Utah Courts California Venture Capitalists

Utah Gov. Olene Walker – in Silicon Valley on Friday to pitch Utah to California venture capitalists – recounted chiding Gov. Arnold Schwarzenegger about his state’s business climate when the two met at a governors’ conference two months ago.

By:
Jim Evans
Sacramento Bee

http://www.nasvf.org/web/allpress.nsf/pages/8733

"I looked at his problems and thought, ‘Thank goodness I’m governor of Utah,’ " Walker said. "I kidded him a little about the high premiums that employers have to pay in California, and he said he was going to fix that."

Walker brought eight companies and a team of economic development officials with her from Utah to give presentations to the invited guests – mostly Northern California venture capitalists and investment bankers. Walker and the other Utah officials highlighted the advantages of doing business in Utah, including lower workers’ compensation premiums and lower energy costs.

Utah is just one on a growing list of nearby states ramping up efforts to lure California investment and jobs. In recent months, Nevada officials have upped spending for marketing aimed at California businesses, and Arizona Gov. Janet Napolitano proposed opening a California office to lure jobs to her state.

For his part, Schwarzenegger has made improving California’s business climate his top priority. The governor, who has said the state’s climate for doing business is the worst in the nation, has proposed sweeping reductions in workers’ compensation premiums as a way to keep companies from fleeing the state.

While states such as Utah continue to see opportunity in California, Schwarzenegger’s election indicated California’s fortunes could change, said David Harmer, executive director of Utah’s Department of Community and Economic Development.

"We’re disappointed to see Arnold getting elected because we were hoping to see the misery index continue to climb," Harmer said.

Still, Harmer said, it was unlikely that Schwarzenegger could quickly fix problems that have been building for years – problems that involve not only costly business-related programs but also expensive housing. And that could mean an opportunity for Utah, he said.

Utah already has been successful at enticing California businesses to expand there.

In recent years, Silicon Valley-based high-tech companies Cadence Design Systems, Siebel Systems and eBay have announced new operations – and 1,000 jobs – in Utah.

But can states like Utah get venture capitalists to start businesses there?

California is far ahead of other states when it comes to funding new companies, and that’s unlikely to change. In 2003, venture capitalists pumped almost $8 billion into California companies – more than $7 billion more than in any other state in the western United States, according to research firm Venture Economics.

Many venture capitalists don’t put costs like workers’ comp or high unemployment insurance rates high on their lists of concerns when investing in companies, said Phil Sanderson, a general partner with San Francisco-based WaldenVC.

"We’re concerned about access to a talented work force and access to capital and access to business partners," Sanderson said. "Those are the top three issues. … Government costs are way down on the list."

As for moving companies to cheaper states, Sanderson said venture capitalists like to be near the companies they invest in so they can keep close tabs on them.

"The only thing we think of is when should the company be outsourcing to India and Asia – and it’s not a question of if, it’s a question of when," Sanderson said. "But we never think about moving to another state."

But venture capitalist Jeff Nolan said that as other states have become more competitive with California, there are fewer barriers to starting a company elsewhere.

"Just like other countries have closed the gap with the United States, other states have closed the gap with California, in terms of education and infrastructure," said Nolan, a general partner with SAP Ventures, the venture capital arm of German software company SAP.

"It’s always been more expensive to do business here and it’s been worth it, but now it’s just gotten out of whack,"Nolan added.