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State CAPCO

Total Certified Capital ($)

Percentage of State Total

Missouri (total 1997-1999 allocations) Advantage Partners BancOne/Gateway Ventures Stifel CAPCO CFB Emerging Fund CAPCO Holdings Advantage Capital NY Small Business Venture Fund BancOne Capital Corporation Wilshire Advisers Exponential Business Development Company Advantage Capital Florida Partners, LP BancOne Capital Finance, LLC Wilshire Partners, LLC Advantage Capital Wisconsin Partners I, LP Wilshire Investors, LLC BancOne Stonehenge Capital Fund WI, LLC Stonehenge Capital (BancOne) Advantage Capital Wilshire Advisers Source Capital

New York (1999-2000 allocations)

Florida (1999 allocations)

Wisconsin

Louisiana (1999 allocations)

50,685,000 47,395,000 26,941,000 12,525,000 2,454,000 30,913,844 30,913,844 28,282,264 2,673,797 2,673,797

36.2 33.8 19.2 8.9 1.8 32.4 32.4 29.6 2.8 2.8

81,862,834 30,753,138 37,384,028 16,666,666 16,666,666 16,666,666 21,300,000 21,000,000 16,400,000 2,000,000

54.6 20.5 24.9 33.3 33.3 33.3 35.1 34.6 27.0 3.3

TABLE 3

State Allocations of Tax Credits, by CAPCO

NOTE: CAPCO = Certified Capital Company.

Barkley et al. / CERTIFIED CAPITAL COMPANIES

363

have acquired a large share of the certified capital in the four states adopting legislation after Loui- siana, and Wilshire (a New York CAPCO) has acquired significant certified capital in the two states (Florida and Wisconsin) that implemented the program after New York. And among the 15 CAPCOs receiving certification in Florida, only 3 CAPCOs (Advantage Capital, BancOne, and Wilshire) were able to meet the $15 million minimum stipulated in the Florida legislation.

States may benefit from a larger number of CAPCOs and CAPCOs with greater in-state invest- ing experience. Venture capital firms tend to specialize according to industry type and stage of investment (e.g., seed, start-up, and expansion). Thus, an increase in CAPCO numbers may pro- vide venture capital access to a greater variety of state businesses. The smaller CAPCOs also may be more willing to consider seed and start-up investments, an area of concern in many states.

States may encourage new, in-state CAPCOs by expanding qualified CAPCO investors to include corporations and individuals, that is, reduce the importance attached to connections to the insurance industry. State legislation may increase CAPCO numbers by providing a longer time for fund-raising, placing a low minimum on certified capital raised, creating a cap on total certified capital raised per CAPCO, and allocating the tax credits equally among CAPCOs (e.g., Louisiana) rather than on a pro rata basis based on insurance company commitments per CAPCO (e.g., Florida). In addition, states could provide prospective CAPCOs with examples of investment instruments needed to attract insurance funds. This tutoring of in-state CAPCOs would reduce the time and expense associated with fund-raising and increase the probability of successfully compet- ing with out-of-state CAPCOs for funding.

States may encourage new, in-state CAPCOs by expanding qualified CAPCO investors to include corporations and individuals, that is, reduce the importance attached to connections to the insurance industry.

Third, CAPCOs can offer more favorable terms to portfolio companies than do other private venture capital firms in the state because of their cost advantage in raising capital. This advantage may lead to the crowding out of other in-state venture capital providers and may ultimately dis- courage new venture capital formation in the state. A competitive advantage over indigenous ven- ture capital providers may not be a concern in states with little or no formal venture capital infrastructure; however, the potential impact of CAPCOs on the state venture capital industry should be considered in states with numerous private venture capital funds.10

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