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Thursday, May 30, 2013

Mike Kuglitsch, Fred Clark: Time to get serious on venture capital

Mike Kuglitsch

Fred Clark
There may be few things legislators from both parties agree on these days, but one of them is the need to create more good paying jobs here in Wisconsin. So when a proposal comes around that offers solid prospects of spurring private sector job creation in emerging companies that are helping create our new economy, the public has a right to expect legislators to work together to get it done. Now is that time.

The venture capital legislation (AB-181) we introduced, along with Senator Darling and Senator Cullen, will give a much-needed boost to our state's lagging venture capital industry. Venture capital is an essential component of providing financing for innovative businesses that are pioneering new products or new technologies. Financial institutions usually won't offer traditional financing for start-up businesses in emerging fields. Without venture capital many of our most promising companies in Wisconsin today would never have made it.

Unfortunately, Wisconsin attracts only about one-half of 1 percent of the venture capital invested each year in the United States. We consistently lag behind Illinois, Minnesota and Michigan in total investment dollars. When compared to nine of our peer states with similar size workforces, Wisconsin is tied with Missouri for last place in the average number of venture capital funded deals per year.

As a result of being so far behind some of the most promising start-up companies choose to take their operations to other states where capital is more available.

Despite our relatively poor performance, the success stories made possible by venture capital funding are encouraging. Across the country, venture capital funding tends to be very efficient at allowing growth in job creation. Logistics Health in La Crosse was able to quickly grow to 1,000-plus employees today as a result of timely venture capital funding. Tomo Therapy in Madison, a pioneer in medical imaging, grew to over 600 employees with early venture capital financing. While there are many such examples, we can help make that list much larger with a relatively small investment of state funds to help jump-start this sector.

Our venture capital proposal matches $25 million in GPR funds Governor Walker has already allocated in his budget for economic development with an additional $65 million in private sector funds to create a state backed investment pool managed by a qualified venture capital funds manager.

Our proposal (AB-181) builds in multiple layers of accountability and oversight to ensure a transparent process that protects taxpayers while helping spur the launch of high-growth companies.

In light of the Legislative Audit Bureau's report on WEDC, legislators raised concerns regarding the framework of the legislation. After weeks of discussion, we have introduced a substitute amendment that would move the program from the Wisconsin Economic Development Corporation to the Department of Administration to solve many of the issues members had.

DOA is certainly capable of taking on the reporting requirements and has the in- house tools to join the State of Wisconsin Investment Board (SWIB) in finding an investment manager that is best for the job. Currently, the Secretary of DOA sits on the board of SWIB, and the department does the bidding for private contracts on behalf of Wisconsin.

With DOA now administering our legislation, we have made it abundantly clear that creating jobs is not something we are willing to play politics with. It is time to remove the 'optics' of this legislation and move forward with a bill that is sure to benefit Wisconsin's economy in the years ahead. Both parties need to work together in good faith to send a signal to all the start-up businesses in Wisconsin. Regardless of our opposing political views, we're serious about supporting the growth of new businesses and new jobs in Wisconsin.

-- Kuglitsch, R-New Berlin, represents the 84th Assembly District, which includes parts of Waukesha and Milwaukee counties. Clark, D-Sauk City, represents the 81st Assembly District, which includes parts of Sauk, Iowa, Columbia and Dane counties.

Tom Still: For proof of how venture capital funds can work, gaze across Lake Michigan

By Tom Still
MADISON – In many ways, Michigan looks a lot like Wisconsin. It shares hundreds of miles of the same Great Lakes shoreline, and usually votes "blue" in presidential elections and "red" when it comes to choosing governors and members of its state Legislature. It also boasts major research universities that rank among the nation's best.

Unlike Wisconsin, however, Michigan began investing in its emerging economy years ago – even as the state's automobile manufacturing base was teetering on the edge of collapse.

The success story of how Michigan has surged on to the national radar when it comes to venture capital investments in tech-based, "knowledge economy" companies should be instructive to Wisconsin policymakers as they prepare to vote on creating a state-leveraged fund.

