tánaiste Leo Varadkar was quick to welcome the “fantastic news” of the “partnership” and its promise of “really good, well-paid, professional jobs.”

Policymakers may not have been able to overcome the nagging problem that the Collisons’ great success took place in California, where the brothers decided to base the company rather than home.

Taking a real stake in Stripe with the promise of prestigious jobs was, or seemed like, a nice consolation prize.

Still, the Irish taxpayers’ money came with a big commitment: Stripe pledged to create at least 1,000 new jobs at its Irish operation over the next five years.

Now the company is going into reverse gear amid a changing economy and a sharp drop in its valuation. And although Stripe has been remarkably discreet with the employees concerned, they are certainly not hiring new employees here as planned. This is what happens in the real world.

But the whole episode raises uncomfortable questions about ISIF’s decision to back any company with so much taxpayer money, especially when, like Stripe, there are many private sector investors willing to back the company.

Stripe’s cut makes things awkward for ISIF, at the very least. An IPO now seems far away and it won’t be 100 billion euros and jobs are falling.

That could well be changing, but growth could prove slower and more difficult in an era of hard cash.

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Stripe Inc. headquarters in San Francisco, California. Photo: David Paul Morris/Bloomberg

The Collisons are savvy businessmen and good employers, and short-term embarrassment for Isif is not the real issue here.

The big problem is that the so-called “double bottom line” investment it’s accused of doesn’t really make sense.

This mandate was conceived in the dark days of the financial crisis, when the economy was in dire need of stimulus and the idea of ​​a government anchor investor was important to domestic firms seeking foreign financing from skeptical fund managers.

But returns on capital and more employment can often be at odds, as Stripe notes.

Job creation is vital for the government. At the corporate level, more jobs are not necessarily better. A company that transfers can destroy value.

Businesses rightly strive for growth, but no private company can ever credibly commit to job creation as a policy. The imperatives for government agencies and the ministers who direct them are very different.

Could the €42 million that went into securing Stripe’s job growth ambitions have been better managed for taxpayers?

Spreading smaller investments across a number of companies in different sectors, as Enterprise Ireland is doing, would certainly be less risky, albeit a tougher proposition.

Building homes that the private sector doesn’t produce wouldn’t be a fancy alternative, and some of the still hundreds of Stripe employees here might even benefit from it.

Stripes aren’t the problem. The question is whether it really makes sense for a government agency like Isif to get so involved in supporting a business when in business all plans are always heavily dependent on factors that cannot be predicted in the longer term.

Building a better race track, which means more horses going all the way around the track, is a far better use of taxpayers’ money than trying to pick winners, even if it never quite gets the same PR plaudits

https://www.independent.ie/business/irish/stripe-layoffs-pose-awkward-questions-for-state-fund-isif-and-its-dual-investment-and-jobs-mandate-42120057.html Stripe layoffs pose awkward questions for sovereign wealth fund ISIF and its dual investment and employment mandate

Fry Electronics Team

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