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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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Friday, January 25, 2013

Tony Evers: Reinvigorating career and technical education


By Tony Evers
In Wisconsin and across the nation, employers are warning of impending shortages of workers in several specialized careers. Public education can help fix this problem as we reinvigorate the state's high school Career and Technical Education programs.

While a bachelor's degree is an important path to lifetime success and family-supporting careers, it is not the only route. Students and parents need information about diploma and apprenticeship programs, technical college degrees, and industry certifications that require less than a four-year degree but also lead to a good life and a successful, rewarding career. Information and outreach are important parts of reinvigorating CTE. Last October, about 20 manufacturing facilities across the state opened their doors to provide a new perspective on a variety of technical careers. Courtesy of a job-training grant, Western Technical College in La Crosse supported a video series,

"Max & Ben's Manufacturing Adventures," to help middle school students explore technical careers. Sustaining and expanding these types of efforts will require collaboration among all CTE partners.

When we reinvigorate CTE, we're not just training students for high-demand jobs. The 16 career clusters, which are broad occupational groupings, provide high school students with rigorous academic preparation and skills for success in college, career, and civic life. CTE gives students hands-on experience, developing the "soft skills" like punctuality, teamwork, and problem-solving that employers say they want and are needed throughout life.

Because CTE programs must be at the forefront of innovation and industry standards, they can be expensive and have been hard hit by education funding cuts. Our most recent staffing survey showed a 6 percent cut to career and technical education positions in one-year's time. CTE needs a financial investment, which I've requested in my 2013-15 education budget. But, CTE also requires renewed partnerships with our state's technical colleges, businesses, and industries. The programs I visited for last year's CTE Month observance overwhelmingly had strong connections with the local technical college and nearby employers. I expect to see similar partnerships when I tour programs in western Wisconsin, the Fox River Valley, and southeastern Wisconsin during February's CTE Month observance this year.

Career and technical education aligns talent development, job opportunities, and workforce needs, supporting economic growth throughout the state. During February's Career and Technical Education Month observance, and throughout the coming year, let's work to reinvigorate CTE.

-- Evers is the state superintendent of public instruction.

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Tuesday, January 22, 2013

Tom Still: Range of indicators can measure Wisconsin's economic health


By Tom Still
For reasons rooted more in politics than economics, much of the debate over Wisconsin’s relative economic standing has revolved around job creation: Is the state on track (or not) to create the 250,000 jobs set as a four-year goal by Gov. Scott Walker during his 2010 campaign for governor?

While no one can deny that raw job creation is one vital sign for Wisconsin’s health, the debate shouldn’t overlook other measures that help quantify and qualify how the state is doing.

Here are a few examples of other economic indicators that can assist policymakers – and citizens – in taking the state’s economic pulse:

Quality of jobs: The latest monthly estimates from the state Department of Workforce Development shows the unemployment rate at 6.6 percent, the lowest mark since late 2008, and 4,500 private-sector jobs were added to the workforce in December 2012. That’s good news, but what also matters over time is the type of jobs being created – and what they pay. Despite some upward movement in recent years, Wisconsin per capita income is about $700 behind the U.S. average, according to the Census Bureau, and total household income lags by roughly $400. That would indicate Wisconsin needs to create more jobs at the higher end of the spectrum.

“Knowledge” job creation: Part of the quality measure is the number of jobs created in growth sectors of the national economy. That often means jobs tied to information technology and other technology jobs that require skilled workers. According to the 2011 Cyberstates report of the TechAmerica Foundation, Wisconsin lost about the same number of tech jobs (1 percent) as it lost in its overall workforce in 2010. However, it added jobs in software publishing, where the state now ranks 10th among the 50 states, and electromedical equipment, where it ranks third. Wisconsin is also 11th in electronic components. Wisconsin’s reported high-tech payroll in 2010 was $5.2 billion, or 22nd nationwide.

