Bill would start seed capital fund

BUSINESS WRITER

Investors in South Carolina startup companies would be eligible for special tax breaks under legislation pre-filed by a state senator from Spartanburg.

Sen. Jim Ritchie, a Republican who may run for governor, said he thinks promising companies trying to get off the ground need more funding options.

The South Carolina Entrepreneurial Success Fund Act he is sponsoring would use tax credits to encourage investors to create a fund of at least $10 million.

Seventy percent of the money would have to be invested in South Carolina companies that are three years old or less, a riskier proposition than investing in more-established companies.

Investors in the fund would get credits against the state income tax worth 30 percent of the amount they invest.

A maximum of $5 million in tax credits would be available in any given year.

The state already has a program to provide so-called "seed capital" to startup companies through SC Launch, an arm of the South Carolina Research Authority.

But SC Launch is prevented by law from putting more than $200,000 into any one company.

"This fund could provide more than that as necessary when we have a very promising business," Ritchie said.

While the program would put some tax revenue at risk, "By generating this new growth, it stimulates further revenues for the state," Ritchie said.

Ritchie, Senate majority whip, has said he is exploring a run for governor.

John DeWorken, vice president for public policy at the Greater Greenville Chamber of Commerce, said the bill is a top legislative priority for the Greenville, Spartanburg and Greer chambers.

"We're going to be all over it," DeWorken said. "This is, we think, a real vital piece of the puzzle in growing our economy."

In 2005, Ritchie sponsored legislation that used tax credits to create a $50 million fund for better-established homegrown companies.

Under the Venture Capital Investment Act, banks, insurance companies or utilities made loans totaling $50 million with the guarantee of state tax credits serving as collateral.

Once the money was raised, it was turned over to four venture capital firms, which plan to invest it in companies with the potential to make big impacts.

Tax credits have also been used to generate seed capital for SC Launch to distribute.

Among the local startups that have been funded by SC Launch are Innegrity LLC, CreatiVasc Medical LLC, Selah Technologies LLC, Zipit Wireless Inc., Q Tires Inc. and PromoPipeline LLC.

Jason Sweatt, a tax expert at Elliott Davis, the Greenville accounting firm, said the bill's requirement that a seed capital fund have at least $10 million ensures that the program won't even take effect "if there is not enough commitment to make a difference."

Greenville businessman John Warner said the state has spent hundreds of millions of dollars trying to foster high-tech startup companies and shouldn't overlook the "critical piece of capital" that the legislation is designed to address.

"What you're trying to create is enough success in these kinds of high-end startups that you have a critical mass that begins to build on itself," Warner said.

Warner founded the InnoVenture venture capital conference held every year in Greenville and is a board member of the South Carolina Venture Capital Authority, which selected the four firms charged with investing the $50 million.

Bill Mahoney, chief executive of the South Carolina Research Authority, said he hadn't heard of the legislation, though it sounded like it could benefit companies.

"I look forward to having communication with Sen. Ritchie," Mahoney said.