Lee Pryor has founded and led small companies in various cities, so he knows his way around financing for startups and early stage businesses.
The CEO of Portico Learning Solutions says that while private equity is reasonably available in the Capital Region, angel investment and venture capital is tough to find, which could drive promising entrepreneurs elsewhere.
“What [upsets me] is when these venture capital people come in from Austin and then say, ‘You’ve got to move to Austin,’” Pryor says. “That’s baloney. The venture capitalist should come to the company. I worked in San Francisco, in Silicon Valley, and in New York, and I never heard that people had to move to New York or Silicon Valley if we’re going to put money into you.”
Comparing Baton Rouge to San Francisco or New York probably is a little unfair. But compared to a mid-sized city like Tulsa, Okla., funding availability is pretty good here, Pryor says.
But Anthony Toups, senior vice president of Advantage Capital Partners in New Orleans, says Louisiana as a whole still lags behind where it should be. One study of U.S. venture capital investment ranked Louisiana No. 45 of 52—including the District of Columbia and Puerto Rico—with $8.2 million in 2008.
“People’s consciousness needs to be raised,” Toups says.
Toups says many venture capital firms have a “two-hour drive” rule and are reluctant to invest out of state because they like to make regular visits to the companies with which they’re involved. In the most recent legislative session, Advantage backed a bill that sought to create a $200 million pool of venture and expansion capital for small businesses based here by offering tax reductions to insurance companies that invest in the program. The state budget impact of the tax benefits would have been delayed until most of the investments had been made.
But the bill died in committee, along with a proposal that would have allowed state pension funds and university endowments to invest in a similar program. Even the state’s existing angel investor tax credit was allowed to expire.
“Unfortunately, venture capital didn’t fare very well,” Toups says. “It didn’t really seem to be a priority of either the administration or the Legislature.”
But his firm and other like-minded groups, including the Baton Rouge Area Chamber and Greater New Orleans, Inc., will try again.
“We’re all dedicated to keep swinging. Hopefully we’ll hit a ball at some point.”
Richard Matheny, an attorney with Phelps Dunbar whose practice includes business and finance, says it’s hard to say whether Louisiana has a shortage of venture capital or not. Most venture capital deals happen in areas with lots of deal flow and lots of money; Louisiana doesn’t have much of either.
“So is that a shortage, or is that an equilibrium?” he says. “I’m not sure if I have an answer to that.”
Matheny says most really good ideas are funded, and entrepreneurs aren’t fleeing the state because they can’t find venture capital. Businesses are more likely to relocate because they need access to markets or labor, he says.
Few companies have “picked up their marbles and gone to a different playground” to find capital, says Thomas Adamek, president of Stonehenge Capital in Baton Rouge, although some, like chicken fingers chain Raising Cane’s, leave because they can’t attract the right talent here. South Louisiana’s knowledge base is more likely to lend itself to a high-tech oilfield service company; Adamek says health care services companies also have done well locally.
Bob Fenet, an attorney and self-described “venture capitalist in a state with no venture capital,” isn’t so sure the lack of venture financing isn’t driving off talented capitalists. What if, say, Netscape billionaire Jim Clark or Yahoo! co-founder David Filo, both of whom have Louisiana ties, could have amassed some of that fortune here?
“What is the cost to Louisiana of not having a venture capital structure?” he says.
That cost, whether big or small, is impossible to measure. When asked what needs to happen to improve the climate for investment and entrepreneurship here, a few responses included:
LSU needs to show more leadership. In California, the universities drove Silicon Valley; the University of North Carolina spurred the Research Triangle Park in their state. Pryor says LSU has done some decent work in the biotech field, but adds he can’t see why LSU hasn’t spurred more innovation here.
Adamek says rules related to technology transfers at the universities need clarification in terms of patent rights and the ability of researchers to have an interest in a private company.
Fenet suggests a new-and-improved tax benefit for angel investors. For example, if someone makes a qualified investment in a small company, he could avoid paying income taxes on the returns.
Most everyone agrees the state would attract more investment with a better-trained, skilled workforce.
Matheny says government agencies can help to prime the pump. The state used to give investors tax credits for putting money into Certified Capital Companies, although funding for the program ended several years ago.
“At the end of the day, most startups are going to be funded by the market,” Matheny says. “I don’t see a magic bullet.”
VENTURING OUT
U.S. venture capital investment of the top-ranked state ?and other southern states in 2008:
1. California $14.26 billion
4. Texas $1.28 billion
12. North Carolina $459 million
14. Georgia $426 million
17. Florida $239.5 million
27. Tennessee $65 million
34. Kentucky $29.5 million
35. South Carolina $26 million
36. Alabama $24 million
45. Louisiana $8.2 million
47. Mississippi $5.9 million
51. Arkansas $200,000
SOURCES: State Science and Technology Institute, PricewaterhouseCoopers