Company creation: Figures from the state Department of Financial Institutions showed 35,988 new business entities were created in 2012, up 8.4 percent from 2011 and the highest total since 2007, when the total was 33,164. Getting behind those numbers is the trick. Many of the “entities” created are on paper only, such as some LLCs. That means counting the actual number of companies created – even if it’s only one person – is important. Wisconsin has historically lagged in company startups but there are signs of a turnaround. Why is company creation so important? All net new jobs in the United States are created by young firms, according to the Ewing Marion Kauffman Foundation.

Exports and foreign direct investment: Exports by Wisconsin companies and investments by non-U.S. companies in Wisconsin produce a more balanced, profitable economy, and add to job creation over time. The state continues to outperform national growth in exports and foreign companies are increasingly investing in the state. In fact, Wisconsin was on pace in late 2012 to set a record for state exports – probably in excess of $23 billion. Industrial machinery, vehicles, farm products, electrical machinery and medical equipment were leading the way.

Investment in R&D: Wisconsin’s production of patents, which protect the intellectual property of companies and individuals, continues to out-perform the nation on a per capita basis. Also, academic research and development spending remains high, although the UW-Madison slipped back a notch to fourth in the United States in the most recent National Science Foundation statistics. What ultimately matters, however, is how that research is translated into companies and jobs. Improving that performance over time is a priority for a number of players, including the university system itself.

Economists also examine many other indicators, including workforce education levels, angel and venture capital investments and poverty rates in trying to assess how any given economy is performing. Raw jobs data is important, but it’s far from the only factor and not an indicator so exclusive that every month-to-month rise – or fall – is worth celebrating or lamenting.

For policymakers and citizens alike, keeping a broader range of indicators in mind is critical, even if political noise sometimes clouds the picture.

-- 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, January 15, 2013

Richard Chandler: Play an important role this tax season as a VITA volunteer


By Richard Chandler
Tax season is around the corner and now is the time to think about getting involved with the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly/Tax-Aide (TCE) programs.

VITA and TCE volunteers help ensure that Wisconsin's seniors, lower-income taxpayers, veterans and military personnel have access to free tax preparation services by knowledgeable individuals at more than 200 sites across the state. For volunteers, it is also an excellent opportunity to get federal and state income tax training and improve their own tax preparation skills.

The VITA Program offers free tax help to people who make $50,000 or less and need assistance preparing their own tax returns. The TCE Program offers free tax help for everyone, with priority assistance to people who are 60 years of age or older, and specializes in questions about pensions and retirement issues unique to seniors. These programs helped over 60,000 individuals in Wisconsin during the last tax season.

Wisconsin needs volunteers to participate in these important programs. They are open to anyone, and may be of particular interest to those who like math or have a background in accounting, finance or economics. Volunteers must learn federal income tax law through the IRS Link & Learn program, which can be found online at http://apps.irs.gov/app/vita/, as well as complete state income tax training conducted by individual site coordinators. Training usually takes place in January and February and the site coordinator determines dates and times.

I am always impressed by how dedicated the volunteers at VITA and TCE/Tax-Aide sites are to helping the citizens of Wisconsin. Their time and assistance really does make a difference in our communities.

Take the time to become a volunteer for the VITA and TCE programs and know that your efforts will benefit neighbors and community members who need your help. For more information about VITA and TCE programs, please call 608-266-2772.

Thank you for considering volunteering.

-- Chandler is Wisconsin's revenue secretary. The Wisconsin Department of Revenue helps formulate state tax policy, administers the state's major tax laws, collects individual and business taxes, and provides state financial aid to local governments.

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Monday, January 14, 2013

Tom Still: Job growth starts at home: Create your own company by writing a business plan


By Tom Still
The latest federal government data shows Wisconsin's job growth is still lagging the U.S. average, with experts suggesting the reasons range from pre-recall election paralysis to reliance on manufacturing to shortages of skilled workers.

Here's another answer: Wisconsin needs more people who are willing and able to create their own jobs.

