Tale of two states on jobs, venture capital

Zach Brandon of the Wisconsin Technology Council paints a dramatic story of what Wisconsin’s pathetic track record on venture capital has meant to the job base. His numbers on venture investing say that if Wisconsin had kept pace with the national average, it would have almost no unemployment.

Here are the numbers:
• The number of unemployed workers in Wisconsin is 215,767.
• The state has averaged 3% of its workforce in venture-backed businesses; the average across the states is 11%.
• That eight-point gap on a work force of 2.4 million means 259,215 fewer jobs.
• Minnesota, at 19% from ventures and about the same work force, has 447,285 in the startup sector.
• If the under-employed are counted, the Wisconsin number of people looking for work or better work is more than 400,000.

The message is clear. If the Badger state is serious about job creation, it needs to pick up the pace on venture capital formation. Minnesota has pulled in $6.5 billion in venture money over the last 40 years; Wisconsin $1.2 billion.

Unfortunately for the Badgers, the trend is going the wrong way. In 2011, Minnesota raised $275 million in startup money, below its five-year average of $328 million. In 2011, Wisconsin raised a paltry $72 million, worst of nine states its size and about on its five-year average.

Wisconsin deals raised .25% of the nation’s venture capital, down from .55% in 2010. Its population percentage is 1.84%.

The legislators in Madison led the nation in passing Act 255, which gives early stage investors a 25% tax credit for startup infusions. That’s been a big help for angel investing. But, other states have caught up, and, clearly, the state’s job base is still hurting from the lack of venture capital.

The Wisconsin Legislature is batting around several different versions of a venture capital bill, with most of the differences on the Republican side. For a party whose governor promised to create 250,000 jobs in his first term, the failure of GOP leadership on this bill during a special session on job creation is perplexing.

(Disclosure: I have a dog in the fight, since I’m working to create an angel fund for Southeastern Wisconsin.)

William Oforange

The fact that there has been no movement on a venture capital bill IN A YEAR shows that “jobs, jobs, jobs” is just pablum for the masses. As outlined above attracting venture capital is one of the best ways to create jobs. Better than that package of giveaways last January, better than the current, possibly unconstitutional retroactive tort reform, better than Act 10, better than concealed carry or voter ID. But you see the Republicans are only interested in making you think they’re trying to create jobs rather than actually creating any.
Prudent

This shows exactly why we need to make a drastic change in our government. I always look at how perplexing the SBIR program negotiation have went in Washington. SBIR is a program that takes a small percentage of academic science funding and puts it into the hands of small business so that they can create products. Without a strong small business lobbying group, it took 10 years to increase the set-aside for SBIR by a small 1%. Why is this so pertinent to this Venture capital story? Because over the last 20+ years, SBIR has categorically proved itself as a clear way to create high paying jobs and new US technology products. We need to get back to the facts and move away from this constant political bickering which is focused on keeping status quo. But at a time when Wisconsin is stuck in neutral, the State’s motto means nothing.

Anonymous

I couldn’t agree more on the SBIR program. It is a great stimulus for launching technology companies.

Anonymous

John, just as you hold me to high standards in my writing, my view is that repeating someone else’s argument seems more like advocacy, not analysis. Do you believe those bold numbers cited? What’s your reasoning?

I’d like to add some counter points. If publicly funded VC were a big generator of jobs, why would the state doing the most (Ohio) be one of the lowest job creators since their fund launched in ’03? Moreover, can you find a respected economist who thinks public VC funding is a target efficient use of taxpayer dollars?

My view: Use the $100 million for activities that economists have found to be an efficient (cost effective, “bang for the buck”) way to help the unemployed and help entrepreneurs. Things like: 1) a $10 wage supplement (for a period of time, such as 6 months) paid to employers who add new jobs *and* hire unemployed workers to fill them; 2) incubators where entrepreneurs can receive low cost space, help with writing biz plans, advice on marketing, advice on growing a business; 3) more marketing of the state to site selection experts looking to place businesses; 4) more funds (not cuts) for tech colleges to provide training in areas of demand; and 5) more funds for early education which, although a long-term jobs strategy, has been shown to pay big dividends relative to its cost.

Note my argument is NOT that publicly funded VC is always a bad idea. But let’s start with things that have been shown to be cost effective uses of taxpayer dollars in terms of generating economic growth.

I’ll throw in one more policy idea than hasn’t been studied yet but that deserves attention: Six states allow unemployed folks receiving UI, who have an approved biz plan, to receive Unemployment Insurance for a year while they start a business.

As always, thanks for generating useful discussion!

Anonymous

Andy, Good points. There are lots of ways to spend “economic development” monies. After 40 years of involvement in that activity, I had become hard-nosed on the subject. In my view, if it is not direct job creation, it is not economic development. All the other activities are important and necessary, but they are not strategic drivers of the economy. Real estate development, for example, is important, but buildings don’t create permanent jobs, beyond a janitor and a leasing agent. Ego real estate development is not strategic; it is derivative of a vibrant economy. Top real estate developers agree. Another example: Workforce development is important, but what good is it if there are no jobs to fill? Ergo, it’s a secondary strategy. We now know that young companies create all net new jobs. To launch a startup, entrepreneurs need a support system and capital. The former is more available through organizations like BizStarts Milwaukee. The latter is in meager supply in Wisconsin. That’s why I think more early stage capital is hugely strategic. Remember, the state is just doing a match under the proposed fund of funds bill. Private investors put their own money in first. That greatly lowers the taxpayer subsidy per job created.

Anonymous

John, thanks for the reply and for your thoughts. By the way, one thing we can all agree on is that a support system for entrepreneurs like BizStarts, to your credit, is really valuable.