Leaders for two of the state’s top economic development organizations are worried allegations that an Overland Park venture capital company shortchanged the state will stall attempts to create new venture capital programs in the state.

Both Charles Ranson, president of Kansas Inc., and Tracy Taylor, president of the Kansas Technology Enterprise Corporation, said a lawsuit filed last week against Kansas Venture Capital Inc. probably will make it more difficult for a proposed state-sponsored venture capital program to win legislative support this session.

“This certainly clouds the conversation on the issue and creates ill-founded concerns about the integrity of the program we are proposing,” Ranson said.

Two former employees of KVCI filed a lawsuit in Johnson County District Court alleging they were wrongfully terminated. The lawsuit alleges, among other things, a trio of managers at the company John Dalton, Thomas Blackburn and Marshall Parker improperly used dividends from the company’s investments to give themselves bonuses and that the company cut the state out of at least $2.6 million in gains on investments the state had made in the then-quasi-public-private venture capital fund.

Ranson learned of the lawsuit Wednesday afternoon while waiting for the Senate to begin debate on a program, called the Kansas Capital Formation Company Act, that would provide tax credits for private investors in certain venture capital funds. After legislators began circulating information about the lawsuit, action on the bill came to a halt.

The bill would give private investors a 50 percent tax credit on investments made to state-designated venture capital companies. The firms, which have yet to be formed, would be certified by the secretary of the Kansas Department of Commerce and Housing and be audited by the state each year. The goal of the program would be to raise about $40 million in seed capital that could be invested in Kansas companies.

“This bill is real important,” Taylor said. “Venture capital is very unavailable in the state right now. It is so much more available in other parts of the country and if we want to diversify our economy and create good jobs, venture capital is a very important component.”

Ranson said it would be a shame if KVCI’s case became a rallying cry against the state’s involvement in creation of venture capital.

“I’m afraid some people will try to portray this as ‘all venture capital is out and out bad,’ and that’s not the case,” Ranson said.

He said he’s not yet convinced that there was any wrongdoing on the part of KVCI.