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Act 221 -- Uncertainty Not Good For Anyone

The buzz I've been hearing from everyone in the VC and startup community is that the uncertainty over the fate of Act 221 has frozen all investments in tech companies in Hawaii. That's because no one can responsibly estimate a proper investment amount or strategy without a clear sense of the tax implications. Eliminating Act 221 entirely would actually be better than leaving the matter in limbo any longer. I am not saying that saving or killing Act 221 is good one way or the other -- both sides of the argument have merits. But leaving it on life support is the worst of both worlds, a situation that robs promising startups of any chance at local capital and forces them to fundraise outside Hawaii -- a step that vastly increases the likelihood the company will be forced to leave Hawaii to keep seed investors happy. What do you folks think?

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Comment by Tom Benson on June 2, 2009 at 9:41am
It's funny timing. With the Federal stimulus act there are now some even more "investor-friendly" methods to leverage funding for new tech startups that want to move to Hawaii. I have been looking at my robotics startup and know a couple software startups that have been considering the same. This is exactly the time that Hawaii could scoop up some real gems with the Feds picking up most of the tab.
Comment by Alex Salkever on June 2, 2009 at 8:36am
I don't know what current status is. I had thought the revised bill would still provide 80% credit but eliminate the double credits. And I don't know what Gov. Lingle has planned. Which is exactly the problem -- a clear picture is what investors need to move forward.
Comment by Leighton K. Chong on June 2, 2009 at 8:33am
Well, if you want to look on the sunny side, by the time the economy recovers enough in 2010 for investors to be willing to take risks to get higher returns, Act 221 will expire. There is no way it will be renewed given the controversy over it. So let's forget about Act 221 as a tech financing vehcile. The tech community should take a deep breath and go for a fresh start with reviving the SPIF proposal for a State tech investment fund-of-funds. It is intended to leverage funding to venture capital firms that will invest based on business criteria.
Comment by John on June 2, 2009 at 8:07am
What is the current state of Act 221? My understanding is that SB199 is being sent to Lingle. Is the only way to save 221 is to get Lingle to veto that bill?

It seems with the state wanting to furlough workers that we have reached an alarmingly dangerous local economic situation.
Comment by Daniel Leuck on June 1, 2009 at 9:42pm
Absolutely. Uncertainty re: Act 221 is the reason there haven't been any significant tech deals in Hawaii this year.

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