• WisBusiness

Monday, June 24, 2013

Tom Still: Wisconsin's early stage capital program will begin with process and patience

By Tom Still
If you doubted the pent-up demand for early stage capital in Wisconsin, consider this note from a startup company founder before a bill creating a state-leveraged fund had passed the full Legislature:

"We're eager to learn more about who we can contact, and how soon, about presentation opportunities for our company in front of the new fund. We believe we have a great story to tell!"

With hundreds of compelling startup company stories in Wisconsin, it's no surprise that aggressive entrepreneurs would jockey to be first in line to make their pitch. That's what good entrepreneurs do.

However, that line can't form tomorrow. The Legislature has voted overwhelming to support a $25-million state investment in a larger "fund-of-funds" – and Gov. Scott Walker is likely to sign it into law – but the process of establishing the fund now enters a due diligence phase.

It will take several months before a private fund manager can be recommended by a committee led by the State of Wisconsin Investment Board, and that manager would need a similar amount of time to select four or more private recipient funds that would bring matching capital to the table.

It will likely be early 2014 before the fund is ready to make investments in emerging companies, and even then all the money won't be invested at once. There's no sense in force-feeding investment dollars to young companies; that money is better parsed out over time as those companies hit their milestones.

That's all part of a "belt-and-suspenders" approach baked into the bill by legislators who understandably wanted to ensure the best interests of taxpayers are protected over time. It's also how private early stage funds work – especially if they want to succeed. Return on investment is a necessary goal, so venture capital must also be patient capital.

If there's one certainty about the state-backed fund over time, it will invest in some companies that will fail. That is the reality of all angel and venture funds, which generally succeed over time because the investment failures are outnumbered by successes – at least in terms of dollars returned.

However, the long-term success of the state fund will be measured in two ways. The first way is traditional return on investment, in which state the state will share just like the private partners. That return won't be known for years. The second measure will be company and job growth, which more lawmakers care about over time. That type of economic "return" can be measured more quickly, depending on how quickly investment dollars are put to work.

One indirect result of the Legislature's action is already being felt. Wisconsin has sent a message that other private investors have heard loud and clear: The state has faith in its startup economy. Those investors, many of whom are based outside Wisconsin, are already increasingly showing interest in what the state's young companies have to offer.

Funds from California, New York and Illinois are among those that have signaled interest in Wisconsin's early stage economy, in part because they followed the legislative process. That doesn't necessarily mean those funds will invest in state-based companies, but at least they're kicking some virtual tires.

In fact, the 2013 "Wisconsin Portfolio" report published in early June by the Wisconsin Technology Council showed that nearly half of the 74 angel and venture deals recorded in 2012 involved at least one out-of-state or international investor.

Within Wisconsin, a recent trend has been the launch of smaller, indigenous funds to make investments in emerging companies. Like outside investors, those homegrown fund managers know Wisconsin has strengths in medical imaging and other electro-medical equipment (3rd among the 50 states in jobs), electronics components (9th), software publishing (10th) and much more.

It will take some time for the new state-backed fund to become operational, but entrepreneurs can safely begin polishing their pitches now. Money often attracts money, after all, and the Legislature's vote of confidence is a magnet.

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


Monday, June 17, 2013

Tom Still: Wisconsin is well-positioned for explosion in health information technology

By Tom Still
Like it or not, health-care reform is here to stay. Even if the Affordable Healthcare Act was magically repealed tomorrow, the U.S. health-care system would continue to search for ways to control costs, eliminate waste and improve quality.

A major tool being applied to health care's challenges is wider adoption of health information technologies, which collectively help patients, providers, insurers and medical practitioners as they come to grips with change.

That's an opportunity for many businesses in Wisconsin, from the largest health-care providers to the smallest startups. Consider these developments in the last two weeks alone:

* GE Healthcare, which has about 6,000 employees in Wisconsin, announced plans to invest $2 billion worldwide over the next five years to accelerate the development of innovative software for healthcare systems and applications. Focus areas will include scheduling efficiencies, support for clinical decisions and diagnostics, elimination of waste and a variety of workflow issues.

