From legislation to living law; a refined HB 240 is poised to impact Utah's technology marketplace.

• Author: Thomson, Kimball
• Position: Venture Capital Enhancement Act, House Bill

Last year, an unanticipated juggernaut called House Bill 240, the "Venture Capital Enhancement Act," sailed through the Utah Legislative General Session, winning near-unanimous support in the House and 75 percent of the Senate vote. After formally signing HB 240 into law, Gov. Leavitt stood before a gathering of several hundred industry executives and professionals at a Utah Information Technology Association (UITA) event April 3 to perform a ceremonial signing of the bill in front of some of those who had worked so hard for its passage. * The rapid passage of HB 240 surprised even some of its staunchest proponents. As attorney Jerry Oldroyd, one of the bill's chief authors and proponents, said at the time (as partially quoted in the Spring 2003 issue of Wasatch Digital iQ), "I thought it was optimistic to believe we could get this passed in two years, let alone on our first attempt." * So how did the architects of this far-reaching piece of economic development legislation celebrate HB 240's passing into law? Almost immediately, they began to rework a number of significant provisions of the Act. * The result of this effort was a significant revision (known as House Bill 2004) that was passed in a November 2003 special session.

BASICS OF THE BILL

"The purposes of the bill have not changed in any way," said State Rep. Peggy Wallace, HB 240's sponsor in the Utah House.

The central purpose of HB 240 is to increase the amount and diversity of capital invested in Utah venture funds--and to thereby increase the capital invested in Utah start-up and growth-stage technology companies.

"Many Utah companies grow to the point at which they need a significant infusion of capital to move to the next level," says Wallace. Often the amount of capital is not available in Utah, and they will be pressured to move their operations closer to where they can find larger investors, often technology centers in California or Texas. "Investors want to be close to the companies in which they invest," adds Wallace. "That is one of the fundamental problems we are addressing with this bill, to make sure that our companies have the capital they need to grow and stay in Utah. Our economic future depends on growing and keeping our companies here."

HB 240 is designed to attract investment capital by providing potential large investors with a "contingent tax credit" incentive.

The bill calls for the organization of a "fund of funds" and the hiring of a qualified professional fund manager to direct it. Under the guidance of this manager, the fund of funds will raise capital from large investors and deploy the capital it raises in qualified venture capital firms that invest in Utah technology companies.

The fund of funds is designed to attract money from institutions accustomed to moderate but dependable returns. In order to entice such investors, the governing board will set a specified, state-guaranteed rate of return, likely a standard five- to 10-year government bond rate plus a small percentage.

If, as expected, the returns from the fund of...