Legislation proposed to expand application of seed fund capital

More than 35 years ago, Georgia voters passed a constitutional amendment created to encourage new businesses in the state through a seed capital fund. Despite the proposal having passed by less than 1 percentage point, it has proven a success by some measures and now some in the legislature feel it’s time to take seed funding to the next level.

Seed funds, according to Investopedia, provide what is often minimal financing to help a new enterprise get started. “A company that is first starting out may have limited access to funding and other sources,” the Investopedia article states. “Banks and other investors may be reluctant to invest because it has no history or established track record, or any measure of success.”

In recent years, several states, including Georgia, have established seed capital funds. Georgia’s fund provides equity and capital to young entrepreneurial firms in technology, manufacturing, and agriculture. The funds are disbursed at the discretion of the Advanced Technology Development Center of the University System of Georgia, according to the wording in the amendment.

One of the initiatives to grow out of the legislation is the Invest Georgia Program, created in 2013. According to its website, “The Invest Georgia Program is a long-term investment program, backed by the state of Georgia, that is designed to help grow and mentor current, new, and future Georgia venture capital and private equity investment funds in the state of Georgia. By doing so, the Invest Georgia program will help create new Georgia companies, new Georgia entrepreneurs, and long-term, high paying Georgia jobs.”

State Rep. Dar’shun Kendrick, D-Lithonia, who describes herself as “a strong advocate of the Invest Georgia Fund,” recently introduced House Bill 1257 that modifies and expands provisions of the Georgia’s Seed-Capital Fund and the Invest Georgia Fund.

“My hope is to have more Georgia businesses funded without having to go through a fund—more jobs, more revenue for Georgia, more growth,” Kendrick said.

According to a recent Invest Georgia annual report, “Invest Georgia’s portfolio of funds is still relatively young and is invested in venture capital funds with a strong bias towards Georgia. Typical investment periods for the funds are five to six years.” The report also notes, “Technology and tech-enabled products and services represent the base of the portfolio.”

Invest Georgia in the annual report notes that early-stage funds often involve investing in a company that has “little more than two- to four-person teams who have an idea for a business that may benefit from being encouraged and advised inside of one of the growing number of incubators and accelerators that have sprung up around Atlanta.”

Some of these early-stage companies, the report says, will be in operation three or more years before they reach the growth stage. “The growth stage funds on the other hand expect to invest in companies that have their business models in place and are generating revenues. Invest Georgia growth stage funds have various revenue thresholds, some $5 million, some $10 million or more in revenue.” Since the funds vary in size, the venture capitalists’ investment strategy will reflect the amount they are willing to invest at a given stage, according to Invest Georgia.

“It is imperative that we revisit where we as a state can invest funds in regards to businesses,” Kendrick continued. “I am committed to supporting Georgia’s businesses that specialize in innovative work that will increase Georgia’s shares of domestic and or international markets. I am proud to support this legislation and look forward to working alongside my legislative colleagues to advance this measure.”

House Bill 1257 would allow Georgia’s current Invest Georgia Fund to directly invest in Georgia companies rather than venture capital funds.

“If public policy has been leveraged to create wealth for select Americans in the past, it can be used again—this time to produce riches for all Americans,” Kendrick said.

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