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January 23, 2017

Study committee assesses venture capital in Georgia

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Venture Capital (VC) is a key ingredient in growing early stage companies, which create new jobs and revenue. The Senate Study Committee on Venture Capital Investments met last fall to study the feasibility and possible benefits of increasing funding for the Invest Georgia Program. The group also gathered information on the size and scope of the VC industry in Georgia. The committee, created by Senate Resolution 1132, was comprised of 12 members including four senators, two agency heads and several private sector experts including MAC CEO Hala Moddelmog. The committee’s report gives some background on Invest Georgia created by House Bill 318 in 2013. Invest Georgia exists to help grow Georgia-based VC funds and to directly support Georgia businesses incubated and growing here. It is meant to be a “fund of funds” in that it can invest in other Georgia-based VC funds that then invest in Georgia companies. Invest Georgia funding:

  • Invest Georgia received $10 million in funding from the state in both 2015 and 2016 bringing the fund’s current total funding to $20 million.
  • Invest Georgia made two investments in Georgia based funds:
    • $3 million in TTV Capital IV venture capital fund
    • $3.25 million in Mosely Ventures
  • The Invest Georgia fund program is eligible to receive up to $100 million.

Based on the Senate Study Committee on Venture Capital Investments’ report, challenges, or impediments to continued growth in this industry include:

  • Georgia’s reputation as a Tier 3 state for VC (with Tier 1 as ideal).
  • Low investment: in 2015, US companies raised $73.4 billion of venture capital, but only 1.3 percent was invested in Georgia companies. Georgia also had 101 venture capital deals in 2015, which represented 1.4 percent of all deals in the nation.
  • Lack of available VC funds in Georgia: companies must look out of state for funding, which often leads to the out of state fund investing in the company requiring that the business move out of state to be closer to the fund, meaning profits are never realized in Georgia.
  • To some degree, the cycle is self-perpetuating: without VC funds to invest in Georgia companies there are fewer successes to fund the next round of investment.
  • Georgia lacks the institutional investors – corporations, pensions or university endowments – investing in Georgia based funds that demonstrates to other investors that Georgia is a credible state to invest in.

The report’s recommendations:

  • Fully fund Invest Georgia up to the allowed $100 million in the upcoming legislative sessions.
  • Investigate allocating unused or unallocated tax credits from existing tax credit programs in Georgia to incentivize Georgia-based corporations to invest in Georgia-based VC funds.
  • Encourage and increase institutional investments into Georgia’s VC funds.
  • Support engagement of large Georgia companies to support startups by providing customers, talent, capital and potential acquisition.
  • Maintain current quality of investments from Invest Georgia.
  • Create a year-round VC Task Force with the following duties:
    • Provide updates on Invest Georgia from the venture capitalist perspective
    • Provide updates on VC activity in Georgia.
    • Discuss macro-economic trends in VC investing.
    • Advance public relations for VC investing in Georgia.

Click here to view the full report: http://www.senate.ga.gov/sro/Documents/StudyCommRpts/2016FinalReportVentureCapitalInvestments.pdf