The small business group for economic development reform in Colorado, CIO Colorado, is looking into the possibility of enabling the State of Colorado to invest directly into Colorado businesses through the establishment of what may be called the Colorado Enterprise Fund.
Small businesses in Colorado are desperately looking for capital everywhere as common sources of funding stand on the sidelines waiting for the economy to stabilize and bank lenders have raised the bar on financing. CIO Colorado is considering whether the State of Colorado should follow the path set by the State of Texas when they established the Texas Enterprise Fund.
Texas Governor Rick Perry is bragging big time about how Texas is the leading state within the United States in job creation and he gives a lot of the credit to the Texas Enterprise Fund. He asserts, “The door is open for business in Texas, and the Texas Enterprise Fund allows us to put that sign up in neon.”
The Texas website states, “The TEF gives Texas the competitive edge in attracting new businesses to the state and assisting with the expansion of existing businesses that might otherwise opt to expand in another state. Recently, the TEF was the driving force behind Caterpillar’s decision to relocate its engine assembly, paint and testing operations to Seguin, Texas — a move that will generate more than $176.8 million in capital investment and create over 1,700 new jobs for Texans.”
“Additionally, the conservative and thorough methodology behind the grant process and the enforcement of contractual agreements with each awarded company ensure that the public dollars invested through the TEF produce a solid return on investment. To date, the Texas Enterprise Fund has brought more than 52,000 new jobs to the state and generated more than $14.3 billion in capital investment.”
Mike Schmidt of Ensemble Ventures, Colorado Springs, is the CIO Colorado Council Member who will lead a team of small businesses in developing economic development initiatives with regard to funding. Mr. Schmidt commented, “As you can see from the success of the Texas Enterprise Fund in Texas and the significant economic impact it has had on increasing jobs, as well as attracting outside companies to re-locate, it’s vital that one of the main goals of CIO COlorado will be to educate local businesses, governments and their citizens about successful capital formation programs and policies that have been successful in other states across the nation and begin to introduce or test these “Best-of-Breed” ideas in Colorado.”
All of this sounds like a good deal, but for Colorado to copy Texas and set up a fund, it must first copy Texas and change its constitution. Colorado, like most states, has a provision in its constitution that bars the State from giving money to or investing in a business. Texas also had this provision, but in 1987 the voters of Texas approved loans and grants of money to businesses for the public purpose of development and diversification of the economy of the state.
For a business in Texas to receive funds, it must meet a number of criteria, including competition by Texas with another state for the business. An applicant goes through a due diligence review. Lastly, the Governor, Lt. Governor, and Speaker of the Texas House must unanimously agree in favor of a project in order for an award to be granted. Texas Enterprise Fund
If Colorado is to move forward on establishing a similar fund, the amendment to the constitution would have to be placed on the ballot for the next general election in 2011 by referendum of the state legislature or by citizen petition. If the amendment passes, the State of Colorado would still have to figure out where to obtain money for the fund.
In addition to changing state laws to allow direct investments by states into private companies, CIO Colorado, in an alliance with Velocity Innovation Partners, is also investigating the possibility of completing a Colorado-based DPO Fund, or “Direct to Public Offering” that would annually raise $50 million dollars into an investment pool from Colorado residents for investment into 300+ Colorado-based companies.
The CIO Colorado team working on funding Initiatives will also explore the development of a Colorado stock exchange that could be set up and operated on a local basis in Colorado, replicating some of the work and experience that is underway in Pennsylvania.