News
Venture capital bill would boost Utah’s economy
One of the outcomes of the DotCom boom-to-bust cycle has been a tightening of purse strings at venture capital organizations around the globe.
By David L. Politis Deseret News
Much of the long-term success and viability of both the tech and biotech revolutions can be traced to the investment of risk capital with individuals and teams with great ideas.
Unfortunately for Utah’s tech/biotech entrepreneurs, raising money has never been an easy thing.
Partially to blame is the fact that we live in a state long known as one of the "penny stock capitals" of the world, and if you didn’t already know this, raising money or creating credibility for a penny stock company are some of the hardest things in the world to do.
Also to blame is the fact that Utah is not one of the regional financial centers in the country.
Denver is one. San Francisco is another. So are Dallas, Chicago and obviously New York, just to name a few. Salt Lake City: no way.
Not that raising money in Utah is impossible.
Salt Lake City-based NPS Pharmaceuticals (Nasdaq: NPSP) has now raised several hundred million dollars in private and public equity during the past decade.
In a somewhat less visible mode, Salt Lake-based STSN has now raised close to $100 million in private equity.
So it is doable; it’s just harder here in Utah than it is on either coast, in Silicon Valley or Silicon Alley, or in some of the other tech centers dotting the map.
That’s why a consortium of tech and biotech movers and shakers is pushing hard this legislative session to get a law passed that would focus more investment dollars in Utah.
At play is HB240, sponsored by Rep. Nancy Wallace, and known as the Venture Capital Enhancement Act.
Patterned after similar programs currently in place in several other states, most notably Oklahoma, HB240 would provide for the creation of a "Fund of Funds."
According to documents provided to me by the Utah Information Technology Association (UITA), this Fund of Funds would "leverage future ‘contingent tax credits’ in order to attract investors in a Utah ‘Fund of Funds’ who seek ‘money market’ levels of return, such as power companies, banks, and others conservative investors. The professionally managed Utah Fund of Funds would invest in a variety of experienced venture capital funds committed to working with and investing in Utah high growth ventures."
Typically, VC organizations seek relatively high rates of returns, with the National Venture Capital Association reporting that VCs averaged more than 26 percent annualized returns during the past 10 years and more than 16 percent returns.
In this Utah Fund of Funds idea, proponents are suggesting that returns of five to six percent are more likely.
Similar funds that have been created elsewhere provide a road map for Utah’s proposed Fund of Funds. The concept has private organizations investing in the Fund of Funds, which would then be managed by a professional fund manager. The manager would be instructed to invest in venture capital firms that invest in Utah and maintain a presence in the state.
Such investments in the Fund of Funds carry with them the guaranteed backing of contingent tax credits that only "kick in" if the collective return on all investments made by the VC firms is less than the expected 5-6 percent.
In Oklahoma, for example, more than $41 million has now been invested since 1992 in 11 venture firms now active in the state.
And for every dollar invested by Oklahoma’s Capital Investment Board in VC firms, an additional $3.30 has been invested in Oklahoma firms by these same venture capitalists.
More telling, not a single tax credit has been required to support OCIB’s investors since OCIB began investing in 1992.
Given Utah’s present economy and the state of the economy as a whole, some people may suggest that now may not be the best time to be floating and passing a Venture Capital Enhancement Act.
Personally I disagree.
Like it or not, technology and biotechnology companies are a driving force in Utah’s economy, and everything we can do to foster the creation and growth of biotech and high-tech firms within our state that can provide good paying jobs for today’s and future generations is a good thing.
If passage of HB240 will encourage greater investment monies flowing into Utah-based companies, I am all for it.
My company, Politis Communications, has been a long-time member of UITA a supporter of HB240.
David L. Politis is the president of Politis Communications, a public relations, investor relations and marketing communications agency.
E-mail: [email protected]
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