Big funds eyeing local
tech firms

Large mainland venture capital funds are poised to invest in high-tech businesses in Hawaii now that the state's technology investment tax credit has been extended another five years, an industry official said yesterday.

"These are funds with substantial capabilities and I'd be very surprised if we didn't see some big investments by the end of this year," said Hawaii Biotech head David Watumull.

Watumull, who is chairman of the Hawaii Technology Trade Association as well as president and chief executive officer of Hawaii Biotech, spoke at a meeting yesterday in which changes to the tax credit system were explained to association members.

He declined to identify the investment groups, which he characterized as funds with assets in the hundreds of millions of dollars. He said the funds were "looking seriously" at investing in technology-based companies, including Hawaii Biotech, which focuses on drug research and development.

Watumull said large investors had been fence-sitting as the state Legislature grappled with how to modify the contentious tax incentive system known as Act 221, but were ready to act following the passage of a revised legislative package.

That sense of getting back to business permeated the HTTA gathering, which occasionally took on the air of a support-group session for a sector bruised by allegations of Act 221 abuse.

"The actions of a few bad apples were projected onto everyone. We all got tarred with the same brush," Watumull said.

The Legislature's revisions have tightened the high-tech qualifications for firms seeking the credits, since past recipients, such as movie-production companies, were criticized for having a flimsy high-tech premise.

Gov. Linda Lingle has indicated she will sign the changes, which go into effect July 1.

But participants yesterday were mostly concerned with the state Taxation Department's ability to process claims soon enough for anxious investors.

The department now must assess and certify the viability of an applicant's claim to the credits, but has received no additional funding for that purpose.

"The concern is, will the Tax Department be able to administer this?" said Ray Kamikawa, a tax attorney, former Tax Department director and architect of Act 221.

Questions also arose about the State Private Investment Fund, which was approved by the Legislature as part of the Act 221 revisions. The state would offer tax credits for private lenders that contribute to the fund, which in turn would provide second and third-stage venture capital to Hawaii technology firms.

But Ted Liu, director of the state Department of Business, Economic Development & Tourism, said the law requires the state to come back too often to the Legislature for various stages of approval.

"All of that may deter investors, who may see it as micromanagement of the process," he said.

Legislators present agreed that lawmakers need to take a closer look at the program next year when implementation is expected to begin.

"To be totally frank, I don't believe many legislators understood the financial aspects of SPIF when they passed it," said state Rep. Brian Schatz (D, Tantalus-Makiki). "We've got a lot of work to do."


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