(1) The authority shall establish procedures and additional selection criteria for, and shall conduct, a competitive process for the selection of one or more fund managers to establish and manage one or more rural venture capital funds and to establish and manage one or more statewide venture capital funds. The authority shall establish and publicize the deadlines for the competitive selection process. The authority may establish reasonable application fees. In conducting the competitive process, the authority shall not be subject to the requirements of the "Procurement Code", articles 101 to 112 of this title. The authority shall select fund managers by December 31, 2004, and thereafter as necessary. When selecting a fund manager, the authority shall place a significant emphasis on:

(a) The total amount of venture capital managed by the applicant in Colorado and elsewhere;

(b) The applicant's historical return on investment, with an emphasis on returns from seed and early stage investments;

(c) The percentage of proceeds to be retained by the applicant in comparison with the percentage of proceeds to be distributed to the enterprise fund.

(2) The authority shall allocate:

(a) Twenty-five percent of certified capital to one or more fund managers for the establishment and management of one or more rural venture capital funds for the purpose of making qualified investments in qualified rural businesses;

(b) Fifty percent of certified capital to one or more fund managers for the establishment and management of one or more statewide venture capital funds for the purpose of making qualified investments in other qualified businesses; and

(c) Twenty-five percent of certified capital to one or more fund managers for the establishment and management of one or more distressed urban community venture capital funds for the purpose of making qualified investments in qualified businesses whose principal business operations are located in a distressed urban community.

(3) As soon as practicable after the selection date, the authority and each fund manager shall enter into a contract whereby the fund manager shall establish and manage the venture capital funds pursuant to this part 2 and shall comply with other requirements established by the authority. The contract shall specify that the fund manager shall make qualified investments according to the following schedule:

(a) By January 1, 2006, the fund manager shall have made at least one qualified investment.

(b) Within the period ending three years after an allocation date, a fund manager shall have made qualified investments cumulatively equal to at least thirty percent of the certified capital allocated to it on such allocation date.

(c) Within the period ending five years after an allocation date, a fund manager shall have made qualified investments cumulatively equal to at least fifty percent of the certified capital allocated to it on such allocation date.

(d) Within the period ending ten years after an allocation date, a fund manager shall have made qualified investments cumulatively equal to at least one hundred percent of the certified capital allocated to it on such allocation date.

(4) A fund manager may, before making a proposed qualified investment in a specific business, request from the authority a written opinion that the business in which it proposes to invest is located in a distressed urban community or should be considered a qualified business or qualified rural business, as applicable. Upon receiving a request, the authority shall have thirty working days to determine whether the business is located in a distressed urban community or the business meets the definition of a qualified business or qualified rural business, as applicable, and notify the fund manager of its determination with an explanation of the determination. If the authority fails to notify the fund manager of its determination within thirty working days, the business in which the fund manager proposes to invest shall be deemed to be located in a distressed urban community or to be a qualified business or qualified rural business, as applicable.

(5) A fund manager shall invest all certified capital not currently invested in qualified investments in:

(a) Cash that is deposited in a federally insured financial institution;

(b) Certificates of deposit in a federally insured financial institution;

(c) Investment securities that are obligations of the United States, its agencies, or instrumentalities or obligations that are guaranteed fully as to principal and interest by the United States;

(d) Debt instruments rated at least "AA" or its equivalent by a nationally recognized credit rating organization, or issued by, or guaranteed with respect to payment by, an entity whose unsecured indebtedness is rated at least "AA" or its equivalent by a nationally recognized credit rating organization, and that are not subordinated to other unsecured indebtedness of the issuer or the guarantor, as the case may be;

(e) Obligations of this state, any municipality in this state, or any political subdivision thereof;

(f) Interests in money market funds, the portfolios of which are limited to cash and obligations described in this subsection (5); or

(g) Any other investments approved in advance and in writing by the authority.

(6) (a) The authority's contract with a fund manager shall state the terms governing the distribution, other than a qualified distribution, of certified capital and proceeds. Unless authorized by its contract with the authority and until it has made the distribution specified in paragraph (b) of this subsection (6), a fund manager shall not make any distributions from:

(I) Certified capital other than qualified distributions; or

(II) Proceeds.

(b)

(I) The fund manager shall distribute to the authority an amount equal to one hundred percent of certified capital allocated to venture capital funds managed by the fund manager prior to making distributions pursuant to subparagraph (II) of this paragraph (b). The authority shall deposit the distribution in the enterprise fund.

(II) After the distribution made pursuant to subparagraph (I) of this paragraph (b) has occurred, the fund manager shall distribute all remaining certified capital and proceeds on a pro-rated basis between the authority and the fund manager as negotiated in the contract by the authority and as certified capital and proceeds become available. The authority shall deposit the distributions to the enterprise fund.

(7) (a) In addition to other items as specified by the authority, on or before January 31 of each year, each fund manager shall report the following to the authority:

(I) The balance of certified capital at the end of the immediately preceding calendar year for each venture capital fund managed by the fund manager;

(II) The number of jobs created in Colorado from qualified investments made by the fund manager and the amount of proceeds, if any, received by the fundmanager from the investments;

(III) The amount of qualified distributions made by the fund manager from certified capital during the immediately preceding calendar year; and

(IV) All qualified investments made by the fund manager from certified capital during the immediately preceding calendar year.

(b) Annually, and within ninety days after the close of its fiscal year, each fund manager shall provide to the authority an audited financial statement that includes the opinion of an independent certified public accountant. The audit shall address the methods of operation and conduct of the business of the fund manager to determine whether the fund manager is complying with this part 2 and the authority's contract and whether the certified capital received by the fund manager has been invested as required under this part 2 and the authority's contract.

(8) Venture capital fund offering materials shall include the following statement:

The state of Colorado does not endorse the quality of management or the potential for earnings of such fund and is not liable for damages or losses to any investor in the fund or any other entity. Selection by the Colorado Venture Capital Authority to participate in this program does not constitute a recommendation or endorsement of the venture capital fund or its investments by the Colorado Venture Capital Authority.

(9) If a fund manager violates any applicable provision of this part 2 or any material provision of the authority's contract with the fund manager, the authority may require the fund manager to make a payment in an amount up to the amount of certified capital received by the fund manager in addition to penalties as determined by the authority. The payments shall be deposited in the enterprise fund. The authority may use additional remedies, as specified in its contract with a fund manager, to ensure appropriate oversight of the venture capital program. The authority shall conduct an annual review of each fund manager to determine its compliance with the requirements of this part 2 and its contract with the authority.