* The Marshfield Clinic, which has about 50 clinics in Wisconsin, announced it will form Marshfield Clinic Information Services, a company that will build on nearly five decades of health information technology expertise. The clinic has used a homegrown computer-based electronic health record – called Cattails – for more than 20 years.

* At the Wisconsin Entrepreneurs' Conference and the Digital Healthcare Conference, both held in the Madison area, a dozen companies with ideas for improving health care quality, safety, access, compliance and accountability presented their business plans and met with investors and potential customers.

The anchor tenant in the state's health IT shopping mall is Epic Systems in Verona, which continues to grow in revenues and employees. However, there are many smaller companies with bright ideas – and some of them have attracted former Epic workers. These include companies such as Nordic Consulting, Aver Informatics, BlueTree Network, Wellbe, HealthFinch, Moxe Health, KayO Technology and many more.

While the Affordable Healthcare Act has accelerated the pace of change, the movement toward smarter use of health information technologies began decades ago within organizations such as Epic, GE Healthcare and Marshfield – which means Wisconsin enjoys a strong head start.

The state also has the rest of the ingredients needed to make it a health-care innovation hub, from major research universities such as UW-Madison, the Medical College of Wisconsin and UW-Milwaukee, to highly rated clinical systems to an emerging crop of entrepreneurs who understand the needs of patients and practitioners as well as the technology.

Investors have spotted that combination. Consider the story of Aver Informatics, a Green Bay company launched in 2010 and which has grown to 10 employees. Aver's web-based platform offers a simple way for companies to get at their health-care data. Aver was recently accepted into a competitive program run by GE and StartupHealth, a health-care incubator. It was one of 13 companies accepted out of 400 that applied from 22 countries.

Unlike many health IT startups in Wisconsin, Aver has raised most of its money from state angel groups and early stage funds. In 2012, about a dozen health IT companies in Wisconsin reported raising angel and venture dollars – much of it from outside Wisconsin. That means some of those companies could be easily moved, if not for the desire of their CEOs to stay and be part of a growing health IT cluster.

"We feel we offer quality-of-life jobs," said Kurt Brenkus, Aver's CEO, in a recent interview published in the Wisconsin Portfolio. "We get offers to move to New York, Silicon Valley and even Madison and Milwaukee, but we feel like there is a great amount of talent here."

The Affordable Healthcare Act has caused no small amount of uncertainty in health care, but out of uncertainty sometimes springs opportunity. Wisconsin is poised to seize the moment thanks for a health IT cluster that is maturing at just the right time.

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

Monday, June 10, 2013

Tom Still: Bipartisan vote on early stage capital bill may set tone for Legislature

By Tom Still
There were times in recent years at which the Wisconsin Assembly couldn't muster 91 votes to pass a resolution confirming the sun rises in the east.

Lingering bitterness over the 2011 public-employee bargaining bill, and the related recall elections that followed, widened divides that often separate Democrats and Republicans in the Legislature. Lawmakers are people, too, so there was no shortage of bruised feelings in the Capitol.

The 91-2 Assembly vote in support of a bill to create a state-leveraged venture capital program may represent the beginning of a less rancorous era (or, at least, a brief respite). Democrats and Republicans will continue to disagree on many issues – school vouchers and tax cuts being current examples – but it may now be OK to occasionally agree without penalty.

Thursday's overwhelming vote for Assembly Bill 181 sets the stage for a $25-million state investment in a "fund-of-funds," which would attract a 2-to-1 private match to invest in some of Wisconsin's most promising early stage companies. The state would be a limited partner in the fund, which is modeled after similar programs in other states, meaning it would share in the profits down the road as those companies mature.

The bill would put $25 million into a fund that invests in several high-growth sectors, including agriculture, information technology, engineered products, advanced manufacturing, and medical devices and imaging. Private investors would bring at least $50 million more to the fund.

