State’s startup fund has trouble getting started

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State’s startup fund has trouble getting started

Appointed members of the Invest Georgia board:

David Hanna: chairman and CEO of Atlanticus Holdings Corporation, which provides credit cards and other financial services to sub-prime consumers.

Charles Thompson: co-founder of Eco-Capital Advisors, a project management and financial advisory firm specializing in property for wetlands mitigation

William Young Jr. (chairman): chairman of General Wholesale Company, an alcoholic beverage distributor

A.D. Frazier: president of private investment firm Georgia Oak Partners and former chief operating officer for the 1996 Summer Olympics organizing committee

Derek Smith: chairman of the Institute of Global Prescience, a research and education non-profit that attempts to anticipate global events, and former chief executive of data broker ChoicePoint.

How much money are young Georgia companies attracting?

By one measure — venture capital funding — Georgia companies in 2014 had their best year in at least a decade.

Year… Number of deals… Total venture capital spending in Ga.

2005 … 64….. $264,355,200

2006 …. 91 …. $414,132,200

2007 … 73 ….. $431,594,700

2008 … 82… $420,905,800

2009 … 46 ….$310,573,900

2010 …. 71 …. $365,012,900

2011 … 62… $423,918,100

2012 …. 55 ….$262,328,300

2013 … 41 … $384,475,400

2014 … 60 … $495,851,800

Source: National Venture Capital Association

A fiscal tug-of-war is taking shape over an ambitious state campaign that uses government dollars to attract venture funding for homegrown startup firms that can generate new jobs.

Gov. Nathan Deal didn’t include money for the program, called Invest Georgia, in his proposed budget. And securing the $15 million that supporters want could trigger a battle over competing priorities this legislative session.

The initiative was launched in 2013 by supporters who hoped that ponying up state dollars could attract enough venture capital to help transform Georgia into a tech hub. Entrepreneurs have long lamented that Georgia doesn’t have the financing network to keep promising startups from being pulled to places like Boston or Silicon Valley.

Since then, though, the program’s champions learned how hard it is to start up a program — in state government.

Lawmakers didn’t allocate money to fund the program the first year, and the $10 million it has in the bank came only after Deal shifted money from the higher education system for the program.

Meanwhile, leaders for months delayed naming the members of the panel that would oversee how that money is spent. That left officials who fielded calls from interested firms uncertain where to direct them.

Perhaps the most telling sign came on Jan. 1, when the fund’s operators were supposed to submit a report listing all its investments. There was nothing significant to report, since the fund hadn’t made any.

‘We are underway’

Invest Georgia’s organizers say those problems are behind them.

The program’s five-member panel has met once in person, named an executive director and hired a legal adviser. And it will soon seek proposals for an investment advisor, said A.D. Frazier, a board member who runs a private equity firm.

“There’s no sense in crying over the year we missed. We are underway,” said Frazier, who predicts the first investments will be made by June. “We want to set an example and make it a high economic development priority for the state of Georgia.”

The plan calls for state funding to venture capital funds with the stipulation that other investors will match the money. The funding is designed to only invest in Georgia businesses in tech, life sciences, health care and other high-demand sectors.

It comes with built-in risks. Venture capital is a gamble. Some young companies fail. And there’s always worry that such a program could become a trough for the politically connected.

Lt. Gov. Casey Cagle and other boosters want the publicly-backed venture to eventually pump $100 million into young businesses to grow jobs and keep local entrepreneurs from leaving. Lawmakers set a target to stock $25 million in the fund by now with another $15 million to be added this year.

Instead, the fund sits at $10 million. And even that took some budgeting jujitsu. After lawmakers couldn’t agree to put the initial investment in the state budget last year, Deal helped arrange for the University System to set aside the money.

This year, the governor is making no such promises.

“We’ll see,” he told The Atlanta Journal-Constitution after urging lawmakers to boost funding for the education of prison inmates. “This is my proposal, and we’ll see what the General Assembly chooses to add or subtract.”

Supporters remain optimistic. Cagle, the program’s chief champion, said through a spokesman that he “is confident that a solution will be found during the upcoming legislative session.” And state Sen. Jeff Mullis, who chairs an economic development budget panel, said he expects it to “balance out.”

“We’re going through that process right now. And somebody will be looking at that - perhaps the lieutenant governor,” Mullis said with a smile. “We’ll come back to that.”

A launching pad

They can also count on an influential ally. The Metro Atlanta Chamber has made securing funding for the program a legislative priority and assigned Marshall Guest, a former aide to House Speaker David Ralston, to lobby lawmakers on the program.

“The Invest Georgia fund is key to not only spurring job creation, but also for retaining the existing Georgia-based tech talent that exists right here within our own borders,” said Guest.

Frazier has been beating the drum, too, arguing that the state’s balance sheet could profit from wise investments in the program.

“This is not corporate welfare,” said Frazier, who was chief operating officer for the 1996 Summer Olympics organizing committee. “This isn’t going to be a roll-the-dice business. This is going to be careful analysis.”

Experts warn state dollars alone may not be enough to lure venture capital funds and private equity firms to Georgia. Jeffrey Sohl, who directs the University of New Hampshire’s Center for Venture Research, said the state must also address other challenges cited by firms that bolted Georgia. One issue raised in the past: training more highly skilled workers.

“Venture capital is not going to open up a branch there unless there is a vibrant flow of deals,” Sohl said.

The program can’t start soon enough for some entrepreneurs. Marc Gorlin, who has launched a string of tech firms from Atlanta, said Invest Georgia could help bolster the startup climate here.

“The government needs to get out of its own way, “he said. “They need to figure out how to get that money to the smaller entrepreneurs and the innovative startups, and get it out there fast.”

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