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Monday, January 28, 2013

Tom Still: Interest by investment groups shows something is cooking in Wisconsin


By Tom Still
It appears the mere idea that Wisconsin might create a state-leveraged seed, angel and venture fund is attracting some much-needed attention.

That was the underlying message this week when the Wisconsin Economic Development Corp., responding to an open records request, disclosed that 12 groups have expressed interest in managing a state investment capital program if such a fund is created soon.

Included in that number were several national players as well as emerging funds in Wisconsin, all of which are aware of the size and scope of the state's potential to create robust, nationally competitive companies.

That response should be heartening to Gov. Scott Walker and the Legislature as they consider whether to include a down payment on such a plan in the state's next budget. The interest by national and state-based funds validates the core premise: There are ample investment-worthy deals in Wisconsin.

Here are reasons why an investment capital bill can help drive Wisconsin's economy, especially in the critical – and lagging – area of company creation.

Company creation is vital to Wisconsin's economy. While companies may occasionally be attracted from beyond our borders, almost all successful companies in Wisconsin were born and bred here. That includes some iconic names – Kohler, S.C. Johnson, Johnson Controls, Harley-Davidson and many more – as well as most of today's emerging firms.

Young companies yield all net new jobs in the United States, according to the Ewing Marion Kauffman Foundation and other observers. Investing in an early stage capital plan designed specifically to lift up emerging companies is a smart bet. If the goal is to create high-paying, secure jobs over time, the best way to do so is to help launch and grow new companies in the economy's fastest-growing sectors.

While it's tempting to think that all angel and venture capital flows to tech deals in Madison and Milwaukee, that's increasingly not the case in Wisconsin. 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. It's an answer to the "brain drain" dilemma.

But don't a lot of those young companies move away from Wisconsin before the state reaps the benefits? Far fewer move away than one might think. In a dynamic market economy, some companies move to be closer to customers, talent or capital. Wisconsin increasingly has the talent, the facilities and the specialized equipment: All it needs is more capital, which an early stage investment program would help provide.

Lawmakers are also understandably cautious of about risk. They might ask: What is the risk to the state of Wisconsin in taking part in a seed, angel and venture capital program?

As the newly formed Wisconsin Growth Capital Coalition has explained, the State of Wisconsin would be a limited partner in such a program. That means it would share in the risks – and rewards – just like private investors that may choose to take part. Since 1981 nationally, there has been only one year in which funds created in that year lost money on average. In time, those same national averages suggest the state of Wisconsin could see a return on its investment.

Venture- and angel-backed companies have high survival rates compared to young companies financed in more traditional ways. Because investors provide advice and management background as well as money, venture-backed companies nationally have a 60-plus-percent survival rate.

The state also gets an indirect but important benefit: Economic growth. That helps the state's tax base grow over time. Because it's a more diversified tax base, it is also more secure and recession-proof.

It appears some veteran investors already know what state policymakers are thinking: It make sense to invest in Wisconsin's future economy.

-- 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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