The Wisconsin Assembly is poised to vote June 6 on a bill that would create a state "fund of funds" seeded with $25 million in state money and built to attract twice that amount in private capital. It would invest in startups and emerging companies over time after a private manager is selected. Senate approval would also be need before Gov. Scott Walker, who earmarked the $25 million in his budget bill, could sign Assembly Bill 181 into law.

Michigan offers a prime example of how such a program can – over time – revitalize entire sectors of a state's economy.

At a May 21 meeting of the Michigan Venture Capital Association, it was reported that Michigan had jumped from less than $100 million in total venture capital investments in 2011 to $242 million in 2012. The number of individual deals in Michigan also climbed from 30 to 47 companies. As a result, Michigan jumped more places in the national rankings (10 spots, to 15th) than any other state last year.

While there may be other reasons to explain Michigan's venture capital surge, those familiar with the state say it's mainly the result of a steady, long-term bipartisan commitment to state-leveraged investment funds. That took place over nearly 10 years, and involved both Democratic and Republican governors and Legislatures.

The state investment over time has been far more substantial that what is being considered in Wisconsin – about $210 million in two main funds – and it took place at a time when Michigan's state budget was in far worse shape than Wisconsin's budget is now.

"The bottom line is they have done a great job in Michigan through a patient, sustained public-private effort," said John Neis, managing director of Madison-based Venture Investors LLC. "They found the will and the way to stick with it, and now they have the results to show for it."

Venture Investors opened an office in Ann Arbor, Mich., in 2007 after receiving an investment from Venture Michigan Fund I. With the University of Michigan a stone's throw away, it was a strong fit with the Wisconsin firm's practice of investing in technologies and companies tied to academic research.

Venture Investors was not the only investor firm from outside Michigan to be drawn to the state because of the state-leveraged fund. Since 2008, the number of venture capital professionals in Michigan has grown from 43 to 62, and the number of firms headquartered in the state has risen from 15 to 20 – with nine out-of-state firms opening offices there.

Total venture capital under management in Michigan has grown to $3.7 billion, up $700 million in one year alone. The amount of money available in those funds for new investments has climbed from $367 million in 2011 to $456 million last year.

In contrast, Wisconsin has only a relative handful of venture capital funds by any description and about one-tenth of 1 percent of the nation's venture capital under management in the state.

"It didn't happen overnight in Michigan, but there's no reason we can't learn from their success and follow their playbook," Neis said.

Wisconsin is competing for its share of a $50-billion industry: annual angel and venture capital investments in the United States. While some progress has been made, mainly due to Wisconsin's tax credits for angel investors, it continues to lag in venture capital investments. Passing Assembly Bill 181 will jumpstart that process.

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


Monday, May 20, 2013

Tom Still: A trip to the mountaintop: Connecting the dots between health and well-being

By Tom Still
It's not easy being the Dalai Lama. Not only are you handpicked for the job at age two, with no real choice to become a firefighter, artist or cowboy, but you spend much of the rest of your life – at least, this reincarnation – answering the unanswerable.

Such was the "what-is-the-meaning-of-life" tone of a Madison discussion with Tenzin Gyatso, the 14th Dalai Lama, at which six experts on human well-being sought to engage him on some of the mysteries of what it means to be a happy, healthy inhabitant of the planet.

At several points during the two-hour discussion on Wednesday, I wished the Dalai Lama had been free to reply, "I'm just a simple Buddhist monk... how the heck do I know?" Then again, that's why he's the Dalai Lama. He's long on the kind of patience most of the rest of us lack.

Held under the title of "Change Your Mind, Change the World," the event brought together experts in neuroscience, health care, psychology, economics and the environment to talk about global health and emotional well-being. Speakers made a compelling case that physical health is often linked to emotional or mental health, yet health-care systems in most countries don't often see the connection.

Ilona Kickbusch, director of the Global Health Programme at the Graduate Institute of International and Development Studies in Geneva, said society has made great progress in treating and curing a number of physical diseases. However, there are many conditions outside the "vertical disease model," she noted, such as chronic obesity, that appear to be more strongly tied to how people live.

"Mental health explains more of the misery in rich countries than physical health," added Richard Layard, an emeritus professor of economics at the London School of Economics and a member of the House of Lords. But no country spends more than a fraction of its health dollars on mental health, he noted.

