Jun. 3–TAMPA, Fla.–High-tech start-up companies are strapped for cash, and venture capital investments are nearly kaput in Florida. Any help from the government would seem welcome.<\/p>\n
But it won’t come this year. A state program that would pump $75 million into fledgling Florida companies got lost in the Legislature’s budget crisis this year. Meanwhile, critics of the Certified Capital Companies program have attacked it for benefiting venture capitalists more than anyone else.<\/p>\n
Supporters of the program are waiting for next year.<\/p>\n
“Unfortunately, I think we are stalled indefinitely,” said Tate Garrett of Advantage Capital Partners, one of the venture capital firms funded by CAPCO.<\/p>\n
These are tough times for fledgling technology firms. Nationwide, venture capital funding sank to $21 billion last year, down from $106 billion in 2000, according to the National Venture Capital Association.<\/p>\n
In Florida, venture capital funding peaked at $2.4 billion in 2000 but fell to $356 million last year, the lowest since 1995.<\/p>\n
What happened?<\/p>\n
Garrett said VC firms are nursing the start-up companies they have invested in, often pumping new money into the companies to keep them afloat. Little time or money goes to new companies, he said.<\/p>\n
“I think there’s a bit of shell shock out there,” Garrett said.<\/p>\n
The CAPCO program was designed to pump up Florida’s venture capitalism.<\/p>\n
Created in 1998, the program entices big insurance companies to invest in small Florida-based companies by giving them tax breaks.<\/p>\n
For every dollar that an insurance company invests, it gets $1 off on its taxes to Florida.<\/p>\n
CAPCO is a $150 million program, meaning insurance companies can invest $150 million in small Florida companies and get the same amount knocked off their tax bill over a 10-year period, Garrett said.<\/p>\n
Three venture capital firms in Florida administer the program. Two of the three firms have Tampa offices: Advantage Capital Partners and Stonehenge Capital Corp. The third, Wilshire Partners, is in Miami.<\/p>\n
So far, the three venture capital firms have invested in about 30 small Florida companies, Garrett said.<\/p>\n
Garrett and other CAPCO supporters want to double the size of the program.<\/p>\n
Insurance companies would invest another $150 million in CAPCO over 10 years instead of paying it in state taxes. The Legislature approved this second phase of the program last year, Garrett said.<\/p>\n
“The ability to gather future CAPCO funds will allow us to grow our portfolio of Florida- based companies at a much quicker and faster rate,” said Barry Sloane, managing partner of the venture capital firm Wilshire Partners.<\/p>\n
But recently, things have become muddled.<\/p>\n
Although legislators approved another $150 million, the wording in the legislation was confusing and the Legislature needed to clarify it during the just-finished legislative session. But that didn’t happen.<\/p>\n
First, the state had too many other priorities, and CAPCO was not on legislators’ radar. Second, the program has been sharply criticized in recent weeks for not delivering enough bang for the buck.<\/p>\n
Among the complaints:<\/p>\n
–Jobs lost, not created. The CAPCO program is supposed to create jobs at small Florida companies, particularly high- tech ones. But since the program was created, the 30 companies funded by CAPCO have cut their payrolls. They have 174 fewer employees than before they received CAPCO funding.<\/p>\n
“Part of the intent of the program was to increase employment in high-tech and other related areas,” said Mary Helen Blakeslee, who oversees CAPCO for Florida’s Office of Tourism, Trade and Economic Development. “And so far, unfortunately, that’s not been the case.” Garrett said the economy has been down the past couple of years and the layoffs did not result from CAPCO.<\/p>\n
–High financial cost to state. Florida is giving up $150 million in taxes under CAPCO and it could rise to $300 million. But the insurance companies and venture capital firms risk far less.<\/p>\n
CAPCO is a $150 million program, but only half that amount, $75 million, goes to small start-up companies in Florida. The venture capital firms put the other $75 million into safe investments, such as Treasury notes, then return it to the insurance companies after 10 years.<\/p>\n
That gives insurance companies $150 million in state tax credits, but they invest only $75 million in risky start-up companies. Several critics have attacked CAPCO on that point, Blakeslee said.<\/p>\n
Meanwhile, venture capital firms such as Advantage Capital Partners get the lion’s share of the profits. Advantage Capital, for example, may receive as much as $60 million in profits over 10 years, Garrett said. The state gets 10 percent of the profits.<\/p>\n
Florida’s chief financial officer, Tom Gallagher, didn’t return repeated requests for comment. But in a recent published report, Gallagher said, “It’s a heck of a deal [for venture capital firms]. I think it’s terrible public policy. We’ve got a lot more needs in this state than funding venture capitalists.”<\/p>\n
Despite the criticism, some small Florida companies are CAPCO supporters.<\/p>\n
Pilgrim Software of Tampa got $2 million in CAPCO funding from Stonehenge Capital last year. That money helped the company grow into a 92- person company with offices in Tampa and Europe, said Executive Vice President Prashanth Rajendran.<\/p>\n
TriCon Pharmaceuticals of Tampa is seeking CAPCO funding. TriCon takes research by universities and drug companies and tries to turn it into new pharmaceuticals, said company President David Zaccardelli.<\/p>\n
“It’s an example of how the CAPCO program could kick- start a new start-up company that could develop new drugs for the treatment of cancer,” Zaccardelli said.<\/p>\n
—–<\/p>\n
To see more of the Tampa Tribune — including its homes, jobs, cars and other classified listings — or to subscribe to the newspaper, go to http:\/\/www.tampatrib.com<\/p>\n
(c) 2003, Tampa Tribune, Fla. Distributed by Knight Ridder\/Tribune Business News.<\/p>\n","protected":false},"excerpt":{"rendered":"
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