Hawaii venture funds exploring Seattle-area ties

Hawaii’s entrepreneurial-support community, which has traditionally looked to California for the venture and angel-investor partnerships needed to help provide more capital for The Islands’ emerging-growth companies, has recently developed a curiosity about similar the potential for similar partnerships in the Northwest.

By: Mike Flynn

In recent years, Hawaii has spawned an array of interesting young companies, particularly in the technology and alternative-energy fields, and has produced its own angel-investor group, Hawaii Angels.

Part of the lure that Hawaii has dangled before those mostly California Mainland investors with some success and would now like to test the waters with in the Seattle area and the Northwest, is an intriguing piece of tax-credit legislation called Act 221.

The legislation, highly touted when it was approved in 2001, has been dogged by controversy because in addition to the usual conflict between those who view tax credits as giveways to corporations and those who view them as government intrusions in the free-enterprise system, Act 221 has become embroiled in politics.

A legislatively mandated report from the Hawaii Department of Taxation a couple of weeks ago produced statistics that suggest the Act has done its job over the past five years, producing about three times more dollars into the economy than the credits cost the state.

But Hawaii’s Republican Gov. Linda Lingle told a radio interviewer soon after the report reached her desk that she doesn’t believe the state can afford the credits in tight economic times and that she will seek to "rebalance them" in the 2009 Legislative session.

Jeff Au,co-founder and Managing Director of PacificCap Group, Hawaii’s largest locally based venture capital firm, who’ll be making his first foray into the Seattle area in a quest for possible investment partners, is considered by many in Hawaii to be the most outspoken supporter of Act 221 and the importance of renewing it without change.

And in the wake of the governor’s comments, Au fired off an e-mail missive this week to state elected officials including the governor, and key players in the investment and tech-industry support infrastructure to frame the view of Act 221 supporters in setting the stage for the next step in the conflict.

"Thousands of jobs, hundreds of local technology and media companies, and hundreds of millions of dollars each year in local investment and local economic activity are at risk if our State officials choose to roll back Act 221 without careful and prudent analysis of the State’s own research data," Au said.

He said Hawaii’s economy won’t be able to prosper in more challenging economic times if elected officials "choose to shoot before aiming."

Basically, the report to the governor said more than 333 companies attracted more than $1.2 billion in investment capital between 2002 and 2007, generating more than $1.4 billion spending in the state and about $500 million in Hawaii payroll at a cost of $295 million in credits.

The criticisms have come from those who say that $295 million was, and will be, needed for other state purposes, and those who decry any involvement by government in the private sector as intrusion on the free-enterprise system, a view that will likely attract far fewer adherents in light of recent national events.

The state’s marketing efforts to generate greater Mainland-investor interest got a boost a few months ago in a report from the Milkin Institute, which highlighted Hawaii as among the coming states in the Santa Monica-based think tank’s 2008 State Technology and Science Index.

In commenting on Hawaii’s 11-spot climb in the rankings, to 28, since the last Milkin report in 2004, the Institute said: "This gain has largely been realized by attracting human capital.

"The appeal of the state’s natural beauty and its relaxed lifestyle will only magnify in the near future as baby boomers, the most educated work force in U.S. history, enter semi-retirement and choose locations that combine an appealing lifestyle with the ability to stay in contact with high-tech work opportunities," it added.

"In addition to luring a domestic human capital inflow, Hawaii has been able to attract foreign human capital," it said.

It’s against the backdrop of the tax-credit controversy but armed with the Milkin Institute comments about lifestyle choices, and carrying a portfolio of interesting emerging companies, that Au will come calling in Seattle.

In the interest of transparency, it’s important for readers to know that I got to know Au at a meeting in California a few months ago because of my involvement with Enterprise Honolulu, the Oahu economic development organization, and have agreed to help arrange meetings during his Seattle visit.

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