In the entrepreneurial community in Texas, we (understandably) talk a lot about money. This was the impetus at Impact Texas, a funding forum that took place in Austin in January 2014, and continues to be a hot topic. We love it when issues make the rounds from the entrepreneur community to the Capitol. So we are thrilled to share the following Guest Blog Post on an interim hearing on venture capital. Thank you to A.J. Bingham for sharing his thoughts.
Venture Capital Hearing at Texas Capitol
By: A.J. Bingham, Registered Lobbyist
Venture capital is an essential component of the technology sector. So I was very intrigued when, earlier this month, the Texas House Committee on Economic & Small Business Development met for an interim hearing on venture capital investment.
Specifically, the Committee was charged to: Study venture capital investment in the state and determine how Texas compares to other states in attracting venture capital dollars, and make recommendations to improve Texas’ ability to attract venture capital investment.
While the Committee made no decisions at the hearing, there were some interesting topics addressed in testimony, including legislation impacting the Texas VC industry; private and public sector investment in early stage start-ups; and incentivizing Texas venture capital firms, angel investors, accelerators and incubators.
Testimony from the hearing will be compiled into an interim report with recommendations to the Legislature during the 84th Legislative Session, in 2015 (January 13th to June 1st). No one at the hearing had a crystal ball of course, but the conversation provided a rough sketch of near-term and/or future legislation related to venture capital investment in Texas. A summary of the hearing is below:
House Committee on Economic & Small Business Development
The Texas Coalition for Capital (Coalition) explained that interest in Texas — particularly Austin — was picking up from investors on both coasts, with the state currently ranked 6th in receipt of investment dollars (comprising four percent of all venture capital deals and five percent of all venture dollars). However, it stated while venture investment dollars increased 37 percent overall in 2013, most early stage funding was not coming from Texas investors.
The Coalition shared several theories about why this was the case, including the oil and gas industry dominating investment dollars because it was capital intensive and not quickly scalable. It also conveyed the sentiment that Texas needed more and better deals to fund, as well as more venture capital firms. It alluded to the state being dominated by one major player, Austin Ventures.
Rep. Jason Villalba (R-Dallas), a venture capital attorney, noted Austin Ventures had moved “upstream” into the private equity space. He stated there were a handful of new funds emerging in Texas, but they were few and far between. He cited Austin-based LiveOak Venture Partners as one example. He also stated his Texas venture capital clients felt there was an inability to attract requisite national partners here, creating a constraint on investment. He asked if there was a way to create a fertile economic climate to attract new capital into Texas.
The Coalition stated there were tools through the Governor’s Office, like the Emerging Technology Fund, and touched on other possibilities like incentivizing angel networks, accelerators and incubators.
Rep. Villalba cited Mark Cuban who stated Texas needed more accelerator capital rather than incubator capital. The Coalition noted few firms were in the early funding space, citing Silverton Partners, as well as the Texas Emerging Technology Fund, but stated there were not enough of them.
Startech International (a San Antonio venture capital firm) suggested the Legislature create a “mini-Enterprise Fund” that would invest taxpayer money in start-ups to attract other early stage venture capital. Additionally, it stated the fund could be used to aid out-of-state entrepreneurs in moving to Texas. It explained the latter would require firm’s having venture capital backing already.
Continuing, the Texas Venture Capital Association (Association) testified that since 2005 there had been three major state policy making decisions impacting its members. It noted all of these policies were positive.
The first was the enactment of SB 121 (Relating to a requestor’s right of access to investment information of governmental bodies) in 2005, defining the information government entities investing in venture capital funds must disclose, commonly called the Disclosure Bill.
The second was the enactment of HB 3928 (Relating to technical changes to the revised franchise tax) in 2007, clarifying the application of the margins tax on venture capital firms sitting on the board of directors of their portfolio companies.
And third was the State Securities Board enactment of Dodd Frank at the state level, which the Association stated did an excellent job of not placing any additional burdens on venture capital firms as far as filing.
Contemplating future legislation, the Association requested any laws purporting to address disclosure of public sector investments, such as public retirement systems or Emerging Technology Fund, exclude private investment funds and information accepted for disclosure by the Texas Public Information Act. Additionally, it requested any future legislation not reveal the value or identity of each individual investment in the public portfolio, but only report performance in the aggregate.
Following the end of testimony, the Committee adjourned subject to the call of the Chair.
A.J. Bingham is a registered lobbyist and the Legislative Director for one of Texas’ top lobbying firms, representing private and public sector clients on a range of state and local policy matters. Connect with him on LinkedIn: www.linkedin.com/in/ajbingham.