WisBusiness: Senate could have bipartisan venture capital bill by end of the month

By Kay Nolan

For WisBusiness,com

WAUWATOSA — GOP Sen. Alberta Darling of River Hills and Dem Sen. Tim Cullen of Janesville say neither of them would vote for a version of a proposed venture capital bill that contained certified capital companies, or CAPCOs. But the two are determined to co-sponsor a revised version of the bill before the end of this month that they hope will win bipartisan support in both houses before the end of the legislative session in April.

Although they say they have not yet crafted the bill, it would differ from earlier versions in that it would call for less overall investment — anywhere from $100 million to $140 million — compared with $200 million to $500 million in earlier proposals — and would include stricter oversight and transparency to ensure taxpayers are protected.

A bill that would create a venture capital fund to encourage investment in start-up businesses in Wisconsin failed last spring in Madison, and has been reintroduced in various versions since. Darling and former GOP Sen. Randy Hopper of Fond du Lac had pushed their own version of the bill, which they called the Badger Jobs Now Bill, prior to Hopper being recalled from office in August. Darling survived a recall attempt.

Darling and Cullen appeared together Thursday at a luncheon meeting of the Wisconsin Technology Council to announce their plan to put together yet another version of the venture capital bill.

Cullen and Darling said their bill would establish a “fund of funds” to provide state money to help so-called “angel” investors and other private venture capitalists to invest in promising start-up firms. The state would hire a fund manager and establish a venture fund authority to run the program.

“I’m not going to over-promise — we have three months left in the Legislature to do our business and I would love to say I can guarantee we’re going to get a bill passed — can’t do that,” said Darling. “But I can tell you that’s where I’m putting a lot of my efforts right now and so is Senator Cullen because we feel job creation is one of the most important priorities we have in our state.”

Cullen said, “I’m not going to have to work to get other Democrats to co-sponsor this, or most importantly, to vote for this. I can think of three or four of them right now that I think are pretty comfortable with the Senate position on this and there may well be more than that, and I hope that there is.”

But he added that “I think Alberta’s tone of caution is the right one to take.”

Darling told event attendees that the Assembly has just drafted a new bill “that is somewhat similar but very different in other cases than the bill that we’ve been working on with the Senate.” But she declined to elaborate, saying she had not read the draft thoroughly.

When asked if the new draft contains any provision for CAPCOs, Darling said, “It depends on how you define a CAPCO; I’m reviewing it right now.”

She also said she didn’t have permission from the authors of the Assembly’s newest draft to discuss it. She identified those authors as GOP Reps John Klenke of Green Bay, Mike Kuglitsch of New Berlin and Gary Tauchen of Bonduel.

None of the three were available for comment Thursday evening.

The Assembly GOP previously advocated a venture capital bill that was funded by a leveraged tax credit. In that bill, the state would give deferred tax credits to insurance companies in exchange for capital to be invested by CAPCOs in local start ups. However, the GOP agreed to drop CAPCOs from any venture capital bill. A source close to the Republicans said, however, that they were leaving the door open to other proposals if an agreement couldn’t be reached with the Senate.

Assembly Speaker Jeff Fitzgerald, R-Horicon, said Thursday that the bill likely won’t include CAPCOs.

Speaking at a WisPolitics.com luncheon, he said discussions on the venture capital legislation have led to the conclusion that a “fund-of-funds” model would more easily get the required votes for passage, though Fitzgerald said he still thinks both models are valid.

“Unfortunately, we’ve had a couple bad actors 10 years ago from the CAPCO side that basically took the money and ran,” Fitzgerald said. “And I think politically it’s been very difficult to try and educate the public to say this is still a good, viable option.”

Cullen was emphatic in his disapproval of allowing CAPCOs a role in managing state venture funds, saying, “CAPCOs have the complete ability to kill this thing.” When both senators were asked by WisBusiness.com if they would vote for any version containing CAPCOs, Cullen responded, “I would not.”

Darling hesitated and then said no. Turning to Cullen, she said, “I think there’s a feeling we wouldn’t get it out of the Senate, isn’t there?”

Business professionals in the audience seemed divided between expressing urgency for more financial investment to flow toward small start-up companies and wariness of government interference in the process.

Entrepreneur Ross Bjella, whose start-up firm, Alithias, helps companies compare the price and quality of health care plans, urged Darling and Cullen to “push this through.”

“I live on a month-to-month basis,” Bjella said of his business. “My company right now has two months of capital. If I don’t raise money in the next two months, I could very well be gone.”

But longtime angel investor Byron Frenz said he would welcome state-supported venture capital to boost his own investments, but only if smaller venture funds are the focus, as opposed to large corporate investors, especially out-of-state CAPCOs, which he says are less likely to familiarize themselves with individual start-ups and to provide valuable mentoring.

After the luncheon, Frenz, a CPA who holds a doctorate in economic development, expressed concern that in its quest for oversight and transparency, the government plan could lead to excessive regulation. If, for example, exhaustive audits of each new investment would be required, the cost to comply could discourage angel investors — who, Frenz said, are already going to do reasonable due diligence before investing in young companies.

“The taxpayers won’t be at risk alone,” Frenz said. “The (angel) investors’ consequences are the same as the taxpayers,” providing a built-in incentive to invest wisely and to help the start-ups succeed.

Cullen said he hopes lawmakers will pass a venture capital funding bill for the good of the state’s economy, not for political gain. If possible, the administration of a state venture capital program should be kept away from politics, he said.

“I think it has to stay as far from this governor as possible and as far from any future governor as possible,” Cullen said. “If the governor is going to support names for this board, I think it’s extremely important that those names be confirmed in the Senate by hopefully 33 to nothing [votes].”