By Tom Still
As a former state legislator, Gov. Scott Walker knows the time-honored reality of any state budget process: More money to spend complicates the political debate and less money to go around simplifies it.
With that bipartisan history in mind, Walker was cautiously strategic Tuesday when he spoke to the Wisconsin Technology Council’s board of directors about the prospects for passage of an investment capital program during the 2013 session of the Wisconsin Legislature.
Read this commentary in the Milwaukee Journal Sentinel here.
Knowing that lawmakers will have myriad competing ideas for how to spend state tax dollars over the next two years, he praised the concept of an investment capital plan but stopped short of committing to include it in his next budget vs. pushing for a separate bill.
“If we did it in the budget before there was agreement on the form, my concern would be that lawmakers might take that (money) and use that for whatever budget priorities they might have,” Walker said.
So while a state-leveraged fund could be created by either pathway, Walker said the key to passage is persuading lawmakers that such an investment will help Wisconsin as a whole, not just the start-up hubs in Milwaukee and Madison, and doing so in a way that spreads the risk and builds in safeguards.
Fair enough. Here are reasons why an investment capital bill can help drive Wisconsin’s economy, especially in the critical – and lagging – area of company creation.
Company creation is vital to Wisconsin’s economy. While companies may occasionally be attracted from beyond our borders, almost all successful companies in Wisconsin were born and bred here. That includes some iconic names – Kohler, S.C. Johnson, Johnson Controls, Harley-Davidson and many more – as well as most of today’s emerging firms.
Young companies yield all net new jobs in the United States, according to the Ewing Marion Kauffman Foundation and other observers. Investing in an early stage capital plan designed specifically to lift up emerging companies is a smart bet. If the goal is to create high-paying, secure jobs over time, the best way to do so is to help launch and grow new companies in the economy’s fastest-growing sectors.
While it’s tempting to think that all angel and venture capital flows to tech deals in Madison and Milwaukee, that’s increasingly not the case in Wisconsin. There are now 12 angel networks or funds outside the state’s two largest metropolitan areas. Entrepreneurs can increasingly be found everywhere in Wisconsin, and it only makes sense to find ways to help them stay home. It’s an answer to the “brain drain” dilemma.
But don’t a lot of those young companies move away from Wisconsin before the state reaps the benefits? Far fewer move away than one might think. In a dynamic market economy, some companies move to be closer to customers, talent or capital. Wisconsin increasingly has the talent, the facilities and the specialized equipment: All it needs is more capital, which an early stage investment program would help provide.
Lawmakers are also understandably cautious of about risk. They might ask: What is the risk to the state of Wisconsin in taking part in a seed, angel and venture capital program?
As the newly formed Wisconsin Growth Capital Coalition has explained, the state would be a limited partner in such a program. That means it would share in the risks – and rewards – just like private investors that may choose to take part. Since 1981 nationally, there has been only one year in which funds created in that year lost money on average. In time, those same national averages suggest the state of Wisconsin could see a return on its investment.
Venture- and angel-backed companies have high survival rates compared with young companies financed in more traditional ways. Because investors provide advice and management background as well as money, venture-backed companies nationally have over a 60% survival rate.
The state also gets an indirect but important benefit: Economic growth. That helps the state’s tax base grow over time. Because it’s a more diversified tax base, it is also more secure and recession-proof.
As reported Friday by the Journal Sentinel, 12 investment groups – including several national players – have responded to a “request for information” by the Wisconsin Economic Development Corp. They all discussed what kind of interest they may have in taking part in a well-structured plan, either in whole or in part. That interest alone indicates a level of comfort about structure and political firewalls.
Walker is right about the need to persuade lawmakers not to be tempted to rob Peter to pay Paul. In this case, Peter is making a persuasive case that Wisconsin should compete more vigorously for the kind of capital that creates companies and jobs.