§ 291. Entrepreneurs’ Seed Capital Fund; authorization; limitations

(a) The Vermont Economic Development Authority shall cause to be formed a private investment equity fund to be named “the Entrepreneurs’ Seed Capital Fund” or “the Fund” for the purpose of increasing the amount of investment capital provided to new Vermont firms or to existing Vermont firms for the purpose of expansion. The Authority may contract with one or more persons for the operation of the Fund as Fund manager. Such contract shall contain the terms and conditions pursuant to which the Fund shall be managed to meet the Fund’s objective of providing seed capital to Vermont firms. The terms of the contract shall require that, if the Fund manager does not meet the investment criteria specified in the contract, the Fund manager may not be awarded the performance fee.

(b) The Fund shall be formed as a limited partnership pursuant to Title 11 and shall be subject to all the following:

(1) The Fund shall not invest in any firm in which any interest in that firm is held by an investor of the Fund or by the spouse, children, or other relative of the investor.

(2) The Fund shall invest at least 40 percent of its total capital in initial investment in firms that had in the 12 months preceding the date of the funding commitment annual gross sales of less than $1,000,000.00 and may reserve the remainder of its capital for follow-on investments in these businesses, as appropriate.

(3)(A) Before the Fund makes any investments, the Fund shall have and maintain a board of five advisors who shall be appointed as follows: two shall be appointed by the Authority, two shall be appointed by the Fund manager, and one shall be appointed jointly by the Authority and the Fund manager.

(B) The appointing authorities shall coordinate their appointments to ensure that the Board comprises advisors with diverse professional and personal backgrounds and experiences.

(C) The Board of Advisors shall represent solely the economic interest of the State with respect to the management of the Fund and shall have no civil liability for the financial performance of the Fund.

(D) The Board of Advisors shall be advised of investments made by the Fund and shall have access to all information held by the Fund with respect to investments made by the Fund.

(4) The Fund, within 120 days after the close of each fiscal year of its operations, shall issue a report that includes an audited financial statement certified by an independent certified public accountant. The report also shall include a compilation of the firm data required by subsection (d) of this section. These data shall be reported in a manner that does not disclose competitive or proprietary information, as determined by the Authority. This report shall be distributed to the Governor and the Senate Committee on Economic Development, Housing and General Affairs and the House Committee on Commerce and Economic Development and made available to the public. The report shall include a discussion of the Fund’s impact on the Vermont economy and employment.

(5) The Fund shall not make distributions of more than 75 percent of its net profit to its investors during its first five years of operation.

(6) No person shall be allocated more than 20 percent of the available tax credits. For the purposes of determining allocation, the attribution rules of Section 318 of the Internal Revenue Code in effect as of June 12, 2004 shall apply.

(7) The capitalization of the Fund is not limited under this section; however, only the first $7,150,000.00 raised from Vermont taxpayers on or before January 1, 2020, shall be eligible for partial tax credits as specified in 32 V.S.A. § 5830b.

(8) All investments and related business dealings using funds that qualify for partial tax credits under 32 V.S.A. § 5830b shall be subject to the following restrictions:

(A) The investments shall be restricted to Vermont firms, which for the purposes of this chapter means that their Vermont apportionment equals or exceeds 50 percent, using the apportionment rules under 32 V.S.A. § 5833, and they maintain headquarters and a principal facility in Vermont. Any funds invested in Vermont firms shall be used for the purpose of enhancing their Vermont operations. Investment shall be restricted to firms that export the majority of their products and services outside the State or add substantial value to products and materials within the State. In its investments, the Fund shall give priority to new firms and existing firms that are developing new products, and shall take into consideration any impact on in-state competition and also whether the investment will encourage economic activity that would not occur but for the Fund investment.

(B) Each Fund investment in any one firm, in any 12-month period shall be limited to a maximum of ten percent of the Fund’s capitalization and, for the life of the Fund, to a maximum of 20 percent of the Fund’s total capitalization.

(C) At least two-thirds of the monies invested by the Fund and qualifying for a tax credit under 32 V.S.A. § 5830b shall at all times be invested in the form of equity or convertible securities unless the Fund manager determines it is reasonable and necessary to pursue temporarily the generally accepted business practice of earning interest on working funds deposited in relatively secure accounts such as savings and money market funds.

(c) Any firm receiving monies from the Fund must report to the Fund manager the following information regarding its activities in the State over the calendar year in which the investment occurred:

(1) The total amount of private investment received.

(2) The total number of persons employed as of December 31.

(3) The total number of jobs created and retained, which also shall indicate for each job the corresponding job classification, hourly wage and benefits, and whether it is part-time or full-time.

(4) Total annual payroll.

(5) Total sales revenue.

(d) The Authority, in consultation with the Fund manager, shall establish reasonable standards and procedures for evaluating potential recipients of Fund monies. The Authority shall make available to the general public a report of all firms that receive Fund investments and also indicate the date of the investment, the amount of the investment, and a description of the firm’s intended use of the investment. This report shall be updated at least quarterly.

(e) Information and materials submitted by a business receiving monies from the Fund shall be available to the Auditor of Accounts in connection with the performance of duties under 32 V.S.A. § 163; provided, however, that the Auditor of Accounts shall not disclose, directly or indirectly, to any person any proprietary business information. (Added 2003, No. 164 (Adj. Sess.), § 6, eff. June 12, 2004; amended 2005, No. 184 (Adj. Sess.), § 17a; 2009, No. 54, § 25, eff. June 1, 2009; 2021, No. 74, § H.16.)