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Tuesday, May 31, 2011

Not all entrepreneurs are college grads, but more students are taking the start-up path


By Tom Still
San Francisco tech tycoon Peter Thiel is paying people not to go to college. He may be on to something.

Thiel isn’t paying just any bunch of slackers to avoid ivy-covered walls, however. He’s awarding $100,000 each to two-dozen young entrepreneurs whom he believes will help society more by chasing their dreams than by chasing a diploma.

His foundation is called “20 under 20,” which is supported by money Thiel made through his co-founding of PayPal, an online payment service, and his early investment in Facebook. It’s his way of saying entrepreneurs can and should come from all walks of life – not just the ranks of the college-educated. If you don’t believe that’s true, just ask Bill Gates and Michael Dell, two college drop-outs who did pretty well for themselves.

Then again, going to college shouldn’t be a barrier to entrepreneurism. Inside the University of Wisconsin System, for example, more students are taking courses that could put them on the path to starting their own companies. Others are starting companies while pursuing their degrees.

At the UW-Madison alone, more than 1,300 students were involved in entrepreneurship courses across the 42,000-student campus during the 2009-2010 academic year, according to a report to the Ewing Marion Kauffman Foundation. About 1,000 students took part in entrepreneurship events, such as the “100-Hour Challenge” and business plan competitions. One such competition is the G. Steven Burrill contest, which attracted 22 teams and 45 students in 2011 alone.

The best indicator is that Wisconsin college students are launching real companies. At the UW-Madison, nearly 30 student-run companies were started in the last two years. Not all will survive, of course, but many will based on past performances.

The same trend is accelerating at other UW System campuses, where many students are realizing the best way to find a job in today’s job market is to create your own.

The June 7-8 Wisconsin Entrepreneurs’ Conference in Milwaukee will offer tangible examples of how student entrepreneurs are hitting the mark. One panel discussion will feature working examples of recent college start-ups such as ZoomShift, BadgerBites and NoMoreDorms. The 24 finalists in the Governor’s Business Plan Contest will include a handful of student plans that emerged from competitions at UW-Madison, Marquette, UW-Milwaukee and other campuses.

The conference at Milwaukee’s Pfister Hotel will also feature the “Start-up Café,” a hands-on, student-focused incubator that will build a software company during the two-day event while offering advice to entrepreneurs. The Start-up Café will also host a team of software entrepreneurs, designers and engineers who will build and launch a company during the conference.

“We’ll demonstrate how lean start-up techniques can get a company up and going quickly and at less cost,” said Greg Meier of Spreenkler Talent Labs, which will coordinate the Start-up Café. “We want people to learn how this is possible and interact with team members as they explain how the lean start-up process works.” Fueled by more than $1 million in private commitments and modeled in part after California’s Y Combinator, an incubator that has launched scores of companies over time, Spreenkler Talent Labs will help launch 10 to 15 start-up companies per year, mainly in the web, social, mobile and software design spaces.

With incubators in Milwaukee and Madison, Spreenkler Talent Labs will work primarily with college students and recent graduates. Those selected by Spreenkler’s board of advisers will get the tools and seed funding they need to produce a working prototype and a business plan within 12 weeks.

Thiel is right: Not all entrepreneurs are college graduates and they often don’t need to be. People who start companies have diverse backgrounds, as the Entrepreneurs’ Conference will once again demonstrate. But more students are earning a degree while getting a head start on building their own companies, a powerful combination that may offer the best of both worlds.

-- Still is president of the Wisconsin Technology Council. To learn more about the Wisconsin Entrepreneurs’ Conference or to register, visit http://www.wisconsintechnologycouncil.com/events

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Wednesday, May 25, 2011

Is your organization ready to pay $6 million for an employee background screening mistake?


By Scott Paler
A recent class action settlement for $5.9 million with First Transit, Inc. reinforces the need for employers to review their background screening forms and procedures to ensure compliance with federal and state laws.

The quick version—the plaintiff walked away with a smooth $5.9 million, which left First Transit, Inc., gasping for air over their purported mistake of violating the Fair Credit Report Act. The long version—in Hunter, et al v. First Transit, Inc., the plaintiff argued the inclusion of a release of liability in the background screening disclosure and authorization form violated the Fair Credit Reporting Act’s (“FCRA”) requirement that the form stand alone. The plaintiff also alleged that the employer failed to follow a three-step process required under the FCRA before rejecting job applicants based on their background screening report. After completing some fact discovery on the allegations in the complaint, the plaintiff obtained a lucrative settlement.

The case signals a new litigious trend in the employment arena. Five to ten years ago, there were very few employment cases related to gathering and use of background screening information. However, times are changing. The Equal Employment Opportunity Commission (EEOC) is now pursuing several highly publicized class actions alleging that the use of background screening information disproportionately impacts minorities. In addition, there are several well-known plaintiffs’ firms now seeking out background screening cases on their websites with the belief that procedural violations of the FCRA could give rise to lucrative class actions. Anecdotally, we have also seen an increase in single-plaintiff cases before the Wisconsin Equal Rights Division related to employers’ use of criminal history information.

To limit the risks associated with background checks consider taking the following steps:
  1. Ensure that your background screening consent form stands alone.

    Among other things, the consent form, or “disclosure and authorization form,” should not be incorporated into an employment application or stapled to an employment application. It should be presented to applicants or employees as a separate document. Also, to the extent you currently include a release of liability in your disclosure and authorization form, it would be prudent to remove it. In order for the disclosure and authorization to be effective, it should be separate, conspicuous, and clear.

  2. Only consider criminal history information that is substantially related to the job.

    Wisconsin is one of the country’s most restrictive states with respect to employers’ use of criminal history information. In Wisconsin, state law only allows employers to consider criminal convictions that are “substantially related” to the position. Therefore, you should not institute a policy (or practice) of rejecting all felons or all individuals previously convicted of a crime. Instead, make a case-by-case assessment as to whether a particular conviction is substantially related to the job.

    Here are some general rules of thumb for complying with Wisconsin law. In our experience, violent offenses directed towards non-family members, fraud, perjury, and theft can be linked by employers to most positions. However, domestic offenses, driving offenses, and some drug offenses are less likely to be found “substantially related,” absent unique circumstances. Other offenses may fall somewhere in the middle. In addition, the less recent the offense, the less weight it should be accorded. Finally, keep in mind that you should generally not consider arrest records where the underlying arrest did not result in a conviction.

    Federal law requires employers to exercise caution where the use of criminal history information has a disparate impact on those in protected classes. For the most part, though, Wisconsin employers who diligently comply with Wisconsin’s “substantial relationship” requirement will be well-positioned to defend against disparate impact suits under federal discrimination laws.

  3. Only consider credit reports for select positions, or not at all.

    Since the recession, the use of credit reports by employers has become very controversial. The EEOC has suggested that employers’ reliance on credit reports is problematic whenever it has a disparate impact on minorities or members of a protected class. In fact, the EEOC has filed several class actions related to the use of credit reports by employers. Although Wisconsin is not currently among the group of states that has legislated restrictions on employers’ use of credit reports, that too could change in the next few years.

    For the time being, you should be cautious about using credit reports to the extent you receive any material number of applications from minorities or members of a protected class. The conventional wisdom is that employers should only consider credit information for those seeking high-level financial positions or cash-handling positions. However, even that is subject to challenge. As with criminal history, your analysis of credit history information should focus on whether the individual’s track record substantially relates to the job.

  4. Follow the three-step process required by the Fair Credit Reporting Act if you plan to take employment action based upon a background screening report.

    If you are considering rejecting an applicant or taking another employment action based upon a background screening report, make sure to abide by the procedural requirements in the FCRA. First, send a pre-adverse action letter to the employee or applicant stating that you are contemplating making an employment decision based in whole or part on a background screening report. Along with this letter, you should enclose a copy of the background screening report and a federal government notice entitled “A Summary of Your Rights under the Fair Credit Reporting Act.”

    Second, after providing the pre-adverse-action materials wait a reasonable period of time to allow the applicant or employee to identify inaccuracies or mistakes in the report that could potentially change your mind. At least one opinion letter from the Federal Trade Commission has suggested that five business days is reasonable, so that is the minimum amount of time recommended.

    Third, after the waiting period, remember to send an adverse action letter indicating that you are taking the action previously disclosed to the applicant or employee. Note that the FCRA requires specific content in the adverse action letter to appraise the individual of some of his or her rights under federal law, so make sure to check out the statute before you draft the letter. See 15 U.S.C. § 1681b(b)(3). Among other things, the letter must: (1) identify the name, address, and toll-free telephone number of the background screening company; (2) state that the background screening company did not make the decision and is unable to provide the consumer the specific reasons why the actions were taken; and (3) indicate that, upon providing proper identification, the individual may receive a free copy of the report and may also dispute the accuracy or completeness of the report with the background screening company.
Given the new class action and single-plaintiff risks associated with the use of background screening reports, Wisconsin employers are well-advised to audit their process for conducting background checks, consult with an attorney to ensure that legally compliant forms and procedures are being used, and reach out to counsel before excluding applicants or employees based on a background screening report.

-- Paler is an employment attorney practicing at the law firm of DeWitt Ross & Stevens. He routinely counsels employers on background screening issues, has helped defend employers’ background screening practices before administrative or judicial bodies in Wisconsin, New York and Michigan, and has written numerous articles and presentations on background screening compliance matters.

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Tuesday, May 24, 2011

Business community is getting behind value of early childhood education


By Tom Still
The numbers are hard to dispute: Kids who attend organized but relatively inexpensive pre-school programs are more likely to graduate from high school, to earn more as adults, to stay off welfare and to avoid spending time in jail.

All of that accrues huge dividends for society, with long-term economic paybacks for early childhood education pegged at a minimum of $7 for every $1 spent. Study after study, including some that have meticulously traced pre-school students into middle age, has reached the same conclusion.

So why haven’t more business leaders embraced the merits of early childhood education? Some in Wisconsin and nationally have done so, as was evident during a recent gathering in Madison to discuss national trends and partnership success stories from other states.

Unfortunately, however, some have yet to decide. That’s not because the evidence isn’t persuasive, but more likely because business leaders have been told too many times – by conservatives and liberals alike – that one educational trend or another is the Holy Grail.

Think of all the educational elixirs that have been concocted since “A Nation at Risk” was published in 1983 by the National Commission on Excellence in Education. That report, which sounded the alarm bell about shortcomings in American schools, was followed by waves of reform. Private school “choice,” charter schools, tougher high-school graduation requirements, smaller class sizes, literacy exams for teachers, merit pay for teachers, required standardized tests for students, new teacher licensing requirements and much more have followed “A Nation at Risk.”

Throughout the 1980s and 1990s, business was told that eliminating the U.S. Department of Education was the right thing to do. That was followed by “No Child Left Behind,” a federal program that critics said intruded on the ability of individual states to run their own schools.

No one expected a single reform to cure what ailed public education in America. In fact, a mix of ideas – public and private – is likely the right recipe. Business leaders have been told too many times, however, that one single reform or another is the panacea. Private school vouchers were supposed to have turned Milwaukee’s underperforming students into mini-Einsteins by now (a conservative idea) and smaller class sizes in Wisconsin’s SAGE program were touted as a salvation for at-risk primary students (a liberal idea).

So forgive business leaders if they don’t rush immediately to the altar of early childhood education, even if the economic case for investing a few bucks in Head Start, four-year-old kindergarten and improved child care programs is appealing.

At the same time, a number of business leaders are standing at the church door, listening intently, and trying to make up their minds about whether to sit in the pews.

An economic case for investing in early childhood education was presented at a May 18 conference on “Building Early Childhood Public-Private Partnerships” in Wisconsin. Participants heard from the president of the Committee for Economic Development, a national business group, as well as the founders of successful early childhood programs in North Carolina and Virginia.

They also heard from three people who may be able to influence Gov. Scott Walker’s thinking on the topic – including two of his Cabinet secretaries.

Eloise Anderson, secretary of the state Department of Children and Families, and Paul Jadin, secretary of the state Department of Commerce, both talked about the value of partnerships that can better prepare children in their most formative years. Anderson talked about specific attributes of high-quality early childhood programs, and Jadin spoke of successful examples in Wisconsin.

“Healthy, prepared children equals a prosperous economy,” said Jadin, a former Green Bay mayor and chamber of commerce president. “I’m certainly prepared to argue for a better investment in that regard.”

George Lightbourn, the president of the free-market Wisconsin Policy Research Institute, underscored the connection between a well-educated workforce and a prosperous economy.

“If you have an imbedded base of under-educated people, that becomes your economic base moving forward,” warned Lightbourn, who said WPRI will examine early childhood education in a study to be released later this year.

The business case for societal investments in early childhood education is strong and getting stronger. Evidence that includes neuroscience research demonstrates it’s the least expensive way to create the largest number of productive citizens. And with demographic trends pointing to huge worker shortages, it may be to our advantage in Wisconsin to see that all kids get a smarter start now.

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

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Thursday, May 19, 2011

Traversing the 'Valley of Death' is goal of Wisconsin venture capital bill


By Tom Still
Here’s a quick geography quiz. Where is the “Valley of Death” located?

(a) Some place faraway and biblical
(b) Some place in southern California
(c) Someplace in Wisconsin

If you’re a Wisconsin entrepreneur in search of venture capital, the “Valley of Death” is a bit too close to home. That forbidding term describes the funding gap for early stage companies caught between their initial rounds of investment – family, friends, founders and angel investors – and follow-up rounds from venture capitalists.

The gap falls someplace between $2 million and $5 million for many start-up companies in Wisconsin, and for those who fail to bridge the gap, the “Valley of Death” is a dry and dusty desert from which there is often no return. It kills young companies and the jobs they create.

Of course, the same predicament is true for most entrepreneurs in many states, not just Wisconsin. Start-up companies always find it much harder to obtain venture capital than any early money, if for no other reason than the competition is so stiff.

In Wisconsin, the existence of world-class technology, an emerging entrepreneurial culture and tax credits for early stage investors has helped to create a number of companies that are ready for venture capital. Those companies have shown commercial promise – but they lack the capital to get over the hump.

That’s because Wisconsin is a place where venture capital is more a mirage than a true oasis. While Wisconsin claims 1.83 percent of the nation’s population, its companies attract only six-tenths of 1 percent of the nation’s venture capital deals.

A bill introduced this week in the Legislature promises to help Wisconsin entrepreneurs cross that “Valley of Death” and grow into productive companies.

The focal point of Senate Bill 94 is the creation of two funds totaling $400 million under the umbrella of a new Wisconsin Venture Capital Authority. The complementary funds – the Jobs Now Fund and the Badger Jobs Fund – are designed, respectively, to address Wisconsin’s short-term and long-term investment needs.

The proposal builds on the success of the widely acclaimed and often duplicated Act 255 Tax Credits, which were passed in 2005 and enhanced in 2009. Those tax credits have helped enhance early stage investing in Wisconsin – but largely at the “angel” capital level, thus creating a need for follow-up investing by venture capital firms in emerging companies.

The credits helped spawn angel networks across Wisconsin, and those networks have dramatically increased both the number of deals and the dollars invested in those deals. But many angels are tapped out. They need “exits” – company mergers, acquisitions or venture investments – to recoup their money. And the companies in which those angels have invested are struggling to survive.

Senate Bill 94 proposes to cross the “valley of death” in two ways:

The Jobs Now Fund is the rapid-response fund. It would issue $200 million in tax credits to insurance companies over time in return for investments in certified capital funds. The tax credits would be for 80 percent of the value of the investments made, so $200 million in credits could attract $250 million in investments. The credits could not be claimed for a minimum of five years, so the money would be put to work well before the credits are paid. The fund will eventually create a source of revenue for the state’s general fund through returns on investments. In other states, this approach is called a “certified capital company,” or CAPCo, approach.

The Badger Jobs Fund is the longer-term tool. It would invest in qualified venture capital funds on a “fund of funds” basis. The authority could issue up to $200 million in private placement bonds for the Badger Jobs Fund, with the bonds supported by investment returns, the incremental growth of state tax collections from financed companies, and contingent tax credits. Bonds would not be a debt of the state, and no more than 15 percent of the funds could go to any single venture capital firm. For every $1 a qualified venture capital fund receives from the Badger Jobs Fund, it would need to raise $3 on its own.

At a May 16 legislative hearing, the Jobs Now Fund received the most scrutiny because of the past performance of CAPCo funds in Wisconsin as well as other states. Critics say such funds are an inefficient way to create jobs, but proponents say they work well over time.

Look for more debate on the bill’s details in coming weeks. But there’s no debating the fact that young companies are the No. 1 creators of jobs in Wisconsin. Senate Bill 94 can help ensure the most promising companies don’t die of thirst while crossing the “Valley of Death.”

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

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Monday, May 2, 2011

For school districts across Wisconsin, life goes on -- with or without budget ruling


By Tom Still
GREEN BAY – The topic of my speech was the continued value of local education in building Wisconsin's "knowledge economy," and the 50 or so school administrators in the room listened carefully to my message about preparing K-12 students for the rigors of a globally competitive 21st century.

It was hard, however, to ignore the elephant in the corner of my PowerPoint slides.

For most of the school superintendents, human resource directors and fiscal officers in the Green Bay audience, the most important thing on their minds was not to rush out and launch a program to improve science and engineering education.

Rather, the most pressing problem of the day for most school officials in Wisconsin is surviving an unsettled, contentious era in the relationship between local teachers, administrators and school boards.

While the legislative and legal battle lines have been drawn in Madison, the real struggles are being fought across the state, district by district, as the reality of budget cuts and the potential end of collective bargaining for unionized teachers sinks in.

District administrators know they're facing major cuts in state financial support over the next few years, but they're still not sure they will get the flexibility they want to deal with those cuts. That promised flexibility could come in the form of what Gov. Scott Walker has described as management "tools" for changing teacher benefit plans, work rules and more.

But the bill containing those tools is hung up in court – and many school administrators aren't sure about what they should do, or not do, in the interim.

Although the bill awaits final judicial action, life goes on for school boards across Wisconsin. With their district budgets at stake, school board members must choose between passing new union contracts now and waiting for the state law to take effect – assuming it does in its current form.

In some districts, the strategy is to ratify multi-year contracts now and essentially get the same financial concessions that Walker outlined in his budget-repair bill. About 150 of Wisconsin's 425 school districts have done so, mainly because it helps them come closer to balancing their budgets without laying off teachers or other staff.

Typically, districts that have inked deals with their unionized employees have won concessions similar to those covered in the state budget-repair bill, including enhanced retirement fund payments and higher health insurance contributions.

Other districts have chosen to wait-and-see, believing it's better to head into the fiscal year beginning July 1 with an uncertain budget than to sign long-term contracts that might keep union work rules in place for a much longer time.

In Green Bay, Brookfield, Eau Claire and Wisconsin Dells, all places where I spoke last month to school officials gathered for workshops organized by WEA Trust, the mood was similar: How can school boards and administrators most effectively manage the changes set in motion this winter in Madison?

Each district must decide for itself how to balance the needs of taxpayers and teachers, but that equation cannot exclude the needs of students who will become a part of Wisconsin's next-generation workforce.

For Wisconsin businesses and communities to compete, our students must measure up not only to our neighbors in Minnesota and Illinois – but to students in faraway places such as Mumbai and Shanghai. American students are slipping in test-score comparisons with their international peers, and our nation is producing fewer homegrown scientists, engineers and technologists than it needs to produce to remain safe and prosperous.

As Wisconsin's school districts chart new management paths, those districts must remain committed to adopting innovation in the classroom, to fairly assessing how students and teachers perform, and to embracing change in how K-12 education is structured. These uncertain times will pass, but the need for high-quality schools that produce great workers and citizens will not.

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

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