By Tom Still
At
the Dec. 13 meeting of the Wisconsin Innovation Network meeting in Wauwatosa,
the deputy secretary of Wisconsin’s economic development agency said the odds
are “a little better than 50-50” that a $200-million, six-year plan to spur
investment capital will pass the state Legislature next year.
Read this commentary in the Milwaukee Journal Sentinel here.
Ryan
Murray, the No. 2 executive inside the Wisconsin Economic Development Corp., isn’t
the only observer who’s guardedly optimistic about what lies ahead for such a
plan. Here are my own reasons for placing an educated bet.
The state budget
outlook appears to be vastly improved. The
last time legislators considered passing an early stage capital bill, the state
budget was a train wreck and no one knew how to pay for such a plan. That’s not
likely to be the case this time around. The 2011-2013 budget is expected to
close with a small surplus and there’s a positive forecast for the two-year
cycle beginning July 1, 2013.
Policymakers
understand the importance of business startups. The state may not
create 250,000 jobs by the end of Gov. Scott Walker’s term, but there’s a
legitimate shot at reaching a related goal of launching 10,000 new companies
over four years. Young companies yield all net new jobs in the United States,
according to the Ewing Marion Kauffman Foundation and other observers. So why
not invest in an early stage capital plan designed specifically to help lift up
emerging companies?
The process is much
more transparent this time around. Two years ago, the leading early stage
capital plan seemingly fell from heaven with a complicated and costly provision
to allow the return of “certified capital companies,” a financing technique
that hasn’t worked well nationally. The latest effort sprang from deliberations
that began after the 2011 plan crashed and burned. It has benefited from a mix
of voices, especially groups that represent entrepreneurs. While the WEDC has
taken its lumps in other quarters, it has deftly coordinated an open discussion
that should be devoid of surprises.
It’s not a
single-party issue.
Republican and Democratic lawmakers alike have expressed support for a
state-leveraged investment capital plan. At a time when lawmakers in Wisconsin
and nationally have trouble agreeing on just about anything, creation of a
state-leveraged fund in Wisconsin would send a strong signal about a return to
constructive discourse.
It’s not just a
Madison-Milwaukee issue, either. It’s tempting to think that all angel and
venture capital flows to tech deals in Madison and Milwaukee, but that’s
increasingly not the case. 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.
The competition isn’t
standing still.
Wisconsin put itself on the national map in 2004 with the creation of investor
tax credits, which quickly contributed to an explosion in angel capital deals.
Other states are catching up, however, and Wisconsin should build on that
momentum while it can. If Wisconsin passes an early stage capital plan, the
word would spread like wildfire in the nation’s entrepreneurial and investor
communities.
However,
there are reasons why this smart wager could fall flat.
The state budget
outlook is better, but… Competition will
be stiff for available dollars. Mega-programs such as Medicaid, K-12 education
and the University of Wisconsin System will make the early stage capital plan
look like a vulnerable rounding error. While the state would invest over a
period of years, which spreads the budget hit, there will no shortage of pulls
on the money. In addition, some lawmakers will contend an investment fund isn’t
an appropriate role for government. The answer is simple: A privately managed
investment fund will pay back the state over time, which is more than can be
said for some state loan and grant programs.
It’s a complicated
issue, on its face.
Not many legislators understand the ins-and-outs of early stage investing. Then
again, why should they? Good lawmakers are, by nature, generalists trained to
examine a wide range of issues on the public agenda. Whether an investment plan
is included in the state budget bill or offered as a separate bill, it should
be kept simple. How much, what’s the funding source and how transparent? That
leads to a related challenge…
It’s about
entrepreneurs, not investors. Sparking and growing young companies should be the
goal. While there are important differences between angel and venture capital
investments, the debate will quickly grind to a halt if competing investors
haggle over insider details. For Wisconsin to join the list of 30 or so states
that have adopted some sort of investment capital plan, the big picture must
remain in plain view – and that’s building Wisconsin’s startup economy.
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