It's called entrepreneurism, which is a fancy word for the process of launching a small business that may someday grow into a much larger one. The 2013 Wisconsin Governor's Business Plan Contest offers a proven pathway for entrepreneurs to get started.

The deadline for entering the 10th annual contest is 5 p.m. Thursday, Jan. 31, through http://www.govsbizplancontest.com – the official website. The contest will once again offer more than $100,000 in cash and service prizes, but many past contestants say the real "prize" was the plan-writing process itself. Here are some reasons to enter:

* You don't have to be Tolstoy. The first phase entry is no more than 250 words, so there are no stresses about writing "War and Peace." At least, not right away.

* It's free. There is no cost to enter, other than your time.

* No stamps? No worries. All entries are accepted through http://www.govsbizplancontest.com. The second and third stages of the contest also take place through that Internet portal, culminating in a 20-page-maximum plan. Up to 12 finalists will present live at the Wisconsin Entrepreneurs' Conference in early June.

* Entries are made in one of four categories: Advanced Manufacturing, Business Services, Information Technology or Life Sciences. Entrepreneurs may enter multiple ideas, so long as each idea is separate and distinct.

* Your chances of winning something are pretty good. If past contests are any indicator, roughly one in 14 entrants will reach the finalist round. That's better odds than a Super Bowl bet.

* Contestants meet some interesting people. The 50 semi-finalists may attend a half-day "boot camp," where they'll meet potential investors, successful entrepreneurs and others with startup experience.

* Your idea will get some valuable exposure. Semi-finalists may post their executive summaries on the Wisconsin Angel Network web site for secured review by accredited investors. Also, leaders in Wisconsin's business press may see news value in your story.

* Finally, and most important, many past winners have been successful. About three-quarters of finalists from 2004 through 2012 report they're still in business and attracting investors, partners and clients to their ideas.

Some "graduates" of past contests include RoWheels, LIVEyearbook, Xolve, Eso-Technologies, Vector Surgical, My Health Direct, Insulete, Platypus, Green 3 and about 130 other finalists. Collectively, those finalists have raised about $70 million from investors.

"Moving through all four rounds of the 2012 Governor's Business Plan Contest, we built a winning business plan and started (Rowheels)," said Rimas Buinevicius, who co-founded the company with Jan Moen. "The well-orchestrated BPC process kept us on track to conduct research, uncover obstacles and gain confidence moving forward through our engineering prototype design and financial modeling phases. Today, Rowheels is creating jobs, is certified as a Qualified New Business Venture under Wisconsin's Act 255 Early Stage Business Investment Program and is raising working capital for manufacturing."

According to a 2012 survey of past finalists, more than half have received financing for their plan through a variety of sources – including angel and venture capital. About three-quarters of those who responded reported the contest led to an increase in public exposure for the company.

Since its inception in 2004, more than 2,300 entries have been received from more than 240 Wisconsin communities. Also, more than $1.5 million in cash and services (office space, legal, accounting, information technology, marketing and more) have been awarded. The Wisconsin Economic Development Corp. is among the major prize sponsors.

Starting a company during slow-growth times can be like vacationing during off season. You're competing with a smaller crowd and the prices can be better. Then again, starting a company is never a day at the beach: It is hard work that begins with a great idea and a business scheme to match. And if you start a company, your next boss will be the toughest you've ever known. That's because you will be investing your own money and, with luck, support from friends, family and other founders.

If you have a start-up idea, give the Wisconsin Governor's Business Plan Contest a try. Who knows? The next job you have might be one you create yourself.

-- Still is president of the Wisconsin Technology Council, which produces the Wisconsin Governor's Business Plan Contest. He is the former associate editor of the Wisconsin State Journal.

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Tuesday, January 8, 2013

Tom Still: Fiscal cliff deal contains pros and cons for small businesses, investors


By Tom Still
The "fiscal cliff" deal reached over the New Year's holiday in Washington wasn't the political grand bargain envisioned just after the November elections. In fact, it was more of a stopgap measure that kept federal income tax hikes from falling on middle-class taxpayers and which called a two-month time out on automatic spending cuts.

