Hawaii’s Tech Industry After Act 221

The tax credit nurturing Hawaii’s tech industry is dead, but here are five ways to keep the momentum going

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Governor’s Tech Plan

In his “A New Day in Hawaii” campaign proposal, Gov. Neil Abercrombie promised to create an environment in which innovation and technology lead to more opportunities, greater efficiency and higher paying jobs. Here is what he suggested:

Create a Governor’s Technology Council: Consisting of entrepreneurs, investors, businesses, researchers, government and others to implement and oversee the state’s technology and innovation agenda and its integration with Hawaii’s core industries.

Support science, technology and innovation in schools: High standards will be developed to ensure that Hawaii’s students are the most technologically savvy in the country. Public-private partnerships will help ensure every school has the infrastructure and expertise to make this a reality, and innovation at the schools will be incentivized and replicated.

Integrate university with business: UH and the private sector must work together to form the economic driver that this state has talked about for decades. Closer collaboration will help transition millions in federally funded research and development activity into products and services that can lead to the startup and success of world-class tech companies.

New tech incentives and capital-formation supports: Abercrombie suggests constructing a new policy regime, not only with incentives to attract investment, but also with additional support to help businesses become profitable and create jobs. This regime would include a package of redesigned tax incentives for companies at all stages.

Build tech centers: Hawaii needs well-planned and resourced facilities for tech companies to incubate. Federal funding and government lands will be used in public-private partnerships to develop and improve tech parks across the Islands.

Appoint a chief information officer for the state: The state is wasting millions of tax dollars each year because of outdated and inferior information systems. A CIO will help all sectors of the economy become more infused with technology, increase cost effectiveness and competitiveness, and improve quality.

Improve government processes: The key to helping tech and innovation is a comprehensive plan to improve the business climate, which means government must get its house in order and become a better partner with the private sector. Government must improve permitting and regulatory processes, provide help in accessing federal funding, purchase from local vendors, and reform procurement processes.
 

 

From Seeds to Flowers: How Venture Capital Turns Ideas into Successful Companies

Seed stage

Low-level financing needed to prove a new concept or idea works. Often provided by the 3 Fs – family, friends
and fools – or angel investors.

“When you make investments in venture capital, it’s not like in real estate where you invest once and you’re done. Typically, you have to do multiple rounds of investment. It’s called follow-on investing.”
– Jeffrey Au, managing director of PacifiCap Group

“If you think about what a VC does, they look around, try to find deals, listen to a lot of pitches and they invest in very few of them. We invest in maybe 1 percent of the deals we hear.”
– Tim Dick, CEO of Adama Materials and general partner for Startup Capital
 

Startup

Early-stage businesses need funding for expenses associated with marketing and product development. Those funds are provided by angel investors or venture capital funds. Some local companies can achieve this level of financing in Hawaii. Others will have to look outside.

“In Silicon Valley, the average success rate for companies that are invested in are one out of eight. So, only about 12 percent of all venture-based firms become homeruns.”
– Bill Spencer, president of Hawaii Venture Capital Association

“This is a numbers game. When they say almost half of all small businesses are dead in five years, I believe it. Tech probably has a higher mortality rate because it takes so much money to get your product to market.” – Susan Yamada, executive director of UH’s Pacific Asian Center for Entrepreneurship
 

First-Round or Series A

Early sales and manufacturing funds. May secure some local financing from Hawaii-based VC firms, but most companies will need to shop for investors on the Mainland or in Asia.
 

Second-Round or Series B

Working capital for early-stage companies that are selling product, but not yet turning a profit.

“On average, it takes about eight to 10 years for tech investors to see a return.”
– Jeffrey Au
 

Third-Round or Series C

Also called mezzanine financing. This is expansion money for a newly profitable company.

“VCs want at least a 20 percent return on their investments, but often get much more.”
– Bill Spencer
 

Fourth-Round

Also called bridge financing, this round is intended to finance the “going public” process. The right connections and technology/product could result in a buyout of your company.

“From the beginning, investors want to know that the entrepreneur knows how to make money and has carefully planned their path to profitability because, if a successful exit is achieved, that’s when they’ll make all their money.”
– Bill Spencer

 

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