Utah Venture capital bill gets endorsement

Backers of a proposal to boost early-stage venture capital investment in Utah are working hard to drum up support as the measure moves to legislative committee.

By Brice Wallace
Deseret News business writer

They received a boost Friday when the state Board of Business and Economic Development voted to endorse HB240, which is designed to establish a $100 million "fund of funds" to help spur VC investment. The bill will be presented to the House Workforce Services and Community and Economic Development Committee at 8 a.m. Monday.

Board members emphasized that the new fund offers tremendous potential for helping technology companies get established, but with little financial risk to the state.

"HB240 is the most important economic development bill in the 2003 session," said Richard Nelson, a board member and also president and chief executive officer of the Utah Information Technology Association. "We feel very strongly about this. . . . The industry’s No. 1, most-pressing issue in this state is capital — early-stage capital."

The bill would leverage future contingent tax credits in order to attract investors in the "fund of funds" who seek certain levels of return, such as power companies, banks and other conservative investors. The fund would invest in a variety of VC funds committed to working with and investing in Utah high-growth ventures.

The "fund of funds" would reach $100 million through the excess above the return to investors. Supporters say the fund would represent no risk to the investor, while the VC funds historically yield 16 percent to 26 percent.

Utah’s bill is modeled after a similar setup in Oklahoma. That state has seen venture capital investment grow $41 million and attracted 11 new venture firms. "It’s been around 11 years and never cost the taxpayers of the state of Oklahoma a dollar," Nelson said.

To alleviate risk to Utah, the fund would have a limit of $20 million in contingent tax credits that could be used per year. "We’re attempting to make this as conservative as possible," said board member Jerry Oldroyd, who, like Nelson, has worked with a legislative task force to hammer out the bill’s provisions.

The ultimate goal is to stem the flow of high-paying jobs and companies from Utah. Many companies formerly based in Utah have been acquired and moved elsewhere or have seen cutbacks in employment because of a lack of capital, board members said.

"What has amazed me is how good we are in exporting Utah-bred technology and Utah jobs to other states," Oldroyd said.

Utah now has only three early-stage VC companies. "But we think we can attract a dozen venture capital companies to the state to join the three that are here," Nelson said.

Board member Ed Ekstrom, managing director of vSpring Capital, said the fund would affect his company and help Utah compete against other states with established funds.

"As a fund, we are being recruited to go into other states, like New Mexico, that have these options, where they will put money in us to go in and open an office in New Mexico and invest in New Mexico because they have this fund of funds," he said. "How would it change us? It would put more money in our fund investing in Utah jobs.

"It’s not a panacea, but it’s certainly the anchor, a foundation we have to build for native growth. It’s like a planting box."

Gov. Mike Leavitt has expressed reservations about the bill, and Oldroyd acknowledged that it is being presented late in the legislative session and involves complex issues. "How successful we will be is contingent on how well we can rally the troops," Oldroyd said.

Nelson is doing just that. He said he and a dozen CEOs will meet with Leavitt next week to discuss the bill. "We could get 120 CEOs that would endorse this," he said.

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