Jan 17 2008
Here’s a note from a friend John Warner of Swamp Fox advocating S. 897
An important element of the state’s economic development strategy should be fostering homegrown companies that can grow rapidly, create high wage jobs, and build considerable wealth which can be reinvested back into the state. Examples of these companies include Mt. Pleasant’s Automated Trading Desk, started in the late 1980s and recently sold for $800 million, and Greenville’s ScanSource, founded fifteen years ago and worth $700 million today.
I serve on the SC Venture Capital Authority, which invested $50 million in four venture capital funds to be reinvested in SC companies. We set a specific objective of investing in a seed capital fund, because that is the greatest need of emerging companies in the state. We had a great staff person from SC Commerce, Ian Forbes Jones. He and I looked hard but could not find a seed fund with a profitable track record to invest in. All of the venture funds the Authority invested in are later stage funds which will make investments of $5 million up. That’s an important level of capital that was missing from the state, but it won’t help entrepreneurs start high growth companies to begin with.
I am also knowledgeable of SC Launch!, which is a sponsor of InnoVenture, an annual SC venture capital conference I produce. SC Launch! can invest up to $200,000 in a given company. That’s important too, but usually it’s not sufficient alone to launch a high growth company.
We need a professionally managed seed capital fund in SC, which can invest the initial $1 or $2 million to help start more high growth companies like ATD or ScanSource. Beyond merely investing, this seed fund’s experienced venture professional will also help entrepreneurs develop their strategies, recruit the initial management teams, and pull in other critical relationships. This seed capital fund will often be a partner with SC Launch!, and ultimately with the SC Venture Capital Authority venture funds as companies raise later rounds of capital.
A SC-based seed capital fund will leverage hundreds of millions of dollars the legislature has already invested in programs including the endowed research chairs and the Life Sciences Act. The fund can also leverage the successful industrial recruiting done over decades by the SC Department of Commerce, to grow new companies around facilities of global corporations in the state. Having a SC-based seed capital fund is important to creating companies in cities like Charleston, Columbia, Greenville, and Spartanburg, but it is even more critical to creating high growth companies around anchors like Roche Carolina in Florence, the Savannah River National Lab in Aiken, Robert Bosch in Anderson, or Fuji Photo in Greenwood, where out-of-state venture funds rarely visit.
If a SC-based seed capital fund could have formed without incentives, it already would have. The SC Entrepreneurial Success Fund Act provides a 30% tax credit for investment in a SC-based seed fund that raises a minimum of $10 million, which is a high hurdle. Private investors will be at risk for 70% of the fund’s capital, so they will ensure that a strong fund manager is in place before committing their funds to be at risk.
The SC Entrepreneurial Success Fund Act is included in the legislative agenda of the SC and the Greenville Chambers of Commerce. The Greenville News also recently endorsed the Act.
Thank you for your support. Please let me know if you have other questions, or if there is anything I can do to support the committee’s consideration of this legislation.