CAPCO Programs

A venture capital initiative in Wisconsin may be funded by a combination of a CAPCO program and fund of funds program.

In the venture capital arena, Wisconsin has long been a laggard.

Despite some growth in its venture capital pool during the last 25 years, Wisconsin still ranked just 25th among all states in 2010, with $234 million under management, according to the National Venture Capital Association’s Yearbook 2011.

Wisconsin ranks 20th in population, U.S. Census Bureau data shows.

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Gov. Scott Walker is pushing to develop a venture capital fund under a CAPCO Program in Wisconsin:

At the request of Gov. Scott Walker, former state Sen. Ted Kanavas is taking the lead in developing a venture capital fund for Wisconsin.

Saying the creation of such a fund would contribute significantly to Walker’s goal of creating 250,000 jobs, his staff is laying out an aggressive schedule that would have venture dollars being invested in high-potential, entrepreneurial companies by July 1, according to a memo written by Jason Culotta that was obtained by the Journal Sentinel.

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The Midwest Technology Journal published an article discussing the benefits of the Missouri Certified Capital Companies (CAPCO) program:

Given the tremendous importance of small business to the Missouri economy – 95 percent of all companies and 35 percent of all jobs – it is remarkable that so few of the state-sponsored programs designed to stimulate economic growth are directed at assisting smaller firms. In Missouri, for example, only four of the 21 tax incentive programs designed to encourage investment and job growth are directed primarily at small business. This lack of support is even more inexplicable given the dynamic potential of small emerging businesses and the special problems that are unique to these firms – in particular, a lack of specialized managerial expertise and access to external sources of funding.

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In 1998, Wisconsin established its own Certified Capital Companies (CAPCO) program:

On April 28, 1998, Wisconsin added a new tool to its economic development program when it enacted legislation authorizing tax incentives for investments in Certified Capital Companies (CAPCOs). CAPCOs, organizations whose primary business activity is investing in “qualified businesses,” have been used in a handful of other states as a method of promoting venture capital investment within the state. With the enactment of 1997 Wisconsin Act 215 (the Act), Wisconsin joined Louisiana, Missouri, and New York in offering premium tax credits to insurance companies that make a certified capital investment in a CAPCO. Florida joined the group shortly after Wisconsin by passing its own CAPCO legislation on May 28, 1998, and CAPCO legislation has been introduced in both houses of the Illinois Legislature.

This article reviews the development and operation of these CAPCO programs and the enabling legislation in Wisconsin, exploring the roles of the CAPCO investment vehicles, the qualified businesses that will receive the venture capital funds, and the insurance company investors. The article also focuses on how attorneys can help their clients in any of these three categories take advantage of Wisconsin’s new CAPCO program.

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Back in 2008, Advantage Capital Partners raised over $3 million through the New York CAPCO Program for Niagara Dispensing Technologies, Inc.:

Advantage Capital Partners, a leading venture capital and small business finance firm, today announced participation in a $3.6 million funding round for Niagara Dispensing Technologies, Inc., a highly-automated carbonated beverage dispensing company located in Western New York. Advantage Capital led the round, with other participating investors including Rand Capital and The Erie County Industrial Development Agency (ECIDA). The funding will be used to support the company’s continued growth.

“Closing on this funding is a major milestone for our company, as it will catapult us into the next phase of development for our beer dispense system technology,” said Thomas Gagliano, CEO of Niagara Dispensing Technologies. “We have an excellent product and now have the resources to grow our business and continue to improve our capabilities.”

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Missouri’s rural and agricultural communities could be receiving millions of dollars through the state’s CAPCO Program:

The Certified Capital Company (CAPCO) program, a highly successful economic development initiative aimed at creating jobs and fueling entrepreneurial activity in Missouri, could bring $25 million in venture capital funding to the state’s rural and agricultural communities. The program was first adopted in 1997 and is up for renewal in the state legislature.

Senator Joe Maxwell, (D – Mexico), joined by Senator Franc Flotron (R-St. Louis), Representative Catherine Hanaway (R-St. Louis) and Representative May Scheve (D-Affton), has introduced legislation this year to expand the CAPCO program for an additional $10 million dollars a year for ten years. As part of the deal, $25 million of the bill’s total $100 million would be designated for Missouri rural, agricultural businesses.

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The DC CAPCO program has exceeded expectations and Advantage Capital Partners, Enhanced Capital Partners and Wilshire DC Partners continue to invest in start-up companies:

The District’s CAPCO program, a $50 million venture fund dedicated to Washington-based startup companies, has invested nearly $14 million in 11 companies since the program’s launch 18 months ago. While the program has far exceeded its initial goal of investing 20 percent by May 2007, it has only added one new company to the CAPCO portfolio in the last six months.

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The Journal of Multistate Taxation and Incentives discusses in-depth the importance of CAPCO programs and its success in economic development:

The “certified capital company” (CAPCO) program provides a framework for states to foster local entrepreneurship and lends itself to modifications in response to industry trends, thus giving states a new tool with which to address the priorities of the small-business sector and the states own economic development goals.

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