Richard Davidson, the UW-Madison professor whose work through the Waisman Center has brought international acclaim, noted there is mounting evidence that stress affects brain development in children as well as physical health and mortality in adults.

Dr. Don Berwick, a former Obama administration official and one of the nation's leading authorities on health care quality, said rising health care costs are taking money from society's other spending priorities. "There's an inverse relationship between the cost of health care and results," he said, in part because people think they can get healthy if only they had more care. The real answer, he said, should be more emphasis on emotional and mental health.

That's where the Dalai Lama came into the picture. After hearing from each expert, he was asked to provide his insights on well-being, happiness and training one's mind to deal with adversity. That was all within his job description, of course, and he handled each question with a combination of humor and attentiveness.

He also noted that most of the questions could just as easily been asked of the people sitting in the audience – those who have a stake in their own well-being and what it takes to sustain it.

Because the brain is one of the last frontiers of medical science, much work remains to be done to figure out how it works. Part of the answer involves research. Over the past 40 years at the UW-Madison alone, scientists have discovered some of the causes of autism, disclosed the genetic roots of rare neurodegenerative diseases, manufactured cell- and gene-based pharmaceuticals to cure diseases, found ways to use medical imaging to "see" the brains of people with autism, Parkinson's disease, Alzheimer's disease and other disorders, discovered how infants learn language and even shown how meditation can change the brain.

The rest of the answer may involve harnessing science to influence public choices – and knowledgeable people taking responsibility for their own well-being. For those who scaled the mountaintop in Madison, the Dalai Lama didn't have all of the answers, but he might have prompted many to think about their own choices.

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


Monday, May 13, 2013

Tom Still: Wisconsin's long-term growth strategy at play in WEDC flap

By Tom Still
Does the state of Wisconsin have a long-term growth strategy ... or an economic development death wish?

As stark as that question might seem, it's worth asking as the political feeding frenzy continues over the performance of the state's largest economic development agency, the quasi-public Wisconsin Economic Development Corp.

A recent report by the Legislative Audit Bureau covering the first year of WEDC's existence disclosed a number of compliance, procedural and reporting issues, most of which the agency pledges to correct as it moves ahead. Formerly known as the Wisconsin Department of Commerce, WEDC was recast as a public-private entity in early 2011 in hopes the state could adopt a more nimble, market-oriented strategy for economic growth.

It was akin to changing tires on a moving car. The transition took place in less than six months, and more than a few items slipped between the cracks as the "old" Commerce department tried to transform itself into the "new" WEDC. That was apparent in the audit, which covered the period ending June 30, 2012.

As a result, a mix of lawmakers from both parties are supporting actions that would clamp down on WEDC and its employees, many of whom were around when it was still a traditional state agency. One provision passed by the Legislature's budget-writing committee would withhold a year's worth of funding – about $30 million – if WEDC fails to shape up.

Insisting on high standards for WEDC is one thing… jeopardizing Wisconsin's ability to compete in the national and global economies is quite another.

Wisconsin has always had trouble getting economic development right. It spends less than comparable states, generally focuses on yesterday's trends versus today's, and allows partisan politics to color what should be a statewide concern: Smart policies to enhance company and job creation.

Republicans were critical of Commerce during Gov. Jim Doyle's administration and Democrats are providing some measure of payback now, although WEDC also has its share of GOP critics. Assuming both sides can get beyond the politics at some point, here are some long-term considerations:

* Either state legislators agree WEDC should have some measure of private-sector flexibility or they don't. If they agree the new quasi-public structure is needed, accountability rules should be built with that model in mind.

* At some point, whether the agency is public, private or somewhere in between, it will become difficult for it to attract and retain talent. Who wants to go to work for an outfit that might lose all of its funding in a year?

* Wisconsin's competitors aren't standing still. They're marketing their state's assets, working with startup companies and entrepreneurs and generally doing all they can to take advantage of growth opportunities at home and abroad. One such opportunity comes at Wisconsin's risk: The perception that state government cannot agree on a reasonable economic development strategy. How long will it take for that message to show up on billboards on the Illinois and Minnesota sides of our borders?

None of this is meant to downplay issues uncovered by the audit, or the smugness surrounding WEDC's birth. It is simply a call for well-intentioned lawmakers to insist on a course correction without intentionally crash-landing the plane.

