A recently created funding vehicle for entrepreneurial businesses in Texas is getting a “thumbs up” from venture capitalists and entrepreneurs. CAPCO, which is short for [Texas] “Certified Company Capital Company Program” was created to be a source of funds for venture capital companies to tap when making investments in Texas businesses. Although CAPCO programs have been created in a number of states, the Texas program is one of the most successful.
Created by the Legislature in 2005, the CAPCO program allows highly taxed insurance companies to receive tax credits as an incentive to invest in CAPCO-issued debt instruments. Only CAPCO’s having certain minimum connections with Texas may issue qualifying debt instruments to insurance companies. In addition, certain reporting and regulatory requirements must be met.
The CAPCO funding would not be viable except for the work of venture capital firms. Each CAPCO is a venture capital firm but they also join with traditional venture capital. Venture capitalists serve a vital role in an entrepreneur economy. They represent mostly private investors who are looking for the best possible return on investment. The role they play is to seek out and find new and exciting businesses which are ready and need to expand. They perform all the due diligence for the investors and monitor the investments afterwards to protect the investors’ interests.
Many a startup business would have failed if not for venture capital companies. The venture capital companies, in addition to money, also provide expertise and advice to the new companies which helps the businesses become more successful.
CAPCO programs combine government resources with private venture capital expertise. Although some have criticized CAPCO’s as not being job creators, those criticisms do not apply in Texas. Examples of successful CAPCO investments include a 3.15 million dollar investment in Current Solutions, LLC. Current Solutions is a supplier of electrotherapy products to medical supply firms throughout North America. The investment was used to purchase a Florida company, Koalaty Products, Inc. and move its operations to Texas. This investment was managed by Advantage Capital Partners, a private venture capital firm using funds furnished by a CAPCO.
There are many such success stories of the Texas CAPCO programs. Texas CAPCO is another example of how Texas is leading the United States in job creation and economic growth.