A state plan adopted last year to attract more investment dollars for local startup companies has lacked one crucial component: a way to spend the money.
The Invest Georgia Fund was seen as a way to forge a new, if riskier, path that allows the state to fund innovative firms. The tech community, in particular, hailed the bill's April 2013 signing as a way to entice emerging firms to stay in Georgia rather than flee to startup hubs where seed money flows more freely.
Elected officials, though, have lagged in appointing members to a five-person board set to oversee the fund. And without that oversight, the University System of Georgia says it can’t do anything with the one-time $10 million initial investment it has set aside for the fund.
The money hasn’t been invested “because there is nobody in place to call the shots,” said John Brown, the University System’s budget officer. He said he is waiting for the board to be formed and for leaders to decide “what direction it’s going to take.”
That could soon change, Gov. Nathan Deal indicated in an interview. He recently picked three members to serve on the board, a move that could smooth the way for the funding to be released.
“There will be money available for it, and there will be money for it this year,” Deal told The Atlanta Journal-Constitution.
Still, the pace has frustrated some who say the state has given little attention to building a bigger tech community that could boost area pay and the economy. They question why it has taken more than a year to set in motion the funding mechanism for the program.
“It’s disappointing it’s taken so long to get off the dime,” said Tom Hawkins, the founder of Forte Ventures, a locally based fund. “It shows a lack of commitment to the whole sector.”
He added, “It’s just amazing to me that we can’t get something like this funded with a higher priority than it has.”
The plan’s boosters, chief among them Lt. Gov. Casey Cagle, hope that the publicly backed venture funding would eventually pump $100 million into startups in hopes of keeping Georgia entrepreneurs from bolting for Boston, Silicon Valley and other entrepreneurial havens. They also say the money could lure other investors to the state.
It passed despite the objections of critics who questioned whether using state dollars to help fund startup companies is an appropriate use of taxpayer dollars, particularly at a time when advocates for education and social services are clamoring for more funding.
After lawmakers couldn’t agree to put the initial $10 million investment in the state budget this year, the University System approved setting aside the money.
The legislation created a five-person board, with three members appointed by the governor and one each by the House speaker and the lieutenant governor. Speaker David Ralston’s office said his appointee was tapped months ago; Deal and Cagle named theirs within the past few weeks.
Brown, the University System’s budget officer, said he hasn’t been contacted about directing the funds.
“At some point it will kind of run on its own,” he said. “We are just sort of the startup.”
Tech entrepreneurs said the wasted time was a setback to Georgia’s efforts to attract increased venture funding to boost the growth of local tech industries.
Venture-capital investing peaked in Georgia in 2000 at more than $2 billion and then collapsed with the dot-com bust, 9/11 and the Great Recession. Data from the National Venture Capital Association show Georgia firms landed about $403 million in venture capital last year, up from about $262 million in 2012. But the pace for the state the first half of this year has slowed compared with the same period in 2013.
One reason for the funding problems is rooted in geography. The region is home to only a few venture capital firms, which means the local startups often have to look to investors elsewhere for funding.
And that increases the likelihood they will move closer to their investor base as the company grows. Leaders of Georgia’s tech community worry that the brain drain could damage the state’s hopes of building a lasting entrepreneurial ecosystem.
Jim Flannery, who runs an Athens-based nonprofit that helps support startups, struggles with that fight every day. He lost another talented entrepreneur last week when a software developer left for San Francisco after the company she helped build didn’t win funding.
“There’s no money to invest in companies around here,” said Flannery, whose organization, Four Athens, supports 65 small companies. He added: “What happens is the really good people tend to leave. … And the talent that stays has to work twice as hard.”
Sanjay Parekh, who co-founded and sold the Gwinnett County-based tech company Digital Envoy, warned that many startups “die on the vine because they need that next round of funding.”
Parekh, who now organizes conferences to help startups, worries the delay is sending the wrong message to the tech community.
“Every delay continues to extend out the timeline of us seeing any impact from that funding,” he said.
But once the state dives into venture funding, even some tech industry boosters suggest caution. The government funds would be invested in private venture capital funds, which in turn would invest in small companies.
“It’s really risky,” Flannery said. “Most venture capital funds simply don’t make money.”
Conversely, he said there’s also a danger that if the state puts in so little money that it can only do a few relatively small deals, it can’t increase its chances for landing a big win.
Nationally, venture capital investing topped $22 billion for the first half of the year, according to the National Venture Capital Association. If that pace holds, it would make 2014 the hottest year for U.S. venture capital investing in more than a decade.
But the Southeast landed less than 3 percent of the nation’s total in the first half of the year, NVCA figures show. Georgia, though, got more than 40 percent of the investment in the region, capturing $265.5 million over that period.
