Utah focuses on venture capital as Arizona stalls

The state’s budget crisis has put a stranglehold at the Legislature on most business-backed efforts aimed at boosting venture capital.

Mike Sunnucks The Business Journal of Phoenix

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(What is Montana doing?! Talk with your representative about the Venture Capital bills that were introduced during this session and why they failed. Montana won’t be able to compete for the high paying jobs we’re all talking about if we don’t develop the tools that these companies need such as funding opportunities. Russ)

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But while the $1 billion budget deficit has Arizona stuck in neutral, one of its western competitors for technology jobs and investment is pumping its own venture-capital pedal.

Utah is aggressively pursuing more venture-capital investment as it tries to build its New Economy sector and compete with the likes of Colorado, California and Arizona.

In March, the Utah Legislature approved a bill that creates a $100 million fund to attract out-of-state technology investment to the mountain state. Utah, like Arizona, traditionally has lagged behind top technology states such as Massachusetts and California in terms of venture-capital investment and other New Economy measures.

Past years have seen business and technology groups unsuccessfully try to get tax and other bills aimed at boosting VC through the Arizona Legislature. Those include allowing, or at least encouraging, state pension funds to invest more money in venture arenas and increased investment tax credits.

But the proposals ran into trouble at the state capitol, with fiscal conservatives worried about risky investments. This year, the budget deficit added to that resistance and have pretty much precluded any such efforts, political observers say.

Business interests are spending their time fighting proposed elimination of economic development agencies and worrying about future tax increases, rather than expanding state venture-capital involvement.

That is not happening in Utah where venture capital has become a top economic priority.

Utah Gov. Mike Leavitt led a business and economic delegation to Silicon Valley in late March to attend a venture-capital conference in San Jose. The delegation also visited Southern California to promote Utah and its burgeoning technology sector to investors and possible partners in Los Angeles.

"Utah is the birthplace of many innovations, but too often the ideas leave our state and provide economic opportunity elsewhere," said Leavitt in a statement about the economic mission. "The purpose of this visit is to showcase early and later-stage Utah technologies and attract the financing to keep the jobs in Utah."

Leavitt has an interesting relationship with the technology sector. He has been active in promoting Utah as a business and high-tech location. But the Republican also has pushed in the past for Internet taxes, which many high-tech types resist.

Arizona Technology Council President Todd Bankofier said Utah and its technology sector have some advantages when competing with Arizona.

"Utah ranks at the top of the list among states in the preparation of its K-12 student population for higher education and the eventual work force," said Bankofier. "This is a critical factor in creating the work force of the future."

But the tech council president also said Arizona holds some cards when it comes to taking on Utah for venture-capital investment and high-tech economic development.

"Arizona has great advantages in its three universities and its diverse technology base with semiconductors, aerospace, optics, IT/software and now biotech," said Bankofier.

"It will be the research and development that is done both at the universities and in the industry companies that spawn the new innovations that will, in turn, bring more capital funding to our state."

Arizona and Utah rank about the same when it comes to New Economy measures, according to a 2002 study by the Progressive Policy Institute.

The think tank ranked Arizona the 16th best New Economy state. Utah was 12th. PPI ranked Utah 13th in venture capital, while Arizona came in 24th on that measure. Arizona ranked better than Utah in terms of patents granted to in-state firms and industry research and development.

Arizona and Utah companies sometimes compete for the same pool of venture-capital dollars because venture firms in the Southwest and Rocky Mountain states often have their geographic focus on Phoenix, Tucson, Salt Lake City and Denver.

While no direct venture-capital bills made it to the Arizona Legislature this session, there are some measures being pushed that business advocates and elected officials say would help spur more venture activity.

Legislation is afoot that would ease current restrictions on the University of Arizona and Arizona State University having commercial ties to tech firms.

A bipartisan, business-backed bill is breezing its way through the Legislature that would have voters decide whether state universities can enter into licensing, product development and research agreements with technology and bioscience firms.

Proponents, such as business groups, Gov. Janet Napolitano, Republican legislative leaders and ASU President Michael Crow, hope lifting that restriction will have venture investments following the technology transfers.

Napolitano also established a technology advisory council. One of that panel’s main charges is to look at boosting capital formation. The two state universities also are in line to get $29 million from the Legislature to help jump start research and development infrastructure and construction projects at their Tempe and Tucson campuses.

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Arizona Technology Council: http://www.aztechcouncil.org

http://www.bizjournals.com/phoenix/stories/2003/04/14/focus2.html