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The Up and Down of CAPCO Programs
One starts up. Another bites the dust. The Certified Capital Company (CAPCO) Program, a complicated and controversial tool used by some states to encourage venture capital investments, finds its beginnings in one region while seeing its demise in yet another.
The D.C. CAPCO program, officially launched today after being enacted in 2004 by the D.C. Council, will afford insurance companies with a tax credit against their premium taxes in exchange for making $50 million in equity investments over 10 years. The program's three fund managers - Wilshire D.C. Partners, Advantage Capital Partners and Enhanced Capital Partners - will look to invest in small and emerging businesses, including manufacturing centers and technology companies, through three initial funds.
The CAPCO model combines private sector expertise in identifying, evaluating and financing businesses with the public sector's interest in encouraging equity investment. Companies are required to have a product or service with good potential, a sound business strategy and capable management. For the D.C. program, they must be headquartered within the District of Columbia, with 75 percent of their employees working in the District and 25 percent residing there.
To qualify for the investments of $100,000 or more, companies also must meet the U.S. Small Business Administration's requirements for loan applicants. More information on the D.C. CAPCO Program is available at: http://brc.dc.gov/incentives/cccprogram.asp
Meanwhile, the CAPCO Program in Florida received a fatal setback after state legislators passed House Bill 1817, which repealed authorization for an additional $75 million injection of credits into the seven-year-old program. The Florida program's first phase, in 1998, provided $150 million in state tax credits over 10 years to insurance companies that committed to invest a similar amount to three venture capital funds, who could keep $75 million to invest and reinvest in small Florida businesses and return the balance to the insurance companies. Two of the three VC funds, Wilshire and Advantage Capital, also manage portions of Florida's CAPCOs and funds in other states.
See the March 12 Digest story, "Colorado CAPCO Demise Leads to Questions for Other States" for more background on CAPCOs: http://www.ssti.org/Digest/2004/031204.htm#CO