Alabama’s $100M CAPCO Program Up and Running

The Birmingham Business Journal reports that over the span of ten years, $100 million will be invested through the Alabama CAPCO program:

A long-delayed state program that will provide a much-needed shot of venture capital for Alabama startups is finally under way. The program, signed into law nearly two years ago, provides $100 million in premium tax credits over the next decade to dozens of insurance companies that invest in certified capital companies, or CapCos. The six authorized CapCos, each run by one in-state and one out-of state venture firm, will reinvest the funds in qualified Alabama businesses seeking money to grow.

The CapCo program was to have begun in July 2002, but concerns raised in the handful of other states that already have CapCos held up the process, says Anita Archie, general counsel of the Alabama Development Office, which administers the program. “This administration and the previous administration were concerned that the CapCos there were not creating the level of jobs that needed to be created, that the tax credits were not being invested with qualified businesses, that huge legal and lobbying fees were taking away from these investments,” Archie says. “But we’re doing the right thing here by putting Alabama VCs with ones from around the country. They’ll keep the money in Alabama.” Two weeks ago, the ADO finally let the CapCos know just how big a slice each would receive from the $100 million pie. All six have since closed with their insurers and can now begin investing the money with startups.

Homegrown businesses

“We’re very pleased,” says Tim Taylor, chairman of the Alabama Information Technology Association, who also oversees $1 billion in managed assets for Birmingham investment firm Harbert Management Corp. “It had gotten kind of quiet there for a while. I think this is going to saturate the market, myself.” Curtis Palmer, president of local technology business advocacy group TechBirmingham, agrees. “This is bigger than (immediate) job creation,” Palmer says. “Companies that benefit from this will hire even more down the road, and those are higher-paying jobs than the auto sector. The local VCs’ use of this money will help them expand their existing track record and get a larger bucket of money.” A study by Auburn University economic professor M. Keivan Deravi found that CapCos could create 1,750 direct jobs and 1,899 indirect jobs in the first five years, in addition to $126 million in earnings, offsetting the program’s drain on the state general fund. “One of the problems with traditional economic development programs is that they are committed to the recruitment of companies from out of state, such as the auto manufacturers,” says James Outland, co-founder of Birmingham’s New Capital Partners Inc., which has set up a CapCo with Waveland Ventures LLC of Littleton, Colo. “This is really a program to try to homegrow more businesses that are committed to the state of Alabama.”

The Waveland/NCP collaboration has $19.4 million available to invest, the most of any CapCo. The other Alabama venture firms with CapCos are Birmingham’s Greer Capital Advisors LLC and Redmont Venture Partners Inc.; Huntsville’s Hickory Venture Group and Southeastern Technology Fund; and Merchant Capital LLC of Montgomery.

Although tech firms are the traditional beneficiaries of venture funding, practically any Alabama business with less than 100 total employees and 80 percent of its payroll in the state can qualify for CapCo dollars, so long as it is not a banking, insurance, real estate or retail outfit. Multiple CapCos can invest in the same startup, and non-CapCo funding also can be thrown into the mix. CapCos must invest 50 percent of their certified capital by January 2009. Alabama’s venture capital climate is already showing signs of improvement after a long drought,< with $15 million hauled in during the fourth quarter of 2003, according to the MoneyTree survey compiled by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. A new equity investment conference to be held in Birmingham this April is expected to bring in additional funding. The CapCos, which are talking with several investment prospects, should add to the recovery, beginning in the second quarter.


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