The state investment would also produce another dividend – more companies and more jobs, which Democrats and Republicans alike want to encourage over time.

That was evident during Thursday's floor debate, during which lawmakers disagreed over some aspects of the bill but concurred on the need for Wisconsin to support its startup economy. A recent Federal Reserve forecast ranking Wisconsin 49th among the states in economic growth only added to the sense of urgency.

Rep. Fred Clark, D-Sauk City, one of the bill's co-authors, said the vote sends a signal the state is serious about investing in entrepreneurs. Clark said he attended the June 4-5 Wisconsin Entrepreneurs' Conference in Middleton, which reinforced the need for the program.

"We can start out with something small and get it right," Clark said.

Other legislators said the bill offered a chance for additional bipartisanship.

"This is one of those bills that has been kicked around, and it's very fortunate for the state of Wisconsin that we are now realizing the value of bipartisan legislation" said Rep. Gary Hebl, D-Sun Prairie.

State Rep. Gary Tauchen, R-Bonduel, said the program is the next step for the state, which has seen growth in angel investments since the passage of Act 255, a tax credit program for early stage investors who invest in targeted companies. That program took effect in 2005.

"I think this is a tremendous opportunity for the state of Wisconsin and we should take advantage of it and move our state forward," Tauchen said.

"What investors need are more upstream investors where they can pick up where they leave off – major investors who can handle the larger investors needed to help emerging companies go forward," added state Rep. Gordon Hintz, D-Oshkosh.

State Rep. Mike Kuglitsch, R-New Berlin, was the bill's GOP co-author. "On Thursday, we sent a message across the state that we are rejuvenating the entrepreneurial climate of Wisconsin," Kuglitsch said. "It's a bipartisan solution that will help put Wisconsin to work."

The bill now moves to the Senate, where key Democrats and Republicans have backed the concept in the past. Let's hope that body will now send the same bipartisan message as the Assembly.

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


Peter Frittitta, Al Campbell: The Affordable Care Act has a “Cadillac tax” on businesses

By Peter Frittitta
and Al Campbell
The "Cadillac Tax" which is part of the Affordable Care Act (ACA), or ObamaCare if you prefer, is not to begin until 2018. That is far enough away as to not have to be worried about for a few years. Right? Think again.

Employers would be facing a new 40 percent tax on the portion of annual health benefits provided to employees and dependents that exceeded $10,200 for an individual and $27,500 for a family. That cost is inclusive of both the employer's and employee's share of cost.

According to the New York Times, employers are already beginning to make modifications to the plans they offer even before 2018, and are plotting the probable cost of health care insurance by that time. Co-payments are likely to be increased and deductibles will almost certainly increase between now and 2018. Some are predicting family deductibles of $6,000 or more in the not too distant future. This Act, already being nicknamed the "unaffordable" care act, has real teeth. Employers are caught in a vicious cycle where they work to keep employees and dependents happy with their health care insurance coverage only to recognize this might well result in their plan becoming designated a "Cadillac" plan.

Many have difficulty in believing there are actually plans that could be that rich in benefits, but the reality is that some of the unions that originally supported the ACA are quickly coming to understand that the President's statement "if you like your health care plan, you can keep it," isn't going to be the case unless Congress makes some changes. These plans are already very near or even beyond the cost threshold that identifies a "Cadillac" plan; that is at today's costs for health care. If the annual expected inflationary increase is factored into that equation, it becomes quite easy to recognize the plan will be 'too good' and will therefore result in a 40 percent tax.

Some labor leaders now recognize that with the President in his second term, any negotiating advantage they might've had is gone. The President is intent on this signature law to frame his two terms in office. He is quite unlikely to think about signing a bill passed by Congress that erodes what he sees as the benefits of the ACA.

This phenomenon is not limited to union negotiated health plans either. It is a threat to larger non-unionized employers who have classically provided better levels of benefits in order to be able to attract new hires in competitive marketplaces in Wisconsin.

