A legislative working group believes it might have found a capital idea.
A group of legislators from various committees and some state Information Technology Commission members on Tuesday kicked around the idea of forming a "fund of funds" to help dwindling high-tech venture capital blossom in Utah.
Todd Stevens, managing director of Wasatch Venture Fund, said a successful setup in Oklahoma features such a funding pool that, through professional management, targets venture fund companies to open an office in that state.
"If we had more funds in Utah, we don't see that as competition but more help and resources to help companies succeed," Stevens said.
Group members said any new "fund of funds" would be in addition to existing economic development tools such as the Industrial Assistance Fund, which helps companies expand in or relocate operations to Utah.
"While the state has other incentives to attract companies from out of state, what we are talking about is seed capital for Utah companies right now," Stevens said. "The main focus is for existing Utah businesses to expand and grow and succeed."
Group members acknowledged that Tuesday's meeting yielded more questions than answers, including how to address constitutional issues, how to keep any new mechanism in the private sector as much as possible, and how to help existing businesses in addition to startups.
The group will gather more information before its next meeting Oct. 1, but several people emphasized that Utah is lacking in early-stage capital — past the "seed" stage when companies get started but before they become permanently established and are looking to grow and expand. At those later stages, they can obtain debt financing from banks.
"You need every level of the pyramid for a company to succeed," Stevens said.
Nicole Toomey Davis, former chief executive officer and co-founder of DoBox Inc., which has raised $2.6 million since its 1999 founding, said that in 2001, 35 Utah companies received venture capital funding. But 24 of those received expansion funding.
"The good news is our Utah entrepreneurs, if they get to that stage and can hang on, they are competitive," she said.
But nationwide, she noted, 71 percent of deals that year were of the "early-stage" variety. "We're exactly flipped," she said. "We're starving exactly backwards."
She said she knows 10 company executives who tried to raise money in Utah but had to go out of state to get what they sought. Now those sources have dried up.
"Filling this early-stage pool is what we have to do," she said.
Most Utah VCs fund 10 to 20 new companies annually, but the Utah Information Technology Association has estimated there are 30 to 50 deals each year that are worthy of funding.
Attorney Jerry Oldroyd said he knows several companies with good products and patentable technology. Three are "sitting on the shelf," waiting to sell their technology to California companies or ready to declare bankruptcy, he said. One needed $2 million to get things going.
"We're looking to assist," he said. "I'm not talking about grants."
Stevens noted that Utah has a few seed and early-stage venture fund companies. "Even though there are local sources, we cannot keep up with demand for capital within the state," he said.
In 2000, there was nearly $600 million in investment in early-stage technology companies in Utah, with about 10 coming from local resources. But that slipped to $100 million last year and less than $50 million the first half of this year, he said.
"The trends are on the decline, so for early-stage and startup companies in Utah, it's difficult to grow a company right now because the capital markets are so constrained," Stevens said.
Group members acknowledged that a "fund of funds" would work. Even bad models have been successful in attracting money by dangling funds to entice venture fund companies to set up shop in their states, they said.
"The entrepreneurs are not looking for the state of Utah to give us money," Davis said. "We want a shot. We want a big enough pool of money to be able to tell our story."
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