Thursday is D-Day for the long-debated venture capital bill in Wisconsin, and the decision by the Republicans who control the legislature will send a major signal on how they see entrepreneurship as a way forward for the state’s economy.
The state was an early mover in 2005 on tax credits for investors in early stage companies and subsequently expanded that program as the evidence mounted that it was helping with angel investing, business creation and job creation. So there is precedent here for government stimulus for a startup economy.
The question Thursday will be whether the state should go further by investing taxpayer money in funds that invest in entrepreneurs. Fund managers (disclosure: I am a general partner in an early stage fund) always feel a little funny going to the government for matching funds. They would rather raise private money, because they don’t like the strings that, of necessity, accompany a public match.
Some legislators also don’t like using taxpayer money “to pick winners and losers,” even though government people are not making the investment decisions. The fund managers put private investor monies in first, and the public matching dollars follow those choices.
Nonetheless, there is a general consensus that it would be far better for the early stage investments to come solely from private investors. So, why a fund of funds from taxpayer collections?
The compelling reason is that Wisconsin is so far behind in the game of starting high growth companies that it needs a kick start. Other states, including our neighboring states, are way ahead of Wisconsin on early stage capital. The Act 255 credits have helped to get thing moving, but other states have adopted similar methods.
The proposal on the table is very modest. It would allocate $25 million over two years. With a $1 match for every $2 in private funds, meaning $75 million in total funds, that would be enough to get 75 to 150 high-growth companies out of the blocks.
No one should look at this small amount as a quick fix for the struggling Wisconsin economy. Creating a startup culture is a long term proposition. It is more than a two-year deal. At a minimum, it’s a ten-year deal.
But a dedicated commitment to re-inventing the economy through entrepreneurs can yield cumulative results that make a difference. BizStarts Milwaukee started tracking high-growth startups in the M7 region in 2008, and the seven county-region now has a total of 54 ventures with more than 600 jobs. As the number of companies accumulates and as the young companies grow, the job creation total will pick up speed. That’s the payoff for citizens: more good jobs.
Of course, if the angel investments are successful, the state and taxpayers also get their money back and then some.
A better answer than taxpayer money would be foundation money. There are hundreds of foundations in the state that could invest a small slice of their investment portfolios in the intellectual property of Wisconsin, which is abundant. They have billions in investments, including some in what’s known as alternative investments – bonds in emerging countries, wheat fields in the Ukraine, gold mines in Africa. Why not a small slice in Wisconsin startups?
Four Milwaukee foundations have done so, and the Wisconsin Alumni Research Foundation in Madison has a small toe in those waters.
But we need all hands on deck to move the needle faster to embrace the innovation economy.
The venture bill Thursday should be looked at as a very small bet. Other states have made much big bets with taxpayer money. If the early returns on the $25 million are good in 2015, the legislature could increase the bet.
