Gov. Scott Walker’s proposal to create a $25 million “capital investment program . . . for co-investments in business startups and investment capital projects” was deliberately vague.
As he told reporters and others last week in unveiling the state’s $68 billion budget plan for the next two years, it’s because he wants the Legislature to have a hand in shaping the details.
Walker also doesn’t want lawmakers to take the money and run.
In the world of competing priorities that surround any state budget debate, governors and the Legislature must come to grips with seemingly unrelated choices. Medicaid, transportation, income tax cuts, economic development and more vie for attention in an environment where policy is sometimes trumped by politics.
Read this commentary in the Milwaukee Journal Sentinel here.
Need is great
If lawmakers want evidence that Wisconsin needs to invest more in its startup economy, however, they need look no further than a string of recent reports and events that highlight why the need has never been greater – and the opportunity larger.
The Wisconsin Taxpayers Alliance recently reported that state job growth has lagged the nation for decades, in part due to an aging workforce but also because business starts as a share of all private firms remains near the bottom of the 50 states.
The good news: The state’s “net business creation” figures are closer to the middle because higher-end startups here stand a better chance of surviving. Still, the middle of the road is no place to stand in a fast-lane economy.
Reports from the Milken Institute and other think tanks indicate Wisconsin’s major metropolitan areas continue to lag in job production, as well.
However, those same reports note high-tech sectors are performing relatively well compared with cities elsewhere. For example, Madison’s rank fell from 28th in 2011 to 71st in Milken’s 2012 survey, but its high-tech growth was a more respectable 36th.
While there are serious limits to how much states can do to poach companies from other states, some trends are worth noting. Minnesota has historically outperformed Wisconsin in company creation, venture capital investments and high-wage jobs, but proposals for a new business-to-business sales tax in the Gopher State could make a difference on the margin. By the way, Minnesota virtually carbon-copied Wisconsin’s angel investor tax credit law a few years back, with notable success.
In California, where investors are already worried about high business costs and excessive regulation, new taxes are accelerating their search process for greener pastures.
A chance to stand out
All of this and more points to the need for Wisconsin to set itself apart with a modest investment capital program that fuels the best of the state’s startups while encouraging investors at home and outside the state to put their own skin in the game.
In comments to reporters last week, a longtime observer of such state efforts said the notion of an investment capital program that requires market validation is the way to go.
Josh Lerner, a professor of investment banking at Harvard University and expert in government economic development programs, said Walker’s proposal appears promising on the surface.
“I generally agree that matching funds are the way to go – it allows a market test as to whether there is sufficient interest in the funds,” said Lerner, author of “Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed – And What to Do About It.”
Lerner added it’s important to make sure the fund is big enough to make a difference and that “enough has been done to develop the entrepreneurial ecosystem in Wisconsin, which will be a necessary precondition for venture capital funds to thrive.”
That’s another reason why Wisconsin is ready for a right-sized investment capital plan.
One of the reasons more Wisconsin start-ups survive their first few years is that an impressive support system is already in place. That includes a mix of state, local and private efforts that range from the statewide Governor’s Business Plan Contest to BizStarts Milwaukee to high-tech accelerators to growing entrepreneurial efforts on college campuses.
Wisconsin lawmakers have a chance to put the state on a dynamic map by building on Walker’s $25 million investment capital proposal.
A smaller investment would send a signal that Wisconsin isn’t ready to compete, while a larger stake would demonstrate the state understands what it takes to succeed in the knowledge economy.