A bill creating a "fund of funds" to stimulate venture capital investment in Utah underwent some tweaking before passing both houses Wednesday, leaving two major proponents happy with thoughts about how it will help the state's high-tech sector.
Richard Nelson, president and chief executive officer of the Utah Information Technology Association, and attorney Jerry Oldroyd were busy accepting congratulations after the final vote on HB240.
"It's a huge win for the industry, the economy and for the families of the state," Nelson said. "The high-paying jobs are much-needed. This venture capital 'fund of funds' will clearly change the capital structure of this state going forward."
"Obviously, I'm very pleased, but I'm also surprised," Oldroyd said. "It's a complicated bill, and with this type of session, with all the distractions, it's pretty remarkable to get the bill through this session."
HB240 calls for the creation of the "fund of funds" to spark venture capital investment in Utah companies. It would leverage future contingent tax credits — up to $20 million annually — in a $100 million fund in order to attract investors who seek certain levels of return, such as power companies, banks and other conservative investors. The fund would invest in a variety of VC funds committed to working with and investing in Utah high-growth ventures.
The "fund of funds" would reach $100 million through the excess above the return to investors. The contingent tax credits would be used if the guaranteed rate of return is not delivered — something not experienced yet in other states with a "fund of funds."
The Senate passed the bill Wednesday with a 21-7 vote, but not before amending it to require progress reports every two years instead of three and giving the bill a five-year life instead of 50.
The House later voted 68-0 to concur with the Senate's amended version.
Nelson and Oldroyd both emphasized that the bill was supported by industry. Nelson said the work on the concept began two-and-a-half years ago and was picked up by UITA last year before garnering support of sponsors and leadership in both houses.
"The only reason we really got the bill through was the industry involvement," Oldroyd said. "The venture capital community was very, very active the last few days. . . . You can lawyer something to death, but ultimately it's going to be the industry pushing it through."
During Wednesday's deliberation on the bill, Sen. Scott Jenkins, R-Plain City, described it as an attempt to "stop the exodus" of high-tech companies and jobs from Utah. Jenkins said it would help small firms "to grow and thrive and do better in our economy. The whole idea behind this is an economic stimulus package."
"It's important we do the best we can to energize our economy," Jenkins said later. "I feel this is a powerful tool that we've created here."
Several senators were worried about the state's responsibilities, although Jenkins said that the fund of funds' investment in other VC funds would "water down" the state's liability.
Sen. John Valentine, R-Orem, wanted to be sure the state had no obligations — including implied ones — other than with the contingent tax credits. "Without that, I get very nervous," he said.
Sen. Bill Hickman, R-St. George, wondered if the bill would create a repeat of the troubled Utah Technology Finance Corp., which ultimately became a private organization.
"I have some serious concerns about this approach. . . . We had some very difficult problems with UTFC and finally got that 'quasi' eliminated," Hickman said. "This looks and smells an awful lot like UTFC."
Six states have established such funds of funds, and Sen. Howard Stephenson, R-Draper, said he recognized the "war among the states for economic activity."
"I realize that we have to do something to provide for our children to have the kind of jobs they need to stay in this state. Right now we don't have sufficient venture capital in this state to do the kind of economic activities that will support families," he said.
"This is an appropriate role for government that will facilitate certain behaviors in the private sector that will ultimately benefit the entire state of Utah through an infusion of additional tax dollars, a productive work force and a growing economy," Sen. James Evans, R-Salt Lake City, said.
Sen. Ed Mayne, D-West Valley City, expressed concerns that the bill would create low-paying jobs. Sen. Mike Dmitrich, D-Price, wanted to work in assurances that funded companies would not later leave Utah.
The Attorney General's Office and the Auditor's Office are reviewing the bill, but Jenkins and the bill's sponsor, Rep. Peggy Wallace, R-West Jordan, both said Wednesday that they believed constitutionality questions had been resolved.
"There's a lot of structure still left in terms of implementing this," Oldroyd said after the House vote. "It's going to be an ongoing process and dialog with the governor's office and the Legislature and attorney general to make certain it's structured in a fashion to meet any constitutional challenge.
"These issues have been raised in other states, and we're comfortable that we solved most of the fundamental issues. . . . To say they've solved all the problems, those problems won't be solved until this thing is up and running."