Is Georgia ready to fund venture capital?


Is Georgia ready to fund venture capital?

With Georgia’s promising technology center still hamstrung by a lack of cash, Lt. Gov. Casey Cagle is pushing legislation to combine state money and private dollars into a new venture capital fund. It could be a game-changer for the kind of jobs the state covets, but it also comes with high risk.

Cagle’s proposal would dedicate $100 million in state money over the next five years to the fund, which would be overseen by an independent investment board. To do so, the state would offer up either tax credits or draw from its OneGeorgia fund, which it uses to seed economic development.

The board would recruit large venture capital firms to throw private money into the pot. It would then choose which startups to invest money in. If all goes well, based on each contract, it would recoup its original investment plus 80 percent of profits — which would go back into the fund. The firms would get the remaining 20 percent.

Georgia has been down this road before.

In 2004, lawmakers stopped a program to funnel $75 million in tax credits to small businesses because of state budget concerns and worries about the program’s effectiveness. A proposal that would have given $125 million in tax breaks to a few national investment firms died on the last day of the 2011 session, after state leaders balked that such “certified capital companies,” or CAPCOs, would wind up with both the principal invested and any profits.

This time, Cagle said, is different: “This is not CAPCO.” He expects a bill to be filed in the House within 10 legislative days, and has been working behind the scenes to gain enough support to get it passed.

Georgia and local economic development officials often tie much of their recruitment efforts to cultivating startup companies and jobs that create new technologies. One knock on Georgia, however, has been the state does not have the robust investment vehicles of rival states.

Though Georgia has key ingredients like research universities and major corporations that help spawn new technologies, observers say a lack of venture capital funding has stymied the rise of the state’s technology stature.

Critics, however, say such efforts simply hand piles of taxpayer money over to a few investment firms, which will reap most of the benefit. “The devil’s in the details,” said Kelly McCutchen, president of the fiscally conservative Georgia Public Policy Foundation. “The CAPCO thing sounded good, but the state wasn’t going to reap the rewards.”

It’s also worth noting that Gov. Nathan Deal on Jan. 17 proposed funding cuts for programs including OneGeorgia, which began with funds from a national tobacco settlement as a way of helping poor, rural communities attract jobs.

Venture capital investing peaked in Georgia in 2000 at more than $2 billion during the tech bubble, according to data from the National Venture Capital Association.

Venture funding in Georgia fell in 2012 to about $265 million, down from $383.4 million a year earlier, following a national trend of fewer dollars invested. Overall, Georgia received around 1 percent of total venture funding in the U.S. for the past two years.

The proposal, if passed by the General Assembly, could be a boon to technology incubation.

This is not the first venture capital effort lately. It would come on the heels of a major investment by Cox Enterprises.

In mid-January, Cox Enterprises, the parent company of The Atlanta Journal-Constitution, announced it would invest $250 million with serial tech entrepreneur and Cox board member Tripp Rackley to dream up a new generation of startup companies in metro Atlanta. Cox has already committed cash to two of Rackley’s companies.

“Venture capital is the mother’s milk of new startups,” Sam Williams, president and CEO of the Metro Atlanta Chamber, told brokers and economic development officials on Wednesday at a conference held by real estate services giant Jones Lang LaSalle.

Natural growth of existing businesses and new startups, he said, are among the biggest sources of job creation. State and local officials have also pushed recruitment efforts toward attracting coveted “knowledge workers.”

Attracting investment dollars to back developers of new technologies is a big part of that effort.

“It’s a war for talent, and the cities that win that war will move ahead in the next century,” Williams said.

Georgia has consistently received less than 2 percent of the national venture capital spending over the past several years despite being “one of the busiest bases for entrepreneurs” in the nation, said Tino Mantella, president and CEO of the Technology Association of Georgia, a key backer of the proposal.

The group gave Cagle a $1,000 campaign donation last fall. Cagle also received $3,500 late last year from Advantage Capital, a New Orleans company that pushed the failed 2011 CAPCO bill.

More than 20 companies that were incubated through Georgia’s research universities have left the state in the past decade, according to the association. Scores of others that weren’t tied to the universities also have flocked to richer climes.

Mantella said many rival Southeastern states already have state-supported or public-private venture fund vehicles. The dearth of local funding and the spending power of out-of-state funds can leave Georgia vulnerable to losing tech startups to cash-rich rivals like California and Massachusetts.

“We are losing a lot of jobs,” Mantella said.

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