Corbett, Pennsylvania legislators announce $80 million fund to invest in startups
September 26, 2013 8:45 PM
Henry Thorne, left, of 4moms shows Gov. Tom Corbett his company's infant products, including a stroller that unfolds and collapses at the push of a button and a playpen that opens and closes at the push of a button, during his visit to Innovation Works' Alpha Labs on the South Side to announce a new program, Innovate in PA.
By Ann Belser Pittsburgh Post-Gazette
Local organizations that invest in early-stage, high-tech startup companies are going to have a new pool of money soon.
Republican Gov. Tom Corbett and a raft of legislators, both Democratic and Republican, announced a new fund Thursday that they expect to bring in $80 million to $85 million for ventures in the very early stages of development.
The program, called Innovate in PA, will be funded by selling $100 million in future tax credits to the insurance industry.
State Sen. John P. Blake, D-Scranton, who formerly worked for the state Department of Community and Economic Development, said the legislation was passed with bipartisan support. It was modeled after a similar program in Maryland.
The way the program will work, insurance companies will bid to buy tax credits worth $100 million. Those credits will then be used later as payment of taxes. If the companies buy $100 million in tax credits for $80 million it is a 25 percent return on the investment over the period of the investment.
Mr. Blake said the state will start accepting the credits in lieu of taxes in five years and will only accept $25 million per year.
The money will be invested in early-stage companies, such as those that come out of South Oakland-based Innovation Works' Alpha Lab, in the hope that the companies will grow to provide enough in taxes to make up for the shortfall from the insurance companies.
The Department of Community and Economic Development estimated that the return on the investment over nine years would be $2.37 in tax revenue created by the new businesses for every dollar the state puts into the program.
"I give these guys a lot of credit for having the courage and vision to move forward on this," said Mike Stubler, the managing director of Draper Triangle Ventures, which invests in startup companies, although generally those at a later stage of development than the state program will.
The money will be invested through existing organizations, such as Innovation Works, which is one of the Ben Franklin Technology Development Partners in the state; the state's three life sciences greenhouses; and the Venture Capital Investment Program.