Capitol help for high tech in Utah? Task force to eye possibility of a tax credit venture fund

Utah’s high-tech sector is struggling, especially with its ongoing search for capital, and is turning to the state Legislature to help.
The High Tech Business Development Subcommittee on Wednesday decided to appoint a task force to investigate whether Oklahoma’s
contingent tax credit venture fund could be a model for similar legislation in Utah.

By Brice Wallace
Deseret News business writer

The Oklahoma fund has been in place for 14 years, with positive returns and without taxpayer cost, according to Todd Stevens, managing
director of Wasatch Venture Fund. Iowa passed legislation last year based on the Oklahoma model.
"It is very complex legislation," Rod Linton, executive director of Utah Technology Alliance, told the subcommittee.

The Utah Information Technology Association and others on Wednesday described the contingent tax credit venture fund as acting as a
fund that helps other venture capital funds. It would attract a broader range of institutional investors because it mitigates some of the risks of a
traditional VC fund, they said.
Utah lawmakers and others at the meeting seemed to agree that something needs to be done to help Utah’s ailing high-tech sector.

Statistics presented to the subcommittee indicate that Utah, despite having nearly 53,000 employees at about 3,400 high-tech companies,
lost 9,400 high-tech jobs between March 2001 and March of this year.
But while other sectors of the economy also have slumped, high-tech jobs in Utah pay an average of more than $51,000 — 77 percent
above the state’s average wage.

High-tech wages account for 8.4 percent of the state’s economy, while its employment makes up 4.9 percent
of the state total.
"That is why we care about this industry," said Mark Knold, senior economist for
the state Department of Workforce Services. "Yes, it’s having its problems right now, .
. . and that’s why we want to foster it and get it into this state."
Stevens said once companies reach certain growth levels, they can obtain debt
financing from banks. But Utah particularly lacks venture capital funds for startup
companies, which he described as seedlings that eventually become the tall trees in
the industry.

Startups do not have access to the state’s only incentive program, the Industrial
Assistance Fund, which is for established companies to expand in or move operations
to Utah.

Most Utah VCs fund 10 to 20 new companies annually, but UITA estimates there
are 30 to 50 deals each year that are worthy of funding.
"Our message is that even though there are resident funds here, that we aren’t
able to meet the demand and need of Utah," Stevens said.

Tom Lewis, chairman and chief executive officer of Campus Pipeline, said his
company has received $90 million, with $3.5 million coming from Utah.

The state has "one of the most ideal environments" for high-tech companies, "but
it takes venture capital," he said. "It takes the incentive of the state Legislature to put
in place opportunities for venture capital to be brought to Utah and for Utah to
encourage businesses to grow."

Nicole Toomey Davis, former chief executive officer and co-founder of DoBox Inc., said her company has raised $2.6 million since its
founding in 1999, but it came primarily from a large East Coast angel group.

Many VC companies told her Utah was too far from their base, and Utah VC firms do not understand her company’s industry,
telecommunications, she said.
"I have wracked my brain about this, whether Utah can have a driving high-tech industry without having venture capital funds here, and the
answer is no," she said.

Richard Nelson, UITA’s president and CEO, said a lack of capital faces the entire industry, but that is especially true in Utah. "We need to
increase early-stage capital," he said. "We need to remain and want to remain the growth engine in the state of Utah."

The task force, composed of members of the subcommittee, the Information Technology Commission, the Workforce Services and
Community and Economic Development Interim Committee and the Competition in Telecommunications Industry Task Force, will meet Aug. 6
to study the Oklahoma law.
But several speakers noted there are other issues — education, few jobs available for middle- and upper-management and infrastructure
among them — that also need to be addressed. The subcommittee made no firm commitments to appoint any groups to study those.

"One of the reasons we struggle with a clear vision is that we’re looking into things that aren’t traditional government areas," said Sen.
Scott Jenkins, R-Plain City. "I do believe we should be looking at economic development, . . . but along with that, I struggle with government
being the front man on money for private development.

"I just struggle on those things. We’re walking a real tight line there, and I think that’s why we struggle with what direction to go."

http://deseretnews.com/dn/view/0,1249,405018512,00.html