Macon lawmaker pushes state venture capital fund

mlee@macon.comFebruary 11, 2013 

ATLANTA -- Georgia would become a player in the venture capital game under a bill carried by state Rep. Allen Peake that he said has significant changes over the version his colleagues declined to take up last year.

Georgia would put up to $100 million over five years into a venture capital fund under Peake’s House Bill 285.

The money would be matched by private venture capital. A five-member committee appointed by the governor, lieutenant governor and House speaker would choose a fund manager. And 80 percent of the profits on each investment would be added to the fund.

The return, said Peake, R-Macon, is when a growing company decides to stay in Georgia because it has access to venture capital, though he did not name an expected rate of return in numbers.

“You keep one business with 50 good jobs and multiply that by dozens, that’s a significant return in good, high-paying jobs,” he said.

Lt. Governor Casey Cagle is pushing the bill.

“This fund is a great way for the state of Georgia to help facilitate sustainable 21st century growth by working hand in hand with the private sector rather than working independently of one another,” Cagle said in a written statement.

Venture capital is money invested or available for investment at considerable risk of loss in potentially highly profitable companies, usually in their early stages.

The bill is modeled in part on InvestMaryland, which was signed into law in August 2011. It made its first awards a little more than a year later.

Georgia’s program would be a component of the Advanced Technology Development Center at Georgia Tech in Atlanta, a new part of this year’s proposal. Since its founding in 1980, ATDC has incubated the smallest start-ups with coaching, fundraising and other help.

Georgia’s “is a well-designed program,” said Wesley Tharpe, a policy analyst with the nonpartisan Georgia Budget and Policy Institute, “but there’s no guarantee that it will work.”

The investments would need regular oversight and reviews to see if they are really fulfilling their promises of job creation, he said.

Georgia has “a bad track record” of measuring such returns, said Tharpe.

And the bill comes in a year when Georgia’s state budget is tight. Gov. Nathan Deal has asked most state departments to cut their budgets by 3 percent in the year beginning this July, adding to years of cuts.

“You need to judge something like this against competing priorities,” Tharpe said.

The cash would come either from auctioning off tax credits to insurance companies or from the OneGeorgia Authority. OneGeorgia partners with rural governments to help attract investors. It granted $1.5 million to the Macon-Bibb County Industrial Authority to help it offer sweeteners, like a graded lot, to the Bass Pro Shops distribution center.

That’s a switch from last year, when the bill raised money only by selling tax credits.

“There’s a general environment of, ‘Maybe we need to take a tougher look at tax credits,’ ” Peake said. Hence the option of another possible source of funds.

He also admits there’s a risk that the state’s investments could go bust.

“That’s why you have a professional fiduciary who manages this fund who has a proven track record,” he said.

Cagle wrote that Georgia’s neighbors are aggressively establishing venture capital funds and that if the state doesn’t do something similar, “we’ll be left watching other states lead the way” in innovation.

Yet some states have fallen out of love with venture capital. The Washington State Investment Board and the California Public Employees’ Retirement System both started easing out of venture capital in 2012, according to Bloomberg Reports.

Managers in those states cited things such as venture capital’s dislike of public scrutiny, the states’ relatively small money on hand and lackluster returns.

Venture capital disbursements in Georgia fell from some $2.3 billion in 2000 to $333 million in 2010, according to National Science Foundation figures adjusted for inflation.

Nationally, the numbers dropped from $105 billion to about $22 billion.

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