TNInvestco’s future may rest with current governor

Friday, November 4, 2011, Vol. 35, No. 44
By Judy Sarles

Tennessee’s TNInvestco program emerged amid much fanfare from former Gov. Phil Bredesen’s administration after Matt Kisber, then commissioner of the Department of Economic and Community Development (ECD), joined with the state General Assembly to create legislation to boost the stream of capital to the state’s inventive new companies that are in the early stage of development.

Now the program’s measure of success as well as its future rests with the current administration.

The idea for the program as first proposed by the state’s venture capital community was simple. TNInvestco would establish an entrepreneurial infrastructure across the state, overcome a dearth of early-stage and mid-stage investment capital, diversify the state’s economy and create jobs through the development of “innovation clusters” that result in new companies being spun off it.

The Tennessee Small Business Investment Company Credit Act, commonly known as TNInvestco, was signed into law in July 2009.

The 10-year program apportioned $200 million in gross premium tax credits to Tennessee venture capital funds that had a track record of supporting the growth of new companies within the state. Gross premiums, which are taxed, are premiums expected to be received over the life of an insurance contract.

The tax credits are sold to insurance companies that buy the credits with capital reserves. The venture funds use the capital to assist new small businesses in their development, while the insurance companies are able to annually counteract gross premium tax liability, starting in 2012 and continuing through 2019. That $200 million in credits have garnered more than $146 million in funds.

Gov. Bill Haslam, whose administration has made no public comment about shutting down the TNInvestco program, currently is taking the long view on capital formation in the state.

Haslam says he needs to examine more data on TNInvestco before calling it a success.

TNInvestco, which was launched with no upfront costs to the state of Tennessee, is expected to pay for itself, and the hope is that it will be the catalyst for the emergence of the next FedEx or HCA.

In 2009, 10 TNInvestco funds were selected by ECD commissioners.

The funds ($20 million each) are:

XMi High Growth Development Fund, Nashville and Chattanooga

Tennessee Community Ventures Fund, Nashville

Limestone Fund, Nashville

Tri-Star Technology Ventures, Nashville

Innova Fund II, Memphis

Council & Enhanced Tennessee Fund, Nashville

Memphis Biomed Venture Partners, Memphis

Tennessee Angel Fund, Nashville

Solidus-TNInvestco, Nashville

NEST-TN, Tullahoma

It could not be determined which insurance companies have purchased tax credits from the venture funds because that information was ruled confidential and not subject to requests under state open records law in 2009 by Tennessee Attorney General Robert Cooper.