Bioscience

Venture fund bolstered by $25 million investment

November 9, 2004

By Flinn Foundation

A high-tech, venture-capital fund spawned by Gov. Janet Napolitano and Phoenix Mayor Phil Gordon has received its first funding commitment—a $25 million investment by the State Compensation Fund (SCF).

The planned $100-million Knowledge Economy Capital Fund, a joint effort of the mayor and Governor’s Council on Innovation and Technology, is intended to bolster venture capital (VC) funding of early-stage tech companies in Arizona. Raising Arizona’s historically low VC rates is seen as a key building block in developing a high-tech, knowledge-based economy in Arizona, including biotech and biosciences economic development.

SCF is the first major contributor to the capital fund. According to the Business Journal, SCF is a quasi-state government organization that provides workers’ compensation insurance for half of all small businesses in Arizona.

After failing to get the approval of a similar fund in the Arizona Legislature, the Governor’s council reassessed and joined forces with Gordon to plan the Knowledge Economy Capital Fund, which will be comprised of solely private-sector dollars.

“After our experience at the Legislature, a lot of people in town tried to think of alternative ways to accomplish the same thing,” Bill Hardin told the Arizona Republic. Hardin is a Phoenix lawyer and co-chair of the Governor’s Council on Innovation and Technology.

The capital fund project still harbors many unknowns, among them the organization, level of city or state oversight, and securing the remainder of the $100 million through other financial backers, according to the Business Journal.

Fiscally conservative opinion leaders and legislators criticize the fund for what they consider the excessive risk involved in using government-related dollars to support venture capital investors, who invest in companies too young or volatile to qualify for bank loans.

The fund will be structured as a fund-of-funds, meaning that the money gathered will be distributed to venture capitalists in the state, who will then invest in companies they select.


For more information:

Start-up firms in Arizona get boost,” East Valley Tribune, 10/26/2004

Venture capital help,” Arizona Republic, 10/24/2004

State Comp Fund first to ante up for $100M venture pool,” Business Journal, 10/25/2004