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A Diverse Economy

Does Hawaii need one? How should we get it?

(page 4 of 4)

The Alphabet Soup of Hawaii Diversification

HTDC: High Technology Development Corp., a state agency that provides incubation facilities, workshops and other resources for tech sector companies.

HTIC: High Technology Innovation Corp., a nonprofit associated with HTDC that attracts high-tech opportunities to the state.

HSDC: Hawaii Strategic Development Corp., a state agency created to develop a sustainable venture capital industry in Hawaii.

SPIF: State Private Investment Fund, created to invest in Hawaii technology. Unfunded.

OAD: Office of Aerospace Development, a state agency to promote aerospace industries in the state.

HiTIP: Hawaii Targeted Investment Program, the state Employees’ Retirement System’s vehicle for investing in Hawaii-based venture funds.

HiSciTech: Hawaii Science and Technology Council, a trade association of tech companies.

Act 221/215: Legislation that provided tax credits to encourage local investors to invest in Hawaii technology companies.

HiBEAM: Hawaii Business and Entrepreneur Acceleration Mentors, a private incubator organization that advises and mentors early-stage tech companies.

Utah’s Model

The state of Utah has taken a bold approach to the capital problem. Using $300 million in refundable tax credits as a guarantee, Utah has attracted more than $100 million in private investment for a state-run fund of funds. Of course, like any large institutional investor, the fund of funds doesn’t invest directly in companies; it invests in venture funds that, in turn, invest in their own portfolios of firms. That much, at least, is classic venture capitalism. The risky part is there’s no guarantee that any of this money will ever come back to the state. To take advantage of the tax credits, all that’s required is that these venture funds “commit to having a working relationship with the Utah Fund of Funds.”

According to Jason Perry, director of the Governor’s Office of Economic Development, it’s the state’s job to convince those venture capitalists to invest the money back into Utah. He points out they have a wide range of incentives. “We have tax credits to expand or relocate. And we offer up to 30 percent credits for sales, income and withholding taxes for up to 20 years.”

It seems to work. Jeremy Neilson, who manages the fund of funds, points out that only $45 million of the fund has been expended so far, “but we’ve had over $165 million invested in Utah companies.” And that’s only counting investments from out-of-state venture funds. “If you count all the money invested,” Neilson says, “there’s a total of $615 million dollars syndicated.” That’s a 12-fold return on investment.

The best part is Utah isn’t out a dime of upfront money. The refundable tax credits that guarantee the fund of funds only come due in 10 years, and only if the investments lose money. Regarding the incentives for companies to come to Utah, Perry points out, “It’s all post-performance. We never give up a penny of state money until we have a dollar in our pocket.”

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