Certified Capital Companies (CAPCOs): Strengths and Shortcomings of the Latest Wave in State-Assisted Venture Capital Programs

Abstract

Certified Capital Companies (CAPCOs) are state-certified venture capital companies funded by insurance companies. As an incentive to invest in CAPCOs, insurance companies receive a $1 credit on premium taxes for each $1 invested (tax credits are spread over a 10-year period). The CAPCOs must invest in specific types of businesses according to an established time schedule to ensure the availability of tax credits to the insurance companies. Legislation authorizing CAPCO programs has passed in five states (Louisiana, Missouri, Florida, New York, and Wisconsin) and has been considered in eight other states (Iowa, Illinois, Arizona, Texas, Kansas, Vermont, Colorado, and North Carolina). This article summarizes the characteristics and experiences of CAPCO programs in the states that have passed enabling legislation. Lessons learned from the experiences of the state programs are provided, and the advantages and disadvantages of CAPCOs as compared to alternative state-sponsored venture capital programs are reviewed.