As used in this part 2, unless the context otherwise requires: (1) "Authority" means the venture capital authority created in section 24-46-202. (2) "Certified capital" means an amount of cash that is contributed by a qualified taxpayer to the authority that is deposited in a venture capital fund. (3) (a) "Distressed urban community" means an area within a city or city and county: (I) Where a qualified business would not be a qualified rural business; and (II) That has been designated as an enterprise zone pursuant to article 30 of title 39, C.R.S. (b) If a distressed urban community's enterprise zone status is terminated pursuant to article 30 of title 39, C.R.S., a certified investment shall nevertheless continue to be considered an investment in a qualified business that has its principal business operation located in a distressed urban community if the location was in an enterprise zone at the time of the first qualified investment by the fund manager in the business. (4) "Enterprise fund" means the enterprise fund created in section 24-46-202. (5) "Fund manager" means a partnership, corporation, trust, or limited liability company that invests cash in qualified businesses or qualified rural businesses and is selected through the authority's competitive selection process to establish and manage one or more venture capital funds as described in this part 2. A fund manager shall have at least two years of money management experience in the venture capital industry or the equivalent as determined by the authority. (6) "Premium tax liability" means the liability imposed by section 10-3-209 or 10-6-128, C.R.S., or, in the case of a repeal or reduction by the state of the liability imposed by section 10- 3-209 or 10-6-128, C.R.S., any other tax liability imposed upon an insurance company by the state. (7) "Proceeds" means any revenues arising from the use of certified capital, including, but not limited to, income generated from qualified investments and income generated from all certified capital not currently invested in qualified investments. (8) (a) "Qualified business" means a business that, subject to paragraphs (b) and (c) of this subsection (8), meets all of the following criteria as of the time of a fund manager's first qualified investment in the business and as otherwise determined by the authority: (I) The business: (A) Is headquartered in this state and its principal business operations are located in this state; or (B) Has entered into a contract with a fund manager to comply, within nine months after finalization of the contract, with sub-subparagraph (A) of this subparagraph (I) and the contract contains enforceable provisions requiring a return of any investment of certified capital and any other revenues required to be paid in the event of noncompliance with this subsection (8) or a contract provision; (II) Is a small business; (III) Is not a business predominantly engaged in: (A) Professional services provided by accountants, doctors, or lawyers; (B) Banking; lending; real estate development; insurance; oil and gas exploration; direct gambling activities, which do not include ancillary gambling businesses such as manufacturers of gaming equipment and others as defined by the authority; or (C) Making loans to or investing in a fund manager or affiliates of a fund manager; (IV) Does not receive an investment from a venture capital fund that exceeds fifteen percent of the venture capital fund's aggregate total of certified capital; and (V) Maintains its business in this state for at least five years after first receiving an investment of certified capital and has entered into a contract with a fund manager to comply with this requirement. The contract shall contain enforceable provisions requiring a return of any investment of certified capital and any other revenues required to be paid in the event of noncompliance with this subparagraph (V) or a contract provision. (b) If a business meets some, but not all, of the criteria set forth in paragraph (a) of this subsection (8), the business may nevertheless be deemed to be a qualified business if the authority determines that the investment of certified capital in the business proposed by a fund manager pursuant to this part 2 will further the economic development of the state. (c) Any business that is classified as a qualified business at the time of the first qualified investment in the business by a fund manager shall remain classified as a qualified business, and may receive continuing qualified investments from a venture capital fund. The continuing investments shall be qualified investments even though the business may not meet the definition of a qualified business at the time of the continuing investments; except that a qualified business shall comply with subparagraph (V) of paragraph (a) of this subsection (8) for at least five years after an initial qualified investment to remain a qualified business and to receive continuing qualified investments. (9) "Qualified distribution" means any distribution out of certified capital from a venture capital fund for expenses related to managing and operating the fund. Qualified distributions shall not exceed two and one-half percent annually of the total amount of certified capital allocated to each venture capital fund unless authorized by the authority after a review of extraordinary items. "Qualified distribution" does not include the use of certified capital for litigation challenging the validity, implementation, or effect of this part 2 or article 3.5 of title 10, C.R.S., lobbying, or governmental relations. (10) (a) "Qualified investment" means, subject to paragraph (b) of this subsection (10), the investment of certified capital by a fund manager in a qualified business or qualified rural business, as applicable, for the purchase of any debt, debt participation, equity, or hybrid security, including a debt instrument or security that has the characteristics of debt but provides for conversion into equity or equity participation instruments, including, but not limited to, options or warrants; except that a fund manager shall use certified capital only to make seed and early-stage investments in qualified businesses or qualified rural businesses, as applicable; except that the authority may allow a qualified investment in a qualified rural business that is not a seed or early-stage investment if the investment is appropriate and later-stage capital investments are not otherwise available to the qualified rural business. An investment shall be deemed to be a qualified investment only if the qualified business or qualified rural business in which the investment is made expends the qualified investment within Colorado; except that this limitation shall not be deemed to preclude the purchase of services or goods from outside of Colorado if such services are performed and such goods are used in Colorado. (b) A fund manager shall not make a loan to a qualified business or qualified rural business unless the business has received two written loan rejection letters from two different commercial banks headquartered or chartered in Colorado that make small business loans, one of which shall be a preferred lender designated by the federal small business administration. Any such loan by a fund manager shall not be made through or in connection with any guaranteed loan program. (11) (a) "Qualified rural business" means a qualified business that has its principal business operations in any county, but not any city and county, in this state that, as of June 9, 2001, has a population of not more than one hundred fifty thousand people and, if the county's population exceeds twenty thousand people, that has a growth rate that does not exceed the statewide average for the period of 1990-2000 by more than twenty-five percent as defined in the two most recent decennial censuses. Additionally, a qualified rural business shall be located in an area designated as an enterprise zone pursuant to article 30 of title 39, C.R.S., unless the authority waives this requirement. (b) Any business that is classified as a qualified rural business at the time of the first qualified investment in the business by a fund manager shall remain classified as a qualified rural business and may receive continuing qualified investments from a venture capital fund. The continuing investments shall be qualified investments even though the business may not meet the definition of a qualified rural business at the time of the continuing investments; except that, to remain a qualified rural business and to receive qualified investments, a qualified rural business shall comply with subparagraph (V) of paragraph (a) of subsection (8) of this section for at least five years after an initial qualified investment. (12) "Qualified taxpayer" means an insurance company that has contributed certified capital to the authority and received a tax credit certificate from the authority pursuant to section 24-46-204; except that, upon payment of certified capital by a qualified taxpayer, the qualified taxpayer may transfer or sell all or a portion of its venture capital tax credits to another insurance company, in which case "qualified taxpayer" shall be deemed to refer to such insurance company. A transfer or sale of venture capital tax credits by a qualified taxpayer shall not affect the schedule for taking the venture capital tax credits as provided in this part 2. (13) "Seed and early-stage investment" means the first investment from a professional venture capital firm to a qualified business. A seed investment is made to a qualified business that has not yet fully established commercial operations or that involves continued research and product development. An early-stage investment is made to a qualified business for product development or initial marketing, manufacturing, or sales activities. (14) "Venture capital fund" means one or more rural venture capital funds, one or more distressed urban community venture capital funds, or one or more statewide venture capital funds as described in section 24-46-203 (1), located outside of the state treasury, containing certified capital that is managed by a fund manager to make qualified investments. (15) "Venture capital tax credit" or "tax credit" means the tax credit created by section 24-46-204 that a qualified taxpayer may claim pursuant to this part 2.
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