Watch Statehouse Week every Friday evening or Sunday afternoon on SCETV  


Venture capital proposal could pay off for state
By Andy Brack
SC Statehouse Report



We encourage your feedback. If you'd like to respond to something in SC Statehouse Report, please send us an e-mail. We reserve the right to edit for length and clarity. One submission allowed per month. Please keep your comment to 250 words or less:

MARCH 23, 2003 - - Any angler will tell you the way to catch big fish is to have the right bait.

Now years after a national high-tech boom fueled by venture capital, the state is poised to catch up by creating a $100 million venture capital fund for investment in potentially lucrative, but risky start-up companies.

For about a year, SC Sen. Jim Ritchie (R-Spartanburg) has been working on legislation to create the fund as an engine to help generate high-paying jobs and cut a wage gap in South Carolina. In the 2002 State of the State address, former Gov. Jim Hodges called for a venture capital pool to help new technology businesses develop and grow.

"By investing in knowledge-based businesses, we'll develop broad applications that will create more jobs for people in manufacturing, distribution and other sectors," Ritchie said.

On Wednesday, every state senator signed on to Ritchie's bill, which proposes using state tax credits as guarantees to encourage banks and financial institutions to pool private money into the state fund. Use of tax credits puts state tax coffers indirectly at risk, but only if investments in startup projects don't pan out after as much as 10 years.

The bill calls for a seven-member board appointed by the Senate, House and governor to administer the fund by doling out dollars to professional venture capital firms, which will make investment decisions in startup companies. To qualify for money, venture capital firms will have to put up at least three times the amount of money offered by the state, which is capped at $5 million for any single investment.

The bill also calls for investors to agree to spend the state's portion in South Carolina-based companies, a caveat that could make the investment less attractive, according to a 2001 report by the Southern Governors' Association.

"Fund managers often find their hands tied to rules restricting the placement of public funds to in-state opportunities, which may be few and far between, that may compromise the return on investment to the investors, including the state," according to the report on spurring the New Economy in the South.

The report also encouraged states to review instate investment restrictions to allow employee pension funds to be used partially for venture capital purposes. South Carolina, for example, does not allow pension funds to be invested in venture funds, but it does make investments in out-of-state public equities.

"It would make better sense to require state pension fund investments into the VC funds of the host state, thereby advancing the presence of venture capital for the benefit of the people whose salaries generate the pension fund," the report noted.

Ritchie's proposal to create a state-backed venture capital fund begs the question about whether South Carolina is too late to achieve big successes through it. Last year, for example, venture capital accounted for more than $21 billion in U.S. investment. Only $4 million went to South Carolina, according to published reports.

But Ritchie is convinced the market and ideas in South Carolina exist to make the fund viable and a success, particularly because of the state's expertise in several clusters of expertise - - biotech, hydrogen and automotive industries.

"The market is here in South Carolina, but there haven't been the resources to meet the demand," he said.

One thing is for sure. If South Carolina doesn't at least try to attract more investment through something like a state-backed venture capital fund, it won't get much at all.

In other words, you can't drop a baitless hook in the water and expect to catch anything. First, you've got to bait the hook.


Learn more about Statehouse Report