Ohio to chip in $100M for tech venture capital

A new state-sponsored $100 million venture capital fund for technology companies could have major implications for Greater Cincinnati.

By:
Lance Williams
Cincinnati Business Courier

SB 180, which will create the Ohio Venture Capital Fund and a governing authority, has passed both the House and Senate and is expected to be signed by Gov. Bob Taft by Christmas, state officials said.

"It’s huge for this region," said Rich Kiley, an independent consultant with CincyTechUSA and the retired director of Procter & Gamble Co.’s venture capital arm.

The "fund of funds" would be distributed to smaller venture capital firms around the state, which would then make smaller investments in high-tech and biotech startups. These companies would be seeking funding ranging from $500,000 to $3 million.

Companies could begin competing for some of that funding by next fall, Kiley said.

The other potential impact would be on Fort Washington Investment Advisors, which would be a top contender to manage the $100 million fund for the state.

"If that happened, we’d have a very clear picture of the seed money available," Kiley said.

The program will work like this: Prospective investors in the fund, which could include banks, insurance companies and corporations, can purchase a total of $100 million in bonds from the state, according to an analysis by the Ohio Legislative Service Commission.

Those investments would be used to provide funding to new or existing early-state venture funds that are interested in investing in emerging Ohio companies. The state is hoping to encourage growth in biotechnology, high technology and polymer/advanced material development.

If the investments in the startup companies are successful, any revenues will first be used to pay for the fund’s operating costs. Then the principal and interest on the bonds will be paid back to the investors. The remaining revenues will go back to the state.

Once the assets in the fund are large enough to cover any potential losses, additional revenue would be used to fund science scholarships at state universities and colleges.

The fund also guarantees a return on investment of 9 percent. If the investments aren’t successful or don’t produce that level of return, investors would be able to recoup their investments through tax credits issued by the state to cover the losses, although those credits could only be issued after five years and would be capped at $20 million per year.

Barbara Aras, CEO of Main Street Ventures, an accelerator for tech startups, said the Cincinnati business community is more prepared than ever to compete for tech funding.

She said efforts like the Tech Alliance, which includes 18 Greater Cincinnati groups and is coordinated by CincyTechUSA, have been able to communicate their message to state leaders.

"Cincinnati traditionally has not been visible at the state level, but we are well positioned now," Aras said. "We have a seat at the table."

In addition to the $100 million fund, the FY 03-04 Capitol Budget Bill, the governor also received the $50 million he had requested for the Third Frontier Project, an initiative aimed at creating high-tech jobs.

The money will be allocated to the Wright Brothers Capital Fund, which will award grants to help create research centers focused on product development and commercialization efforts within Ohio.