Venture-capital bill clears Utah House panel despite worries

A bill to create a "fund of funds" to boost venture capital investment was passed out favorably by a House committee Monday despite concerns it could lead to a repeat of problems experienced under the Utah Technology Finance Corp.

By Brice Wallace
Deseret News business writer

The House Workforce Services and Community and Economic Development Committee passed out HB240 unanimously.
The bill would leverage future contingent tax credits in order to attract investors in a $100 million "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. The contingent tax credits would be used if the guaranteed rate of return is not delivered — something not experienced yet in other states with a "fund of funds."

Supporters said the fund would spark investment, put the state at little financial risk and result in the creation of much-needed jobs, because early-stage venture capital is lacking in Utah. That, they said, has resulted in companies being sold or moved out of state.

"Our industry is one where there may be one or two companies that are making good money, but there are many companies who need that (VC) money to grow and develop," said Brian Moss, president and executive director of the Utah Life Sciences Association. "This is something that’s desperately needed to keep this industry moving forward. It’s going to move forward, but it’ll either move forward outside of Utah or inside the state of Utah, depending on what we do to help support it."

"If we don’t have venture capital . . . companies will either fail or move out of the state," said Todd Stevens, managing director of the Wasatch Venture Fund. He said the $100 million "fund of funds" would be enough of an incentive to attract three to four times that amount from VC firms.

Rep. Greg Hughes, R-Draper, supported the bill because "it looks at the economy and ways to bolster it." But consumer activist Claire Geddes of Utah Legislative Watch opposed the bill on several fronts, especially because investors in the "fund of funds" would get a guaranteed rate of return.

"I just want to warn you what this really is a safety net for banks and venture capital companies. It says basically let’s leave no bank behind, or venture capital company. In this state, when we can’t fund education or health care, I don’t know what in the world we’re doing going out and guaranteeing venture capital companies," Geddes said.

"What they’re asking us to do is guarantee their investment in venture capital, and I don’t think that’s a function of state government."

Geddes also mentioned problems that occurred under UTFC, but a few speakers said HB240 was written meticulously to avoid those. And, they said, UTFC was designed to fund smaller operations rather than burgeoning startups.

"This is difficult because when you get burned once . . . it makes me very nervous to support this," said Rep. Karen Morgan, D-Cottonwood Heights, who nonetheless supported the bill.

A couple of speakers noted Geddes’ comments about education but disagreed with her premise. "We fund education on the backs of businesses, and we are losing our businesses and losing our jobs," said Nicole Toomey Davis, founder and former CEO of DoBox Inc.

"What we need to do is support the growth of these types of companies," said Will West, CEO and president of STSN Inc. "It doesn’t do the state a lot of good to spend an enormous amount of money on education and not create jobs for these people to have once they come out of our educational system."

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