Eager to keep startups from fleeing Georgia when funding dries up, the state took a significant step Monday toward creating a public-backed venture fund that could eventually pump $100 million into innovative new companies.
Gov. Nathan Deal’s decision to sign House Bill 318 forges a new, riskier, path for state funding of private companies. There’s no initial funding in the budget for the program, but it creates a blueprint for state investment that supporters hope could keep Georgia entrepreneurs from bolting.
“Businesses follow capital, and many companies that were started and incubated in Georgia have had to leave for the Northeast or Silicon Valley,” said Lt. Gov. Casey Cagle, the plan’s biggest supporter. “This is a way for us to create the ecosystem for companies that could be the next Apple or Microsoft.”
How they will tread that path remains to be seen. First, Cagle and his allies must push lawmakers to include funding for the program in future years. Some fiscal conservatives and tea party supporters, burned by stories of public-backed companies that failed, are convinced the reward is not worth the risk to taxpayers.
“This amounts to a slush fund and we don’t support this type of crony capitalism,” said Debbie Dooley, state coordinator of the Georgia Tea Party Patriots. “The government shouldn’t be in the business of picking winners and losers, and the government shouldn’t be in the business of supporting private business.”
The measure was part of broader legislation that also allows developers of tourism projects to receive hefty sales tax breaks if they cost at least $1 million, attract at least 25 percent of out-of-state visitors by their third year and don’t compete directly with existing Georgia businesses. State economic officials must also sign off on each of those projects.
At his bill-signing ceremony, Deal focused on the part of the bill that benefits tourist attractions. But when questioned, he said sometimes the private sector alone isn’t enough to support the promising businesses that start in Georgia and later get siphoned to other states when they run out of funding.
“We’re trying to stop that hemorrhaging from occurring,” he said.
The venture-capital fund, called Invest Georgia, would phase in funding over five years and be managed by a five-member panel appointed by the governor, lieutenant governor and House Speaker. That panel would select an administrator to manage it, and the funds chosen for investment would also have to pump in their own private money.
Cagle’s office says the program would seek to leverage private funds that could magnify the investments several times over. It cites a long list of companies, including Advanced Catheter Therapies and Synageva, that have left the state in recent years after getting venture-capital money in other states.
State officials have long struggled to attract increased venture funding. Startup companies and jobs that create new technologies are coveted, and the state has key ingredients such as research universities and major corporations to do just that. One knock on Georgia, however, has been the lack of funding. Some fear that has stymied the growth of Georgia’s tech industries.
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. But such funding in Georgia fell in 2012 to about $265 million, down from $383.4 million a year earlier, after a national trend of fewer dollars invested. Georgia received around 1 percent of total venture funding in the U.S. for the past two years.
Tino Mantella, president and CEO of the Technology Association of Georgia, a key backer of the bill, said the fund will help keep companies in Georgia. According to TAG, more than 20 startups incubated through the state’s research universities have left Georgia in the past decade. Scores of others not tied to research institutions also flocked to more capital-rich states like California or Massachusetts.
“It’s a terrific step for the state of Georgia and the entrepreneurial community in the state,” Mantella said.
This isn’t the first time Georgia lawmakers have sought to boost venture capital. 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 worried that such “certified capital companies,” or CAPCOs, would wind up with both the principal invested and any profits.
Several conservatives said the new law provides protection to taxpayers that the prior proposals lacked. Kelly McCutchen, the president of the fiscally conservative Georgia Public Policy Foundation, noted that this version requires professional management of the fund.
“There were a lot of protections that were put in,” he said. “It was insulated.”
Still, others question whether using state dollars to help fund startup companies is appropriate amid budget belt-tightening that has forced the state to cut back on social services and other programs. Those cuts may partly explain why House lawmakers didn’t include funding for the project in their budget this year.
“If Georgia had more financial flexibility through increased revenues, then Invest Georgia might be a proposal worth considering,” wrote Wesley Tharpe of the Georgia Budget and Policy Institute in an analysis. “Instead, it is a diversion of state money that Georgia cannot spare.”
