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Plan to create seed fund in state start-up companies is sound

Editorial in The Greenville News

Offering tax breaks to investors will yield greater opportunity for the state

Aproposal that would offer tax breaks to those who invest in a fund that would offer seed money to start-up businesses is a reasonable and potentially effective way to promote small business growth in South Carolina. And that would help fuel much-needed economic growth in this state.

The proposal by Sen. Jim Ritchie, called the South Carolina Entrepreneurial Success Fund Act, would use tax credits to encourage investors to create a seed fund of at least $10 million, according to a recent report in The Greenville News. Investors would be eligible for income tax credits worth 30 percent of the amount they invest, with a maximum of $5 million in credits available each year.

Seventy percent of the money in the fund would have to be invested in South Carolina companies that are three years old or less, the newspaper reported. The income tax credits would help offset the risk of investing in less-established startup companies.

Ritchie said the potential for creating new businesses and, thus, new tax revenue, far outweighs the risk of offering tax credits to lure investors.

"By generating this new growth, it stimulates further revenues for the state," he told Greenville News business writer Rudolph Bell.

That's a sound strategy, and this bill is a sound way to promote investment that could significantly expand state tax revenues by driving the development of new, home-grown employers. A similar plan also is part of the S.C. Chamber of Commerce's legislative agenda for the coming year.

This proposal, along with existing efforts to provide start-up companies with needed capital, would go a long way toward helping in that area.

The state already has a public effort -- SC Launch -- that can provide up to $200,000 to startup firms. And in 2005, Ritchie sponsored a bill that used tax credits to create a $50 million fund for more established state companies. That bill, the Venture Capital Investment Act, raised $50 million that was given to four venture capital firms to invest in companies that could have a significant positive impact on the economy.

Those efforts have made promising investments for South Carolina, and this latest effort would fill another niche by investing more money earlier in the start-up process to give home-grown businesses a needed boost.

Greenville businessman John Warner is a board member of the S.C. Venture Capital Authority, the body that picked the firms to invest the $50 million. He also is founder of an annual venture capital conference in Greenville. He supports Ritchie's latest efforts.

"What you're trying to create is enough success in these kinds of high-end startups that you have a critical mass that begins to build on itself," he told The News.

This bill deserves the support of the state Legislature.

As South Carolina seeks to enhance its economy and provide job opportunities for state workers, investing in state-based start-up companies is increasingly important.