The Rhode Island General Assembly is considering legislation to increase the supply of early-stage equity capital in the state. This is a very worthwhile goal. Unfortunately, the vehicle being proposed to reach that goal, the Certified Capital Company (CAPCO) program, would not accomplish this objective. Rather, it would transfer $100 million from the citizens of Rhode Island to a small group of out-of-state individuals in a particularly egregious form of corporate welfare.

Normal venture capitalists make their money from the profits they earn for their investors. If they make smart investments, they keep 20 percent of the profits. In all cases, however, they must return all of the original investment capital to their investors.

By contrast, CAPCO managers get to keep almost all of the profits plus the money that they invest. Unlike normal venture-capital investors, the State of Rhode Island would receive none of the investment capital that it had originally provided, and, at best, only a tiny portion of the profits.