Oregon More Than Doubles Its Venture Capital

Chuck Sheketoff

Oregon’s venture capital more than doubled last year, far outpacing the national growth rate of investment money, according to new analysis by the Oregon Center for Public Policy.

Venture capital in Oregon rose from $91 million in 2009 to $196 million in 2010, according to an OCPP analysis of data from the MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Financial.

While Oregon’s venture capital jumped 115 percent last year, investments nationwide went up 20 percent.

The bottom line: Oregon holds its own in attracting venture capital. With investment money already flowing to Oregon entrepreneurs, it makes no sense to take money away from schools, public safety and health care and other human services to give capital gains income favored tax status as proffered by the Senate Finance and Revenue Committee yesterday.

Over time, the flow of venture capital into Oregon has closely mirrored the pattern of investment nationally, generally rising and falling in tandem.

On a per capita basis, Oregon’s venture capital ranked 15th highest among all states and the District of Columbia in 2010. That was better than its per capita rank in 2009 (22nd) and better than the average per capita rank of 18th over the previous 15-year period, from 1995 through 2009.

The Competitive Index, a joint publication of the Oregon Business Council (OBC) and the now-defunct Oregon Progress Board and prepared for the OBC’s Oregon Business Plan (PDF), used to cite both total and per capita venture capital as measures of the state’s “pioneering innovation.” Although the Competitive Index has not been published since 2007, this new OCPP analysis updates the figures for total and per capita venture capital.

Oregon’s strong performance in 2010 occurred not only in the absence of favored tax treatment for capital gains income, but also with voter-enacted Measure 66 higher income tax rates on wealthy investors in effect.

Tax rates are, at best, a minor factor in investment decisions. Our business climate for venture capital investment is measured by many other factors, such as the quality of our schools, the knowledge and skills of our workforce and the quality of life for our entrepreneurs.

Despite Oregon’s relatively strong performance in attracting venture capital, OBC is lobbying the legislature to cut the income tax on capital gains, claiming that it will help attract funding for entrepreneurs. In its lobbying efforts, OBC cites a report that gave Oregon a low “business tax climate” rank due to Oregon’s current income tax rates.

But, the report cited by OBC ranked venture capital-poor South Dakota as the state with the lowest taxes for small businesses. In 2010, South Dakota, OBC’s model for good tax policy, ranked last in venture capital, with no investment coming in that year.

The states that ranked first and second in terms of per capita venture capital in 2010, respectively, were Massachusetts and California. Both of those states tax the income from capital gains at the same rate, or higher, as income from work.

Treating all income, whether it’s from the sweat of one’s brow or from risky investments, alike for tax purposes is not only eminently fair, it’s also no impediment to venture capital investment.

What makes Massachusetts and California attractive to venture capital is not their tax rates, but factors such as their top-tier research universities and proximity to markets and suppliers.

If we aspire to join the states in the top ranks of venture capital, we will need to invest more in our research universities and other public structures that make the state attractive to investors. The loss of revenue from giving capital gains income favored tax status would make it harder to fund those vital and business-friendly public investments.


Oregon Center for Public PolicyChuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.

Comments

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    Thanks Chuck for this analysis.

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    Percent growth can be misleading, especially if it was low before, but this statement from the OCPP story is more telling:

    On a per capita basis, Oregon’s venture capital ranked 15th highest among all states and the District of Columbia in 2010. That was better than its per capita rank in 2009 (22nd) and better than the average per capita rank of 18th over the previous 15-year period, from 1995 through 2009.

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    Chuck, I really appreciate your analysis on this, it's what I've seen too. Given all the blather from the business community, one comes to believe we have really low venture capital investing.

    But it just isn't true, 15th or 16th in the country is very good for little ol' Oregon! I recently noticed in "Who Pays" that the income of the top 1% of folks in Washington is $500,000 a year more than in Oregon. That does leave a bit more for venture capital investing!

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