A health economist at Johns Hopkins Bloomberg School of Public Health, Bradley Herring, has estimated that as many as 75 percent of plans in existence today could be affected by the "Cadillac tax "over the coming decade. And that will affect employee's total compensation as well as their health plans since the 40 percent tax has to come from somewhere and that 'somewhere' is very likely the total budget for benefits and compensation.

It is very important employers seek sound advice from those who can help walk them through the ACA maze of new compliance regulations.

-- Frittitta is president of the Wisconsin Association of Health Underwriters. Campbell is a WAHU board member.

Tom Still: Learning from others can help all types of entrepreneurs down the path

By Tom Still
At a recent workshop in DeForest, seven entrepreneurs did something many people would find intimidating, if not unnerving: They stood up in front of a crowd and condensed their business idea "pitch" to 90 seconds.

No one became too tongue-tied. No one took on that "deer-in the-headlights" look. Instead, all seven volunteers provided enough information to prompt follow-up questions from investors and other business experts who had offered pointers throughout the afternoon.

Such is the life of an entrepreneur. They're people who must think on their feet, but have a reasonable and often-detailed plan on hand. They often serve as company founder, chief technology officer, head accountant and jack-of-all-trades – but must be willing to step aside if their idea takes off and different leadership is required.

And while some 'treps are talented enough to go it entirely alone, most must be willing to listen to others who have been down the path before.

The challenges and opportunities facing entrepreneurs, who are increasingly a part of Wisconsin's business landscape, are the focus of this week's Wisconsin Entrepreneurs' Conference in Middleton. They are also at the heart of a continuing series, "The Entrepreneurs' Edge," which began in Green Bay, Milwaukee and DeForest and which continues June 17 in Racine.

The 11th annual conference, which begins Tuesday, carries a "back to basics" theme that captures the different stages of entrepreneurism while addressing recent trends. Conference panel discussions, which include investors, entrepreneurs and service experts, will focus on the "launch, grow and succeed" phases of a young company's life. Specific topics spread over 15 workshops will include:

* How to raise money. Attracting angel and venture capital investors, bootstrapping and the lean startup approach are among the options, but the most important goal is making sales.

* How to build the right team. From informal advisors to consultants to employees, startups need a mix of talents to grow. Sometimes, the technology expert behind the idea is best-suited to lead a company's evolution, but sometimes not.

* How to navigate laws and red tape. Entrepreneurs should know how they might be affected by federal rules related to "crowd-funding" and patent reform, both of which are recent changes, as well as state and local regulations.

* How to learn from failure. Entrepreneurs who never fail are a rare breed, but it's possible to improve your chances of success by not making the same mistakes as others who came before you. Learning how to avoid killer mistakes – and how to bounce back if you don't – is vital.

The notion of embracing failure will addressed during a conference discussion featuring four UW-Madison graduates who made a mark for themselves as investors and entrepreneurs in California's Silicon Valley – but not without some stumbles along the way.

Roy Thiele-Sardina of HighBAR Ventures, Sanjeev Chitre of the U-Group, Mark Reinstra of Wilson Sonsini Goodrich & Rosati and Norman Koo of Liberty Global will return to Wisconsin talk about building a culture of innovation, as well as the solid foundation they see in Wisconsin.

Much closer to home, Fred Foster, the co-founder and chief executive officer of Electronic Theatre Controls, is the winner of the annual "Seize the Day" award. He will talk about the growth of ETC, from garage to global leader, and what he learned along the way.

And speaking of elevator pitches: The finalists in the 2013 Governor's Business Plan Contest will also present during the conference.

Events such as the Entrepreneurs' Conference and Entrepreneurs' Edge are among the many resources available to 'treps and others in Wisconsin. Whether your business is a mom-and-pop, a lifestyle boutique or a high-growth gazelle that could be tomorrow' Epic Systems or Promega, there is something to be gained by listening to and learning from others.

-- Still is president of the Wisconsin Technology Council. To register for or learn more about the Entrepreneurs' Conference, visit http://www.WiTrepsConference.com.

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