A company receiving investments typically pays 1.5 times higher wages, to the average of $70,000, which is why the head of the Wisconsin Technology Council says it is good news that record high investments happened during the pandemic.
Unfortunately, Wisconsin still falls short of our neighboring states, according to the report 2021 Wisconsin Portfolio, just released by the group.
Tom Still, president of the Tech Council, says investment in startup companies rose $30 million from 2019 to 2020 and is on track for more growth in 2021.
Why Investors Matter: A Scenario
You have a great idea for a business — a disruptor, a game changer. You invent water that, by using all organic ingredients, makes you healthier. You get the recipe just right, but to manufacture it requires $500,000 to purchasing cans, labor, marketing, distribution outlets — all before you sell one can.
You have two options:
1) Go into debt, borrowing money from friends, family, and perhaps a bank. Given that 90% of startups fail by year three, it’s your first business, and it’s the middle of a pandemic, some banks prefer not to take that risk.
2) Use your equity — ownership of the company — and approach Angel Investors or Venture Capitalists (groups of individuals or companies) who see your product’s potential, research the market you’re entering, and take the risk, to help your company succeed. In exchange, they also own a bit of the company, riding the ups and downs with you.
The benefit for the community: you get to hire local people in jobs that pay typically 1.5x higher than average (i.e., you’re creating high wage, local jobs).
ON WHY INVESTMENT IS NEEDED: You need new, innovative companies that come up and replace things that have been around for decades to have a vibrant economy in any city. You have to have a mix of older companies, mainstream, and emerging companies that help push things in a productive way.
Nationally, Angel and Venture Capital Funds Have Helped
- Google (2004)
- Facebook (2012)
- Twitter (2014)
- Dropbox (2018)
- Zoom (2019)
Wisconsin Technology Council’s Mission
The State Legislature created the Tech Council, employing Tom Still and his team at the nonprofit to:
- advise the governor and lawmakers on science and technology as drivers to our economy, and
- foster innovation and entrepreneurship
Quick Facts
- The top companies invested in by Wisconsin funds: businesses seeking first-time investments
- Most companies don’t need any investment. One out of 10 needs Angel Investment (typically under $1 million). Businesses seeking, on average, $2-3 million, use Venture Capital.
- In 2020, Venture Capital accounts for 50% of the $484 million in investment, followed by Angel (39.5%), Accelerators (6.1%), Crowdfunding (3.5%) and Private Equity (0.9%)
- Wisconsin has seven Angel Networks and eight Angel & Venture Funds.
The Full Report
Gathered from state records, investor surveys and interviews.
Wisconsin’s Contribution: New Business Tax Credits (Act 255)
Tax relief is another way the state can contribute versus an expense in the budget. It’s taking in less income in hopes it sparks more taxation through sales.
Wisconsin created the New Business Tax Credits in 2005 to provide $1 of tax credit for every $4 a business raises in private investments.
The Tech Council report states that in the 15 years of the program, tax credits are a success with 550 companies leveraging just under $172 million in tax credits to attract $686.6 million in investment.
“That’s money that might otherwise stay on the sidelines and not get involved in the often-risky early-stage companies,” the report reads.
Wisconsin has made progress in the past 20 years [in growing investment money available to businesses]. We can’t stop now. We need to keep the state growing.
Learn what types of tax credits are available for businesses
How Wisconsin Compares to Other States
“We must stay competitive with our neighbors,” says Still. “Michigan made a couple of decisions to rally the private sector and include public sector funds … the result is Michigan is the fastest growing venture capital state.”
Still says Wisconsin is growing its fund from below, versus a large investment from the State. While Wisconsin contributed about $25 million to the fund approximately seven years ago, the growth since is in angel investor groups who then pool their funds to make larger investments, as showcased in the report. There are about seven funds throughout the state.
“Most companies invested in are professors, researchers and students,” said Still, who’s been president throughout all 13 of the annual reports. “Overall, our infrastructure is good. Yes, we have UW-Madison that is very small. Marquette and the Medical College of Wisconsin are also top at tractors to investment. We’re seeing more undergraduate research being done.”
Governor Evers’ budget proposed adding to the fund, but it was removed from funding.
;
