Despite the recent failure of Prop. 102, the Governor’s Council on Innovation and Technology is forging ahead with legislative proposals to boost development of new high-technology businesses in Arizona.

Prop. 102 was the ballot measure that, had it been approved, would have allowed state universities to own equity in private companies in exchange for transferring the fruits of their research and development labors to those companies. Such arrangements are now prohibited under the Arizona Constitution. Prop. 102 failed at the polls.

Failure of the measure was a disappointment, but Sen. Barbara Leff, R-11, isn’t discouraged.

“Incentives have proven successful in improving a state’s economic picture,” Ms. Leff said. “If we do nothing, then we’re handing over the profits of research to other states, because those entrepreneurs will take what we’ve found through the research and development at our universities and start up those companies in other states. We need to make a business climate that‘s conducive to that goal.”

Ms. Leff serves on the Legislative Committee of the Governor’s Council on Innovation and Technology (www.gcit.az.gov).

Legislative Goals

Among the legislative goals is creation of a $50 million pool of funds to provide matching funds for venture capital investments. The state would not contribute any money directly into the fund (and couldn’t because of the constitutional prohibition against direct investment) but would authorize up to $50 million in tax credits as incentive to lure investors.

’Angel’ Investors

Another proposal, which Ms. Leff will sponsor, is to establish a tax credit program to attract so-called “angel investors” — those who are willing to fund the start-up of a company based on the promise of its technology and innovations, rather than a venture capitalist, who is more typically looking to get into a company once it’s gotten off the ground. Angel investors are often individuals or a small partnership of individuals as compared to the firms and institutions that make venture capital investments. “The venture groups just aren’t willing to get into the game at the start, and they’re more often looking for multimillion-dollar investments rather than putting in just a few million, if even that much,” Ms. Leff said.

Under Ms. Leff’s Arizona Small Business Opportunity Program, the state would offer a 30 per cent tax credit, spread over three years, to individuals willing to invest somewhere between $25,000 and $250,000 in a high-technology, biotechnology/bioscience firm. The credit would be 35 per cent for making an investment in a company based in a rural area. Only a narrow group of technology- and science-based businesses would qualify. The credit would be capped at a maximum of $20 million in a five-year period; further legislative authorization would be required to continue the credit after that.

The range of 30 to 35 per cent was set for the credit because it’s substantial enough to encourage the investment but not so large that potential investors see a “can’t lose” proposition.

“At 30 or 35 per cent, you’re still going to be luring some investment that you wouldn’t have otherwise seen in the state,” Ms. Leff said. “And without setting the credit at 50 per cent or more, we’re not going to be picking winners and losers. The individual investors will still be risking a considerable amount of money and they will want to pick carefully where their money will be going. But that’s an important point — they’re going to be picking the companies they think will succeed, not us [the state].”

Similar measures failed in the Legislature in the last regular session, but Ms. Leff said that was due more to timing than any great opposition.

Mrs. Leff’s bill (S1257) to create the Arizona Small Business Opportunity Program was little more than a short title when she filed it, with the particulars coming from the Governor’s Council later in the session. That afforded it no chance to be heard. GCIT has since met twice, most recently on Dec. 1 in Scottsdale, providing opportunities for the council to promote the measures to lawmakers. Governor Napolitano also has pledged to spend more time pushing the measures, Ms. Leff said. —