By Jay Fidell
It’s an old concern with new immediacy – raising money to invest in tech so we can expand the economy. But where will this investment come from if we don’t have the money that came in under 221?
Even now, people don’t see how fragile the tourist economy is. They don’t realize how important it is for us to build our own economy.
We should try to change their minds, and in the process encourage them to become investors themselves. It’s not an option, it’s critical because in fact the patient is critical.
THE PEOPLE’S INVESTMENT FUND
Why don’t we have a local investment fund for local people to invest local capital in local tech and energy companies and projects? Let’s call it the People’s Investment Fund.
It would be a rally point, a symbol and reminder of our commitment to a new economy, something that will be out there, ten feet tall, to raise the pride and optimism of everyone in the state.
In the current recession, Hawaii has become a transformation waiting to happen. I think lots of people would vote for tech by investing in it.
HOW IT WOULD WORK
The People’s Investment Fund would give us a chance to find new confidence. It would allow us to invest in Hawaii’s startup and middle tier companies, showcase our talent, hold on to our young people and allow them to pursue their dreams at home. It would also give us a chance to make some money.
221 was for sophisticated investors and required accountants and lawyers - the People’s Investment Fund would be open to investors from Polihale to Puna. 221 drew investment from offshore - the People’s Investment Fund would be limited to local investors, who have the most to gain and lose.
Qualified investors would be limited to local residents and businesses. They would be permitted to invest no less than say $1,000 to avoid the inefficiency of smaller investments, and no more than say $50,000 to avoid domination by big players.
DOING THE NUMBERS
Let’s assume the Fund would be popular and perhaps 50,000 local residents and businesses (less than 5% of the population) invest in it. If they each put in $1,000, the fund would have $50 million, as much as anyone ever dreamed for a local fund. If some people put in more than $1,000, it could go higher still.
At first, we may want to try this without any tax benefits, without credits or deductions, since it’s not likely that the legislature will want to spend money for any tax incentive in 2010. But if the legislature wanted to make the dividends tax free, I doubt the community would stand in the way. After all, the successful companies funded with these investments will be paying plenty of taxes.
The method of selecting the companies to invest in will always be perilous. We’ll need to establish a competent and credible fund manager that will make good investments and at the same time avoid any possibility of favoritism.
There’s no need to reinvent the wheel on this. The legislature created the Hawaii Strategic Development Corporation with this very kind of arrangement in mind. HSDC may have statutory authority for some of this, but some further legislation may also be necessary to start things up.
The good news is that if the Fund is set up as self-supporting it wouldn’t cost the legislature a dime.
PROS AND CONS
Make no mistake – this would be risk capital. As with any investment, you could lose your money, every penny of it.
If we do succeed in attracting public investment, it will show the world, and us, that we can redirect the ship of state and heroically remodel our economy. It would be big news.
As usual, the difficulty is in the details. We’d have to satisfy applicable securities laws. State registration is not as onerous or expensive as the federal requirements, so perhaps the Fund could be structured as an intrastate offering.
NO ONE SOLUTION
The People’s Investment Fund is only a beginning. If it attracts investment and is well managed, it could grow in size and influence and become a model for the future. In any event, the Fund should not preclude more ambitious initiatives emanating from the Fukunaga-McKelvey workgroup or the HSDC “best practices” conference set for December 4th.
Whatever we do, we have to bring the public into the equation. We need incentive mechanisms that not only raise money, but arouse public interest and participation. Without that, we run the risk of a disconnect between what the government is trying to do and what the people want it to do, and that’s a disconnect we can’t afford, either in good times or bad.