By Alyssa A. Lappen
The New York Times | October 5, 1980
VENTURE capital enterprises – concerns that invest in fledgling companies in hopes of returns of 38 percent a year or higher, and accept the risk of losing a good part of their investment on occasion – are turning increasingly to Connecticut as a base of operations. Motivation for the buildup of these investment concerns in the state ranges from efforts to escape the drudgery of commuting into Manhattan to avoiding the New York tax rates.
Connecticut has a capital gains tax of 7 percent and a dividend tax with a ceiling of 9 percent. Those rates compare unfavorably with New Hampshire’s or other states where there are no such taxes. But the capital gains bite in Connecticut is effectively much lower than in New York and Massachusetts.
The tax situation helps explain why Connecticut has a sizable and growing number of venture capital funds investing in startup and cash-starved companies nationwide. The state is the home of at least six venture capital funds and two large small-business investment companies (The latter can obtain three or four times their private capital, up to a ceiling of $35 million, from the Federal Small Business Administration at interest rates pegged to one-half of 1 percent over the Government’s borrowing rate.). Available capital here is now at a conservatively estimated $250 million, and several more venture capital pools are in the making.
The hope is that recipient companies, which issue common stock or convertible securities to investors, will grow into major corporations or be acquired, providing the venture capitalists and small-business investment companies with large profits. Investors generally look for a minimum for each investment of five times their money in five years, or about a 38 percent annual pretax return. But large profits can entail large risks.
The state’s venture capital pools and S.B.I.C.’s, together with bank representatives, wealthy individuals, deal brokers and public corporation executives, form the loosely organized, 70-member Connecticut Venture Group, which was founded in the early 1970’s by a former Forbes magazine columnist, Thomas Murphy. Mr. Murphy, whose Partnership Dankist has holdings in seven companies, said the state’s venture community had grown from virtually nothing 10 years ago. Continue reading “Venture capitalists find base in state”
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