Kansas’ new VC law begins to draw interest

"In a challenging state economy, the state Legislature realized we needed to invest in technology development, and
that’s what they did."

Curious investors are starting to sniff around a new Kansas law aimed at pumping up the modest amount of venture capital being
invested in state-based companies.

Stephen Roth
The Business Journal of Kansas City
Kansas City, KS

Four groups have expressed interest in $20 million in state tax credits, said Charles Ranson, Kansas Inc. president and venture capital

The tax credits were created when Gov. Bill Graves signed the Certified Capital Formation Act into law in May. Through the
program, private investors would put $40 million into designated capital formation companies, which then would invest in emerging
Kansas companies.

Tax credits totaling 50 percent of the capital raised will be dispersed among the capital formation companies during a 10-year period
starting in 2006. The tax credits and their value are not tied to returns generated by the investments.

Ranson said the program will cover four to eight capital formation companies. The investments must be $5 million to $10 million to be
eligible for the tax credits.

"We have had conversations with established venture capital funds that are national in scope," Ranson said. "We have had expressions
of interest from individuals interested in being investors."

Both types must wait until the state’s Department of Commerce & Housing creates rules to designate four to eight capital formation
companies for the program.

If those regulations are completed before Graves’ term expires in January, the companies could be ready to make investments by early
2003, Ranson said. If the process lingers into a new administration, however, it could take much longer, "as late as late 2003," he said.

It could be early in the second quarter of 2003 before the rules and regulations for capital formation companies are established, said
Steve Kelly, the department’s director of business development.

One group that probably will seek to become a capital formation company is Lenexa business incubator the Enterprise Center of
Johnson County.

Even if it qualifies by raising the minimum $5 million in capital, the incubator must wait until 2006 before receiving the first of the

The state will dole out no more than $2.5 million in tax credits annually during the 10-year period.

For those reasons, and the fact that the program is limited to startup company investments, groups probably won’t be lining up to
participate in the program, said Joe Kessinger, president of the Enterprise Center.

"A lot of people aren’t interested in that realm of investing," he said. "The fact that it’s limited to (matching) a $10 million fund, the
economics aren’t there to have a group of people manage it full time."

The legislation is a milder version of the $50 million proposal lawmakers considered between 1999 and 2001. That proposal, which
died in the Legislature three consecutive years, called for the state tax credits to match 75 percent of $50 million.

But proponents aren’t complaining. Kansas long has trailed most other states in venture capital generation, and every little bit helps.

"It was a positive first step," said Tracy Taylor, president and CEO of Kansas Technology Enterprise Corp. "In a challenging state
economy, the state Legislature realized we needed to invest in technology development, and that’s what they did."

(Thanks to Jack Manning of Dorsey Whitney, here’s the Montana Company Capital Act:

No tax credits have been authorized by the legislature in 7 years and there is only one company with any still unused. What can we do to revitalize this program in Montana?- Russ)

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