Resource

Pennsylvania Venture Coalition, Greater Philadelphia Venture Group, Pittsburgh Venture Capital Association

Harrisburg Overview May 22nd and 23rd, 2006

Primary Long-Term Objectives:

  1. Support Growth of Pennsylvania's Venture Capital Community. Propel statewide economic vitality through continued growth of state-based venture capital community focused on regional growth opportunities.

  2. Expand Public and Private Funding for Pennsylvania-Focused Venture Capital. Provide incentives for state-based public and private institutional and individual investors to provide expanded financial commitments to state-based venture capital funds, focusing on public and private pension funds, university endowment funds, corporate investors, charitable foundation investors, and others receiving special benefits from the state.

  3. Support Commercialization of Technologies from Pennsylvania's Universities. Accelerate infrastructure for commercialization of technologies generated in our state's academic institutions, focusing not on "bricks and mortar", but on technology transfer, translational research, collaborative academic/private research, inter-institutional cooperation, and pre-seed and seed funding.

Immediate Priorities:

  1. H.B. 2653 — Make Health Venture Account "Evergreen": Passage of H.B. 2653 (Nickol, et al.) is a critical priority. H.B. 2653 provides for making the Health Venture Account (HVA) within the Tobacco Settlement Investment Board (TSIB) becoming "evergreen". The TSIB approved four fund managers (Quaker BioVentures, PA Early Stage, New Spring/ CHV, and Birchmere) to manage a pool of $60 million initially appropriated from the tobacco settlement for life science venture capital. Unfortunately, the original legislation did not make the HVA "evergreen". As a result, as the four fund managers begin to return invested capital and profits to TSIB, the returned funds will flow into the general TSIB fund, and will not be available for reinvestment. It is critical that the HVA be characterized as evergreen, so that those returned funds, and the profits thereon, will be available for future investment into venture capital funds for qualified managers.

  2. Proposed Amendments to H.B. 2653: In addition to the evergreen provisions, we should use the opportunity provided by H.B. 2653 to expand the funding committed to the Health Venture Account (currently $60 million) by an additional $100 million, over two to five years, from future tobacco payments. This is an off-budget commitment of funds that would otherwise go into the general TSIB fund and endowment, or would otherwise be appropriated for other uses. Expanded funding is critical to maintain the extraordinary momentum created by TSIB in the life science venture capital area, by facilitating the follow-on funds managed by qualified managers, and to support commitments to additional qualified managers. This is an amount which, together with the current commitment in an evergreen fund, will be sufficient to become completely self-sustaining and grow Pennsylvania's permanent commitment to venture capital dramatically for many years to come, all without budget impact. Additionally, amendments should be considered to make certain of the original legislative restrictions less onerous, to encourage the growth of current managers, and the addition of other qualified managers.

  3. Commonwealth Finance Authority — Guaranty Program: Under the CFA, the Guaranty Program was well intentioned, but very difficult to implement as currently configured. This has been met with a very creative approach between DCED and a private investment banking firm that will result a structured financing backed by the guarantees issued to qualified managers, in order to provide direct cash funding into Pennsylvania venture backed deals. There is a critical but relatively straightforward interpretation of the legislation (and associated guidelines issued by CFA) required, in our opinion, to make this creative program viable and successful. We believe that the original legislative intent was to partially guarantee the losses of investors into venture capital funds of their principal equity investment in those funds, whether or not the loss of that principal equity was the result of a borrowing at the fund level, or at the investment level. If the guarantee coverage is limited to a fund's principal equity loss in its underlying investment, and does not cover losses to the fund’s investors from the fund’s associated borrowing, we are of the opinion that even the creative financing approach will not be widely utilized by the top tier venture funds targeted by the legislation authorizing the program. We believe this can be addressed through a simple administrative interpretation of the legislation and the associated guidelines, and does not require a legislative fix.

  4. Continued Support for Pre-Seed and Seed Funding Organizations: It is imperative that funding be continued and expanded for the organizations that provide pre-seed and seed funding, including the Ben Franklin Technology Development Authority, and the Life Science Greenhouses.

  5. Continued Support for Primary Incubators: It is imperative that funding be available for the best primary entrepreneurial incubators in the state.

  6. Tax Incentives for Investment in Venture: If and when the fiscal climate is appropriate to make additional tax expenditures, we support tax and other financial incentives for institutions and individuals to encourage their investment into Pennsylvania based venture capital funds. The targeted institutions would include: public and private pension funds, university endowments, charitable foundation investment pools, corporations receiving other state benefits, etc. We need to continue to foster an environment in which the established "home team" supports the growth of the up and coming home team.