Utah County could be a valley of thriving industry if it were not for the ultra-conservative approach of the state and the lack of capital, an economic development expert says.
"There is a critical need for venture capital in Utah," said DeLance Squire, chairman of the Utah Valley Economic Development Association. "We have a large number of very good ideas from promising entrepreneurs and practically all are short of working capital."In this year's legislative session, state legislators were encouraged to develop a vehicle for venture capital. But there was only talk about the issue and nothing developed, Squire said.
The economic development association's board proposed that the state use 10 percent of its retirement funds for venture capital, similar to what Michigan does. Also suggested was a tax credit for Utah banks that loan money to local entrepreneurs. The tax credit would encourage local banks to invest in Utah instead of making out-of-state investments.
But nothing developed from the talks and Squire said his group is back to square one at coming up with more business growth capital, whether that be seed capital or venture capital.
"We cannot rely on any significant help from the state in the area of business-growth capital," he said. "The state is ultra-conservative and venture capital is a risk. We don't have any big bucks available."
The state may not be willing to make any venture-capital investments at present, but Squire said there are enough people who would participate in a venture-capital organization if one were established.
Typical venture capitalists, sometimes called vulture capitalists, are out to make big bucks and make them fast, he said.
"That's why we need a fund that ends up as a partnership with the state or a government agency that looks at venture capital as more of a tool to help business rather than to help and bring a large return to the investor."
The state does support specific businesses with seed money through the Utah Technology Finance Corp., but that organization only has about $5 million to loan new businesses.
Grant Cannon, president of the technology finance corporation, looks to Utah County as one of the nation's hot spots for economic development. A major university and the surrounding high-technology companies are the perfect ingredients for economic growth and success, he said. It's just a matter of tapping the resources.
Cities such as Provo and Orem have revolving loan funds set up to provide start-up money or working capital, but there is still a need for venture capital, or equity dollars.
Richard Bradford, executive director of the Utah Valley Economic Development Association, said many states have incentives to keep money local and to tie into capital markets, but Utah has no such system.
"Utah is a capital-poor state. Our bucket has lots of leaks in it and we are not doing anything to retain capital locally. We need to have more aggressive policies toward commercial lending."
Squire agreed. "It's unfortunate. Even Utah banks send money to invest in other states. I think the economy is part of it, but this shows a lack of confidence in our own economy."
Some major Utah companies have managed to grow despite the lack of venture capital. WordPerfect Corp., for example, started with no capital and now has $300 million in sales outside of the state. That money comes back to Utah as a major boost to the economy, Squire said.
Novell Inc. is another company that started business in the hole and has been as successful as WordPerfect.
When Joseph and Christopher Cannon purchased Geneva Steel, the plant was financed with a small layer of equity and the rest with loans from financial institutions. All money came from outside the state because no Utah lenders would make a large business loan.
"I was pretty angry a year ago at Utah banks," Joseph Cannon said. "I couldn't understand why they wouldn't want to finance it, but I have a lot better feelings now. It's hard for them because it is not their line of business. They do real estate loans and small business loans.
"Their job is not to go out and take big risks. They take modest risks where they are fully secured. If they were a little more aggressive it might help business, but I can't blame the banks."
Cannon agrees that there are "billions and billions of dollars out there ready to be invested in a good deal."