By Brian E. Clark
For WisBusiness.com
Many Wisconsin start-ups desperately need capital to keep them afloat, panelists said Tuesday at a Madison luncheon hosted by the Wisconsin Innovation Network.
And while proposed legislation to boost venture capital investment in Badger State companies may not be perfect, Rep. John Klenke, R-Green Bay, predicted a “tweaked” form of the bill will pass this session.
Klenke, a self-described fiscal conservative and an accountant by training, said he was initially skeptical of the bill, which would create two state-backed funds totaling $400 million under the umbrella of a new Wisconsin Venture Capital Authority. The funds are designed to deal with both the state’s short and long-term investment needs. The legislation builds on the Act 255 Tax Credits, where were passed in 2005 and enhanced in 2009.
The Jobs Now Fund is the more controversial of the two. Proponents say it is needed because it would rapidly provide funding for companies that are moving beyond the first stages of development. It would issue $200 million in tax credits to insurance companies over time in return for investments in certified capital funds. Some critics say the insurance companies are getting too good a deal.
The Badger Jobs Fund is the longer-term tool. It would invest in qualified venture capital funds and could issue up to $200 million in private placement bonds, which would be supported by investment returns, the incremental growth of state tax collections from financed companies and contingent tax credits. For every $1 a qualified venture capital fund receives from the Badger Jobs Fund, it would need to raise $3 on its own.
“When this bill was first brought to me, I wasn’t sure whether it was the role of government to provide capital using taxpayer dollars,” said Klenke, who serves on the Assembly Committee on Jobs, Economy and Small Business.
But he said he was persuaded that without the funding, Wisconsin would be at a competitive disadvantage to many other states that are creating venture capital funds to attract investment for nascent companies within their boundaries.
“Capital formation is important for us here in Wisconsin,” he said. “The more ideas we have, the more need there is for capital to invest in those ideas … and bring them to fruition.
“That can happen here or it can happen someplace else,” he said.
Klenke said he was initially convinced the legislation would pass easily in its original form. But he said opposition has arisen, which will probably lead to changes in the bill to move it forward.
“There will be fighting first, but then we will come together to get it done,” he said.
John Neiss, president of Madison-based Venture Investors, said the bill is needed because Wisconsin needs to do a better job of funding small companies.
He argued that 11 percent of private sector employment and 21 percent of the gross domestic product (GDP) in the country can trace its roots to venture capital.
“The ones that are venture-backed are the fastest of the fast-growing companies,” he said. “If we want to ride that train and be in the industries that have the biggest impact on economic growth in our state, we need to have a competitive amount of capital.”
He said Wisconsin, with 1.83 percent of the nation’s population, accounts for 2.15 percent of the country’s academic research spending.
“So in terms of generation of ideas, we are ahead. … But we have 0.11 percent of the nation’s venture capital under management, a paltry amount of capital relative to the amount of opportunities,” he added.
Toni Sikes, general partner of Calumet Venture Fund and an entrepreneur, said she was forced to go to the coasts to find funding start and grow The Guild, her former e-commerce business.
And she said her firm was rescued from near collapse in 2001 with a $500,000 state-backed investment from Venture Investors after she could not find any other funding. The company had 29 employees at the time. When she left in 2007, The Guild had grown to 58, she noted.
“That half-million dollars didn’t hire those new employees, but it saved a company that went on to grow and be a good employer in the technology world here in Madison,” she said.
Now, she said the urgent need for investment capital can be at least partially met under the proposed legislation, “which would help entrepreneurs who desperately need money.”
“We can find things to agree and disagree with in this legislation,” she said. “It can always be done better. But shame on us if we don’t get this done.”
Zach Brandon, director of the Wisconsin Angel Network and a former Commerce Department official, the state now has 23 angel funds that back the youngest firms.
But he said the state’s small and growing companies are the ones that need additional financing, often in the range of $2 to $5 million.
“The fuel for these young companies is dollars,” he said. “This legislation won’t be the panacea that solves everything, but the money has to be there to make that hand-off… so those companies can make that transition to the venture side.”
