By Tom Still
Madison Correspondent

MADISON – The headlines have gone to debates over concealed weapons and the definition of marriage, but the real story of the Legislature’s fall floor period will be written this week when lawmakers turn their attention to closing Wisconsin’s venture capital gap.

If the Legislature and Gov. Jim Doyle are successful in crafting a bill, Wisconsin’s high-growth, knowledge-based economy could get a necessary infusion of investment dollars. If the process bogs down, it may be years before the state gets another chance to attract capital to its high-tech start-up businesses. The missed opportunity would cost Wisconsin thousands of 21st century jobs.

On the surface, there is no reason for lawmakers and Doyle to fail. The governor and the Legislature announced plans this summer that were strikingly similar, at least in their broad outlines. Since then, Doyle has outlined five guiding principles that should be acceptable to Democrats and Republicans alike.

According to Doyle, any state venture capital plan should be (1) affordable; (2) focused on “early stage” investments, meaning new companies; (3) aimed at sectors that create high-wage jobs; (4) carried out with reasonable administrative costs, and: (5) designed to attract and leverage private capital.

The problem has come with matching those principles to a specific idea. At least four major proposals are working their way through legislative committees, creating just enough confusion around a complicated subject that some overwhelmed lawmakers may be tempted to throw up their hands.

The financial community needs to understand a basic fact about the Legislature: It is a body comprised of generalists, not specialists. There are very few people in the Senate or Assembly who speak the language of venture capital. Their eyes glaze over when they hear terms such as “carried interest” and “side-by-side investments.” Lawmakers will pass a major bill if there appears to be consensus, but they will balk if the experts cannot agree.

Why does Wisconsin need to attract more venture capital? It lags significantly behind other states when it comes to luring dollars that are invested in high-growth businesses, especially those in fields such as biotechnology, advanced manufacturing and computing. Minnesota is a similar state in size and culture, yet it has attracted five to six times the amount of investment as Wisconsin since the early 1990s. Closing the venture gap is essential to closing the income gap that separates two states that were neck-and-neck on wages a dozen years ago. Today, Wisconsin lags Minnesota in per capita wages by nearly $3,000.

“If you want new jobs, you need new investment,” said Terry Grosenheider, a Madison banker who has worked with the Wisconsin Economic Development Association on one venture capital plan. Grosenheider said the Legislature must make it attractive for more people to invest – which means eliminating tax barriers and other disincentives for middle-class investors. “We need to change the risk versus reward ratio on the low end in this state,” he said.

An existing venture capital program, called the Certified Capital Company or “CAPCO” program, has come under scrutiny because of high administrative costs and investments outside the sweet spot of high-tech jobs. However, reforms in that program may streamline it and avoid the need to reinvent a new, more cumbersome wheel.

Some investors are worried about a Doyle administration proposal to boost tax credits and create a quasi-public intermediary, which they believe could raise costs and drive away the really big investors.

“It presents a significant obstacle for the attraction of investment by those who do not benefit from the tax credits, namely tax-exempt investors and out-of-state investors,” said John Neis of Venture Investors, a Madison firm. “Pension funds, foundations and endowment funds are the largest investors in the asset class, and if you diminish the ability to attract them, you greatly reduce access to capital.”

The guiding principles are right. The timing has never been better. What’s needed is for the Doyle administration, key lawmakers and the financial community to settle on a specific plan. Otherwise, the members of the Legislature will do what cautious policymakers are prone to do: Wait for another day.

Unfortunately, Wisconsin doesn’t have another day when it comes to attracting more venture capital. It must act now.

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