November 27, 2022

Oklahoma officials want to leverage tax dollars, pension funds and other state-managed money to provide seed capital for local startup businesses, an effort spearheaded by a governor’s office that is aggressively pushing for programs that assist new companies.

The Commerce Department is currently soliciting bids for companies to operate three new business accelerators that would cultivate new businesses and then give the Oklahoma Center for Advancement of Science and Technology (OCAST), a state agency, the opportunity to invest in the new businesses in exchange for equity.

The state Commerce Department is based at 900 N Stiles Ave. in Oklahoma City.

The accelerators would be located in Oklahoma City, Tulsa and a rural community, according to the requests for proposals made public last month.

The Source Podcast: Stitt unveils 2022 plans to Oklahoma Legislature

The state is looking for companies to run the accelerators that would be willing to invest $5 million of their own money into successful startups.

Investment in local business accelerators sought

Business accelerators are in use in many states and efforts are underway in Oklahoma by some chambers and other business organizations to establish their own business accelerators.

The state program would not only back part of the accelerator operational expenses but also would attempt to make OCAST an early investor.

Oklahoma has a lack of venture capital and startup funding for would-be companies, said Amy Walton, director of government relations and strategic initiatives at OCAST.

Amy Walton, director of government relations and strategic initiatives at the Oklahoma Center for the Advancement of Science and Technology

Amy Walton, director of government relations and strategic initiatives at the Oklahoma Center for the Advancement of Science and Technology

“These (types of investment) dollars are in Silicon Valley, in New York, and in the coastal regions, but not here,” Walton said.

Another program designed to boost startup capital is the Invest in Oklahoma Act.

Approved by state lawmakers last year, the program encourages state investment funds, such as the teacher’s pension fund and the Tobacco Settlement Endowment Trust, to invest up to 5% of its money into Oklahoma-based companies and investment firms.

That could add up to hundreds of millions of dollars as the Oklahoma Teachers’ Retirement System alone has more than $19 billion in investments.

Erika Lucas, co-founded of StitchCrew, an Oklahoma City-based organization that helps entrepreneurs, primarily women and people of color, said steering state funds to new businesses and local venture capital firms can be a way to grow the economy, but like all investments in new companies, it comes with risk.

While investors have a goal to make money, the Department of Commerce is hoping to create jobs.

“As an investor, you are responsible for providing a return on investment, but the goals for the state investment program are to create economic development and jobs,” Lucas said. “You can hit two birds with one stone, but it doesn’t always happen and you just need to be honest about that.”

The Commerce Department is currently accepting applications from companies and investment firms that would like to receive state funds.

However, there’s no guarantee that most of the money invested in local venture capital firms would stay in Oklahoma as rules developed by the Department of Commerce say that any eligible firm must only commit at least 10% of the money it receives from a state fund in an Oklahoma-based company.

The Commerce Department will research an eligible firm’s financial portfolio, but it warns public entities to do their own research.

“By allowing a firm to participate, the Department (of Commerce) does not make any representation as to the performance or viability of any fund or firm,” the department’s rules state. “Public entities who choose to participate do so at their own risk after performing their own due diligence and make decisions in accord with tier fiduciary duties to their clients.”

‘Very little venture capital in the state’

Nathaniel Harding, a managing partner at Cortado Ventures, an Oklahoma City-based venture capital firm, said the Invest in Oklahoma Act is a way to boost Oklahoma’s early investment dollars.

“There is still very little venture capital in the state,” Harding said. “A state of our size needs to have something of the order of $1 billion in circulation, and right now we have one-tenth of that.”

Oklahoma leaders on state budget: ‘This is not the year to really spend’

Nathaniel Harding, managing partner at Cortado Ventures

Nathaniel Harding, managing partner at Cortado Ventures

Cortado plans to apply to become an approved venture capitalist firm that Oklahoma agencies can invest in, Harding said.

Whether state investment firms will participate in the Invest in Oklahoma Act remains to be seen.

Multiple state agencies told The Oklahoman they plan to thoroughly research the companies and venture capital firms the Commerce Department selects.

“The Commerce Department is seeking applications to compile a list of potential vendors. Once completed, the process clearly necessitates further independent vetting of the listed firms as we give them due consideration,” said state Treasurer Randy McDaniel, who is chair of the TSET Board of Investors.

From mandate to suggestion

The Commerce Department lobbied for the Invest in Oklahoma Act last year and had originally sought to make it mandatory that 5% of state funds be invested.

“My first blush thoughts would be that in order for the legislation to have any teeth it would have to be a mandate,” Brent Kisling, executive director of the Commerce Department, wrote in a Feb. 9, 2021, email to his staff, according to a copy obtained by The Oklahoman through an open records request.

But the mandate was changed to a recommendation after pushback from some lawmakers, which Kisling accepted, telling his staff they could fight for a mandate in future sessions, according go to emails.

As a recommendation, the bill received wide bipartisan support in the state Legislature, passing 80 to 1 in the House, and 44 to 3 in the Senate.

Attracting new businesses is a common goal for most governors, but Stitt has been especially focused on increasing the funding and resources of the Commerce Department and related agencies.

More: Super Bowl commercial critical of Oklahoma Gov. Kevin Stitt

“This was a governor priority,” Walton, the director of government relations and strategic initiatives at the Oklahoma Center for the Advancement of Science and Technology, said about the accelerator program that received $15 million to fund in this year’s budget.

“Ultimately we want to diversify the economy.”

This story is provided in part through a grant by the Kirkpatrick Foundation. To support work like this, please consider purchasing a digital subscription today at https://cm.oklahoman.com/specialoffer/.

This article originally appeared on Oklahoman: Oklahoma seeks to invest state tax dollars in new companies

https://news.yahoo.com/very-little-venture-capital-oklahoma-110034582.html