By Tom Still

MADISON – Less than a year ago, Texas Gov. Rick Perry told a group of business leaders that investments from a major Lone Star fund are “helping us keep groundbreaking innovations in the state.”

Roll forward to the rough-and-tumble of the 2012 presidential primary campaign, and Perry is deriding investor and former Massachusetts Gov. Mitt Romney as a “vulture capitalist” who built Bain Capital on the backs of the working poor.

Newt Gingrich, the former House speaker who consulted with Freddie Mac for eight years – yes, the same taxpayer-backed Freddie Mac involved in the subprime mortgage crisis – has also castigated Romney for “looting” companies and communities.

Maybe the Occupy Wall Street movement has spread to the “anybody but Romney” wing of the Republican Party.

While Republicans and Democrats alike may find much to criticize with Romney, the curious, almost anti-capitalist attacks that preceded the New Hampshire primary election offer a chance to learn more about the term “venture capital” and what it really means.

That may be particularly instructive in Wisconsin, where the Legislature may soon embark on a debate about a state-leveraged plan to promote early stage investment in Wisconsin-based companies by attracting more private dollars.

Romney was one of the founders of Bain Capital, a Boston-based investment firm that specializes in a broad range of what’s often called “alternative investments.” Those include venture capital investments in young, emerging companies, usually in the range of $5 million to $10 million nationally, but also define private equity and leveraged buyout investments, which are much farther up on the food chain.

Over time, Bain Capital or its subsidiaries have invested in companies ranging from AMC Entertainment to Burger King, from Domino’s Pizza to Dunkin’ Donuts, and from The Sports Authority to Staples. Sometimes it has turned around companies that were struggling – and sometimes it has sold them amidst market turmoil if it meant returning a profit to its own investors.

Through Bain Venture Capital, Romney’s firm has also invested in young companies with ideas or inventions that disrupt existing markets or create entirely new markets.

That’s how capitalism works. The markets constantly push up from below, with more innovative companies crowding out those that have lost their competitive edge. It’s why there are no buggy whips, rotary telephones and typewriters. Time and innovation march on – and investors who risk joining the parade are often rewarded by making money.

As the Republican food fight demonstrates, definitions are important. What is often described generically as venture capital is really a mix of private investments that take place at different stages of a company’s existence.

The youngest companies are usually funded by founders, family and friends, who cobble together enough cash to get the idea rolling. Those investments are sometimes followed by individual “angel” investors – a term that dates back about a century – or organized angel networks or funds.

The term angel investor may sound benevolent, but these folks want a return on their capital as much as anyone else. Angels are often former entrepreneurs themselves, and they usually roll out their sleeves and help mentor company executives where they invest. The average angel group investment in Wisconsin is about $260,000.

Angel investments are sometimes followed by venture capital investments, which are much larger rounds of capital. Venture capital funds provide larger infusions of working capital needed to help companies grow and create jobs. Like angels, venture capitalists also provide mentoring, advice and structure that can help emerging companies soar.

Angel, venture and other early stage and growth capital all falls under the heading of private equity, which comes from private investors willing to take a risk in return for a share of the company’s “equity” over time. Companies are usually growing and adding jobs throughout those stages. In fact, the Ewing Kauffman Foundation reports that all net new jobs in the United States are created by companies five years old or younger.

Private equity also describes rounds from larger institutional investors, such as leveraged buy-out funds. Buyout funds have sometimes worn the “vulture capitalist” label, correctly or otherwise, but should not be confused with venture capital funds.

In a sense, it’s a distinction between Wall Street and Main Street. The buyout funds that sometimes eliminate jobs are a far cry from the angel, early stage and venture groups that work with young companies close to home.

Venture capital has been a driving force behind millions of jobs in the United States and tens of thousands in Wisconsin. Candidates and policymakers alike should be careful to distinguish between investments that create jobs and those that sometimes destroy them.

Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal.