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Monday, September 26, 2011

Creating a state venture capital program should be a legislative goal


By Tom Still
Connecticut launched the nation’s first state-leveraged venture capital program 35 years ago. Today, more than 30 states have similar funds, including many of Wisconsin’s neighbors and peers.

The story of Connecticut’s success in building its supply of venture capital is among the reasons why Wisconsin should also embrace a bipartisan approach to developing sources of capital for its high-growth, early stage companies.

Connecticut has nearly 3.6 million people versus Wisconsin’s 5.7 million, but it routinely outperforms Wisconsin when it comes to landing its proportional share of venture capital. Since roughly the time Connecticut created the “Connecticut Product Development Corp.” to leverage private investments, about $6.6 billion has been invested in 502 in-state companies. Over that same period, $1.2 billion in venture capital has been invested in 166 Wisconsin companies.

Sure, Connecticut is wedged between New York and Massachusetts, two venture capital leaders, but Wisconsin is located between Illinois and Minnesota, which also perform well in venture financing. So, what’s the real difference? About 45 percent of Connecticut’s venture capital investments have come from home-grown VC firms, compared to 5 percent of Wisconsin’s investments.

Expanding the amount of venture capital under management in Wisconsin is one of the recommendations of “Building Capital & Jobs: The case for a venture capital program in Wisconsin.” The report was released Sept. 14 by the Wisconsin Growth Capital Coalition.

Wisconsin has 1.84 percent of the nation’s population but roughly one-half of 1 percent of U.S. venture capital investments, based on five-year averages. Worse yet, it has about one-tenth of 1 percent of all venture capital under management. That’s mostly because there are so few venture firms in Wisconsin, which otherwise has all the ingredients for success.

The state’s assets include a strong tradition of entrepreneurship, above-average research and development investment, high production of patents and other intellectual property, and a skilled work force created, in large part, by the state’s education system. Wisconsin also has one of the strongest angel capital foundations in the country. But it lacks venture capital, which is often needed to bring young companies to the next stage.

Why is this capital important? Venture-backed companies in the United States represent 21 percent of GDP – at an investment rate of about .2 percent. That’s a huge return. Those companies also represent 11 percent of the nation’s private employment. That’s 11.87 million jobs.

If Wisconsin had received its proportional share of venture capital over time, that would mean 259,215 jobs today versus the 60,156 venture-rooted jobs created over time.

The Wisconsin Growth Capital Coalition, a broad coalition of companies, organizations and angel networks and venture funds, examined Wisconsin’s standing versus peer states, neighboring states, U.S. population and other factors, and concluded Wisconsin could absorb nearly four times the investment dollars it receives today. Its report recommends the state:

* Create a state-leveraged “master” fund, called a fund-of-funds, which would invest in 14 to 20 venture capital funds over time. These recipient funds will raise an additional $350 million to $1.05 billion and commit to offices, staff and investments in Wisconsin.
* Catalyze the development of indigenous Wisconsin funds by committing a minimum of one-third ($117 million at the target of $350 million) to certified Wisconsin funds. These “home-grown” funds have existing structures, network connections and deal-flow pipelines, a portion of the money can be put to work quickly.
* Incent additional Wisconsin angel investment through the creation of accelerator funds. These smaller, targeted funds would co-investment with the angel networks and funds that are closest to the entrepreneurial action in Wisconsin. This would also enhance deal flow for venture funds later in the capital continuum.
* Invest across the full capital continuum, from seed stage to growth stages.
* Construct the program in a way that mitigates taxpayer risk and pays back the taxpayer’s investment.
* Competitively select professional fund management to bring experience, national perspective and existing co-investment relationships to Wisconsin’s table.
* Target industry clusters with high-growth, high-wage job creation potential.

The Wisconsin Legislature has returned for a brief floor period this fall. Job creation and economic growth are likely to dominate the agenda. Lawmakers on both sides of the aisle and Gov. Scott Walker appear committed to getting something done.

One of the best ways lawmakers can help on both of these related fronts is to create a state-leveraged capital program for Wisconsin.

-- 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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Tuesday, September 20, 2011

When is a big company too big – or just a killer business model?


By Tom Still
Google has acquired 103 companies in roughly 10 years, including three – Zave Networks, Zagat and Daily Deal – this month alone. Does that make Google a menacing threat to consumers, or a wildly successful company that knows innovation when it sees it?

That question will come into sharper focus this week when a U.S. Senate subcommittee examines complaints that Google is abusing its dominant position in online search.

With a market cap of $176.5 billion, give or take a billion bucks depending on the day, Google is one of the nation’s largest companies. That makes it a somewhat unsympathetic corporate icon in the minds of some, especially those who believe size and smarts can morph into monopolistic behavior.

A Capitol Hill hearing set for Wednesday, entitled “The Power of Google: Serving Consumers or Threatening Competition,” will consider whether Google is rigging results and crowding other online search firms out of the market – or merely providing what customers want.

The hearing will be chaired by U.S. Sen. Herb Kohl, a Wisconsin Democrat and businessman who won’t seek re-election in 2012. Along with Google’s penchant for acquiring innovative firms in travel, mobile technology and consumer products, the hearing will examine whether the Internet giant gives preference to its own websites or products in search results.

A coalition called FairSearch.org, financed primarily by Google rival Microsoft, has claimed that’s the case. But lawmakers and the Federal Trade Commission must be persuaded that Google’s search algorithms are significantly different than those used by Bing, the Microsoft search engine, Yahoo or other competitors who still hold one-third of the U.S. search market.

Google critics must also demonstrate that consumers are being hurt, which may be even tougher to prove given consumer polls such as the 2011 American Customer Satisfaction Survey, which ranked Google ahead of its competitors.

Google’s mantra is providing comprehensive search results as quickly as possible, a goal it strives to achieve through near-constant revisions to the software that drives its search engines. Sometimes, those tweaks have led to complaints from companies that found they dropped off the top of the page – and even well down the list of pages. Other times, companies have complained about dramatically higher advertising prices, but Google responds that’s often because those companies were simply re-aggregating information others had already paid to promote.

“We make hundreds of changes to our algorithms every year to improve your search experience,” wrote Google’s Amit Singhal in a blog post a few months ago. But with millions of websites competing over the Internet, not every retail or consumer site can show up on the first page of a search, he added.

Microsoft’s role in the FTC inquiry is ironic given it endured an anti-trust investigation in the 1990s, a case that some observers still believe was a blow to the company’s culture of innovation. The hearing is also a test of whether Americans instinctively believe all big companies are bad companies, a populist sentiment that some fear will be the undoing of U.S. dominance in Internet technology.

That’s where Google’s acquisition of companies such as YouTube, DoubleClick, ITA Software, Ad Mob and Motorola Mobility – which sold for a reported $12.5 billion this summer – will come into question. Are such acquisitions necessarily detrimental to consumers, senators might ask, if they speed new products and services into the marketplace?

One of two search boxes on Google’s distinctively simple home page reads, “I’m feeling lucky.” As the company’s executives prepare to testify before Kohl’s subcommittee this week, they will likely rely less on luck than laying out their case that big isn’t necessarily bad.

-- 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, September 12, 2011

A decade after the 9/11 attacks, defending the nation is a technological challenge


By Tom Still
Ten years ago, America was under attack from suicidal zealots who turned hijacked airplanes into bombs. Today, the threats to the nation’s security might just as easily come from cyber-terrorists or biological weapons no larger than a few molecules.

How can Wisconsin help? That question will be addressed this week at the fifth annual “Resource Rendezvous,” a conference that connects the needs of federal technology scouts with discoveries and products from Wisconsin laboratories and companies.

Federal R&D experts from the National Security Agency, the Department of Homeland Defense, the National Institutes for Health, NASA and other agencies will visit Milwaukee Thursday to kick a few high-tech tires. Ten years ago, at the time of the Sept. 11, 2001 attacks, federal science and technology scouts weren’t very familiar with the defense know-how Wisconsin could bring to the table. Today, those scouts are more aware of the state’s capabilities in threat detection, prevention and response, and they’re willing to take a hard look.

Matching federal needs with Wisconsin resources is the goal of Resource Rendezvous, where about 10 companies or research groups will present ideas and products that could be put to work in the ever-more-complicated world of defense.

Cyber-security is a prime example. A decade ago, cyber-security was a threat but still more the stuff of geeks and science fiction. Today, some believe it’s the No. 1 global threat to the world. Meeting earlier this year, world leaders at the World Economic Forum in Davos, Switzerland, named cyber-security as one of the top five global risks in its annual report. The 2011 report identified four related risks: cyber-theft, cyber-espionage, cyber-war and cyber-terrorism.

Observers are also worried that the Stuxnet computer virus, which damaged Iran’s nuclear centrifuges, may have sparked a cyber arms race unfettered by established international norms surrounding these weapons. In fact, the World Economic Forum said it feared cyber attacks on nations could lead to conventional attacks.

Wisconsin researchers through major companies and academic institutions have been addressing those kinds of threats for years, and their work is slowly coming into focus for federal agencies looking to meet national cyber-security goals.

Wisconsin companies and researchers also have expertise around detecting biotoxins; safeguarding water, food and air; producing composite materials that are lighter, stronger and more blast-proof; fire suppression; alternative energy; advanced engine design and more.

While many people know about the role of Wisconsin defense-related industries such as Oshkosh Corp., which is among the world’s leading defense vehicle manufacturers, and Marinette Marine, which will build a new class of combat ships for the U.S. Navy, they are less aware of smaller firms that are providing breakthroughs in those areas and more.

That kind of R&D innovation is what will attract federal scouts to Resource Rendezvous, a conference produced by the Wisconsin Security Research Consortium and the Wisconsin Technology Council, and hosted by the UW-Milwaukee.

Speakers will include: Edward Buck, a lead engineer in the power design and architecture group at Eaton Corp., which has a portfolio of industrial, aerospace and vehicle products; Tom Gillespie, a partner at In-Q-Tel, which identifies and finances opportunities faced by the federal intelligence community; James Grove, who coordinates various aspects of the regional science and technology directorate for the Department of Homeland Security; Paul Lambert, a program manager for the Small Business Innovation Research program for U.S. Marine Corps; Gregory Milman, director of the Office for Innovation and Special Programs in the National Institute of Allergy and Infectious Diseases, who will conduct a workshop on how to write winning federal grant proposals; Robert Romero, a leader in the Office of Technology Partnerships and Planning at the National Aeronautics and Space Administration; Carlos Salazar, a scout in the Research Directorate of the National Security Agency; and Robert Sienkiewicz, acting deputy director of the Technology Innovation Program at the National Institute of Standards and Technology.

Ten years have passed since the attacks on the World Trade Center and the Pentagon, and today the threats to Americans at home and abroad are still real. Research and development taking place in Wisconsin, one of the nation’s leading R&D states, has the potential to keep everyone a little safer.

-- Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal. Learn more about Resource Rendezvous at http://www.wisconsintechnologycouncil.com/events

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Tuesday, September 6, 2011

Do you have what it takes to run your business?


By Gerardo Canales
Business owner’s discipline is the first critical element for success. It is important to launch a business, it is a basic requirement to prioritize objectives and it is fundamental to establish the appropriate cultural values in the company. Most consultants would agree that companies that did not get off the ground were due to discipline issues with the entrepreneur either on the planning stage or during the critical take off stage.

It is almost impossible to launch a business without having the virtue of discipline, before starting up the entrepreneur needs to develop an idea and then evolve it into a business plan. The entrepreneur must then plan, conduct research, explore different alternatives, analyze different roads to follow and finally with a well developed plan he or she might launch the business. It is in this initial process where many entrepreneurs with little discipline get lost in the details because they deviate from the core business idea or simply because their lack of organization prevents them from making it to the business launch stage. A good friend of mine has been trying to leave his full time employment to open his business for almost two years, his practice is growing, he is well qualified, his clients are happy but somehow he has not been able to follow up his business plan to generate enough revenue to make it a real business. It does not take a genius to see that he starts lots of initiatives but he finishes none therefore his endeavor is only a part time business.

Once the enterprise is open, business owners face the next and more critical stage which is the establishment of priorities and objectives; very often only the business owners with a degree of discipline devote some attention to this area of business management. Rational prioritization of objectives requires a huge dose of self discipline because the emotional arguments often try to sabotage rationality, some examples are: buying a car, go out on vacation, buy a new house and many other objectives established by the business owner himself but totally external and independent from the business’ health. The entrepreneur must act as a leader by setting clear goals and objectives but it is extremely difficult to communicate the desired outcome when the entrepreneur himself does not have a clear set of goals therefore only a disciplined and analytical thinking process creates a clear vision from and to the entrepreneur. Every banker would tell you that companies who did not have clear objectives were the ones who overleveraged and suffered in the recent years, just because they could not learn how to say NO to new investments or new spending.

Every business creates its own organizational culture and a series of values that support its culture. In young companies the role model to follow is usually the owner-founder and generally the company’s culture reflects his or her own personality. Then, it is not too strange to think that an undisciplined business owner will create an organizational culture in which discipline is not a fundamental value and sooner rather than later this is going to be reflected in the company’s operations and financial results.

Finally, it is not a coincidence that successful entrepreneurs have self discipline as a common trait in their personalities which is reflected in many methodologies and working processes. Planning, establishment of goals and culture are all vital for business success and they all require discipline.

-- Canales is a business growth consultant for small and midsize service and distribution businesses, with finance and crisis management experience for midsize businesses in Texas and the Midwest. Read his bio


Monday, September 5, 2011

Fetal tissue bill would roll back the clock on medical research in Wisconsin


By Tom Still
For 50 years or more, researchers in Wisconsin and around the world have used cells derived from human fetal tissue to pursue cures for chronic diseases, to develop and produce vaccines and to conduct basic research on a wide range of human health issues.

A bill introduced last month in the Wisconsin Legislature would make it a crime for Wisconsin researchers to continue using those cells, even though they have done so legally, ethically and effectively for decades. Lawmakers who believe they are merely standing firm against abortion should think twice about the far-reaching effects of this bill on medical research and the state’s innovation economy.

Assembly Bill 214 and Senate Bill 172 would prohibit “a person knowingly and for valuable consideration acquiring, receiving or otherwise transferring a fetal body part in this state.” The identical bills define cells and tissues as fetal body parts, and they also ban “providing, receiving or using for experimentation a fetal body part” in Wisconsin – even if there was no “valuable consideration.”

If passed, the bill would effectively halt valuable work in scores of laboratories at the UW-Madison, the Medical College of Wisconsin and beyond, shut down long-standing research projects and essentially chase many researchers and emerging companies out of the state.

Cells derived from fetal tissue – in most cases, descendents of fetal cells first obtained decades ago – are used in a variety of ways. Vaccines for diseases such as polio, measles and hepatitis, to name a few, were historically rooted in work with fetal tissue.

At the Medical College of Wisconsin, researchers are beginning a clinical trial that involves implanting fetal neural cells into spinal cord injury patients. It may be the only hope right now for people paralyzed because of severe spinal trauma, yet it’s just one example of current research that would be banned.

Ironically, threatened research at the UW-Madison would include efforts to help mothers undergo more successful, healthy pregnancies. Spontaneous pregnancy loss and recurrent miscarriages, fetal growth restriction, preeclampsia, conditions of the maternal vascular system and fertility issues are among ongoing research trials that involve working with fetal tissue.

Other UW-Madison research that would end under a fetal tissue research ban include searches for cancer treatments, learning how white blood cells react to transplants, organ replacement therapies, responses of human immune cells to bacterial infections, vaccine development and the effects of Down’s Syndrome on fetal growth and development.

“These are workhorse cells used in (many) labs on campus,” said Dr. Timothy Kamp, a UW-Madison professor of medicine and director of a regenerative medicine program that focuses on heart problems. “Sudden loss of access to these lines could jeopardize many projects.”

At the Medical College of Wisconsin, the list also includes work related to turning adult stem cells into liver cells and clinical trials for drugs and diagnostics for Parkinson’s disease and other neurodegenerative diseases.

If the bill’s intent is to discourage abortions, it may miss the mark. Only eight UW-Madison researchers out of the hundreds on campus who use fetal cells in their research derived their tissue from aborted fetuses, the campus reports. In all eight cases, the tissue would have been discarded by abortion clinics if not donated for research; no aborted tissue was bought or sold.

Some lawmakers may also think they’ve found a backdoor way to ban human embryonic stem-cell research, but the bill would likely have the opposite effect.

Dr. James Thomson, a pioneer of human embryonic stem-cell research, is also the same UW-Madison scientist who launched the search for alternative methods of creating embryonic stem cells through reverse engineering of human skin and other cells. One of his lines of “induced pluripotent stem cells,” which are produced from adult cells versus embryonic cells, can be traced back to fetal lung tissue.

Thomson’s company, Cellular Dynamics International, is also one of the most successful start-ups in Wisconsin, having attracted about $100 million in venture capital so far. This is not the kind of company that should be tempted to move to California.

Some sponsors of the bill believe it’s merely an extension of federal law, but that does not appear to be true. In fact, federal law does not prohibit the acquisition or transfer of fetal tissue across state lines, nor does it ban the use of fetal tissue in research. In other states, laws similar to AB 214 and SB 172 have been found to be unconstitutional.

This is a bill that will hurt Wisconsin’s ability to create and retain tech-based jobs, its research institutions and people everywhere who suffer from diseases and other health conditions. Let’s not roll back the clock on decades of medical progress.

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


Friday, September 2, 2011

Is your business really growing?



By Gerardo Canales
“My business is growing rapidly. Sales have doubled every three years,” a proud business owner once told me. I had been hearing the phrase “business growth” so many times that I began asking myself, “What is business growth?” I knew the financial definition, but is that all there is to the famous buzz phrase? In fact, through research and experience, I’ve found three variables that, when combined, clearly define business growth.

A Company Must Increase Intellectual Capital

Intellectual capital translates into expert knowledge, which means that your company employs thinkers and executive managers in its organizational structure. Your company could increase sales, the number of transactions, and even the employee headcount; but without intellectual capital, it would be very hard for you to maintain a sustainable company. You cannot measure intellectual capital in your financial statements, but you can see the financial outcome of a more mature and disciplined organization. Somehow, sustained profits and intellectual capital are very closely related. If you think you will be the sole decision maker for a long time in your company, think again. Read a business case

An Increase in Company Operations

If your company were to land a big contract, would that be enough to say your company has grown? Not necessarily. There has to be more, a sustained increase in the operations, for true business growth. There are a number of events that could give you an allusion of growth without creating sustainability and profitability. If you were to increase the number of employees, for instance, then you would have a higher payroll instead of a bigger company. Similarily, if you were to find oil in your land or enjoy some other such windfall, then you would have gained more royalties but not more operations or knowledge. Be aware of these scenarios because a rush of business can actually be very dangerous for your company if you do not take in all factors necessary for further growth.

An increase in Organizational Structure

Think about the local wholesaler that imports products from Asia and resells to local and regional customers. On a good day, their products earn a corporate buyer and their volume has duplicated; they may have hired two additional employees in the warehouse to adapt to the increase in business. But do they have business growth or higher volumes? Ideally, an increase in the organizational structure will include higher intellectual capital—a good sign of hiring right and hiring smart. When your company increases operations, it might lead you down the right path, but not until those operations are reflected in the organizational structure and higher intellectual capital can you proudly announce that you have grown your business.

Finally, there are many paths to achieve sustainable business growth; depending on capitalization, sometimes it could start with higher intellectual, and other times the trigger is an increase in operations established to later capitalize with a smart organizational structure. Regardless of the sequence to achieve business growth, we should be able to define it so we can work to achieve it.

-- Canales is a business growth consultant for small and midsize service and distribution businesses, with finance and crisis management experience for midsize businesses in Texas and the Midwest. Read his bio

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