That begins with bipartisan agreement on what's working and what goals are important to Wisconsin. The state has an impressive foundation in place, but much more must be done to foster startups and emerging companies; to open international markets; to attract coastal and foreign investment; to build a more educated workforce and to create a business-friendly culture.

Every Wisconsin legislator professes to want the state's economy to become more competitive. Getting there involves following an agreed-upon path, even when potholes must be filled along the way.

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


Monday, May 6, 2013

Tom Still: Hedging our bets: Oil-and-gas boom doesn’t end need for new energy solutions

By Tom Still
By now, or so the experts predicted, we were all supposed to be driving electric cars and lighting our homes from energy produced on massive algae farms.

That was before the "energy revolution" took an unexpected turn – toward innovation surrounding some old-school technologies.

The United States is well on its way to becoming virtually energy independent within a decade, in no small part because hydraulic fracturing and other drilling technologies are unlocking supplies of oil and natural gas within our borders.

Oil imports have fallen to a 17-year low in the United States, despite competing demands created by emerging world economies that are using more fossil fuels. Remember "peak" oil and natural gas? What once seemed imminent has become a moving target, thanks to technologies that have tapped reserves deep inside rock formations in Texas, North Dakota, Africa, Australia and well beyond.

That's good news for the economy, but unnerving for those who worry about the environmental effects of prolonged reliance on hydrocarbons – not to mention what happens to states that fail to engage in the emerging "cleantech" economy at home and around the world.

Striking a balance between the immediate benefits of the nation's oil-and-gas bonanza and adopting new conservation and generation technologies is the crux of a new report by Gary Radloff, director of Midwest Energy Policy Analysis for the Wisconsin Energy Institute. A public presentation on the report is set for Monday at the Fluno Center on the UW-Madison campus.

"How to keep Wisconsin and the U.S. competitive in a changing energy world" may strike some readers as a bit fanciful, given the realities of the oil-and-gas boom. Why invest in alternative energy technologies if hydrocarbons are suddenly more available, affordable and secure from foreign disruption?

In some alternative energy sectors, the economic outlook is grim. In other sectors, there's hope. The average price of a solar power system has fallen by 31 percent in two years, the Associated Press reported last week, and solar power now generates six times more electricity in the United States than it did 10 years ago. Wind power produces 14 times more electricity than a decade ago.

However, as prices for solar, wind and other alternatives have stabilized or dropped, so have costs for generating energy from hydrocarbons. What worries many climate scientists is whether the indirect costs of continued reliance on oil, gas and coal will lead to economic disruption in other forms.

Radloff's report suggests Wisconsin should set clear goals that hedge the state's energy bets while allowing homegrown industries to take part in an emerging "cleantech" economy.

"We are living in the great energy transition," Radloff said. "Most people don't yet see the change in their day-to-day lives, but they will eventually. That is because it is an incremental change today. It is becoming an evolutionary change."

Consider changes already underway in the coal industry: Two years ago, there were 522 coal-burning electricity plants in the United States. Today, fewer than 400 remain open or unscheduled for retirement. They're being replaced by cleaner-burning natural gas and newer technologies. Wisconsin ranks high among the list of states facing coal-plant closures.

The report notes Wisconsin is well-positioned to become an exporter of clean energy technology and know-how, thanks in large part to research and industry sectors already in place.

Those include companies engaged in water technologies, next-generation biofuels, energy storage, energy conservation, power controls and distribution, advanced manufacturing and a range of engineered products. Academic resources include the Wisconsin Energy Institute, which recently opened its new facility, and organizations that help link industry with research, such as the Wisconsin Energy Research Consortium.

Investments in technology and innovation within the oil and gas industry, in some cases beginning decades ago, prompted the current boom. Radloff said Wisconsin and the nation should continue similar investments in alternative energy solutions so there are commercial options when the next downturn occurs.

"There's great wisdom in portfolio diversification," he said. "Oil and gas are globally traded commodities, and subject to the ups and downs of the market. With that in mind, I believe people are going to start blending energy sources."

As the economy heats up and world population grows, so will demand for energy – in all forms. Today's oil-and-gas boom is buying valuable time, but investing in the energy future still makes sense.

-- 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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