Still to come: Debate over across-the-board federal spending cuts that were slated to take place Jan. 1, a decision on whether or not to raise the nation's debt limit, pursuit of comprehensive tax reform and hard questions about how to pay for major entitlement programs such as Medicare.

In the meantime, some changes included in the American Taxpayer Relief Act of 2012 (the full name for the fiscal cliff deal) will have a direct effect on business decisions made by companies, investors and entrepreneurs. Here are a few examples:

The federal research tax credit was extended. The credit, which had expired at the end of 2011, is used by businesses that invest in "qualified research expenditures" conducted on their own as well as some payments to universities and other qualified organizations for basic research. The tax credit has bipartisan support in Congress, mainly because it helps drive innovation. In fact, it has been extended 14 times since it was introduced in 1981 – mainly because successive Congress has agreed it works. But it's not cheap. The Joint Committee on Taxation estimated it will cost $14.5 billion over the next 10 years.

The capital gains tax was raised for some people. Like personal income taxes, the federal tax on capital gains will rise from 15 percent to 20 percent for individuals with incomes over $400,000 and couples over $450,000. The rate remains at 15 percent for people below the $400,000/$450,000 thresholds, and there's no capital gains tax for taxpayers in some lower brackets. While the average person may not shed many tears over higher capital gains taxes on the wealthy, remember it's those individuals and families who often invest in startup companies.

The exemption for "qualified business stock" was extended. This exemption applies to investments held five or more years in C corporations with values of less than $50 million, with some exceptions. The Angel Capital Association, which represents angel investors nationally, favored this extension because it helps investors in early stage companies.

The deal retained small business 'expensing' rules. Unless this rule had been extended through 2013, the limits for certain small business expenses – such as off-the-shelf computer software, for example – would have been cut in half. However, 2014 will bring much lower business expensing limits unless Congress acts again. The bill also retained a recovery schedule for certain leasehold improvements, which can help some owners of commercial property.

A number of energy tax incentives were extended. Tax credits for wind energy facilities were kept alive, at least through 2013. So were credits for alternative fuel vehicle refueling property, cellulosic biofuel production, biodiesel and renewable diesel, energy-efficient new homes and appliances and a few other categories. However, the coming debate will likely to focus on what alternative energy solutions are most likely to prove economically feasible – especially at a time when new technologies are producing more oil and natural gas inside U.S. borders. At some point, entrepreneurs should know, federal tax policy will likely pick winners and losers when it comes to alternative energy production.

The excise tax on medical devices was not repealed. This is a potentially big item for Wisconsin companies and entrepreneurs because the Badger state is a leader in production of such devices, which range in size from implants to massive medical imaging devices. Beginning Jan. 1, the Affordable Health Care Act will impose $30 billion in new taxes on medical technology companies. Industry leaders say that will stifle innovation, destroy high-tech jobs and hurt patients. The president of the Medical Device Manufacturers Association isn't giving up, however. "There is wide recognition that the device tax has already led to job losses and that it is (affecting) patient care, and this will continue if Congress doesn't act quickly in 2013," MDMA's Mark Leahey said.

It turns out the fiscal cliff is really a series of hills and valleys, most of which will be climbed and descended as the year wears on. For businesses and taxpayers alike, it would be a bumpy trek.

-- 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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Wednesday, January 2, 2013

Tom Still: Looking ahead to 2013: Some business trends worth tracking


By Tom Still
So long, 2012, a year in which the economy took two steps forward for every one step back, and welcome to 2013, a nestling born on the edge of a cliff. Here are some trends worth following.

How businesses and people cope with the hidden costs of healthcare reform: It's already a lock that taxes will rise Jan. 1 on wealthy individuals and the health-care industry to pay for President Obama's Affordable Care Act. There may be another shoe waiting to drop, however.

Congress could decide to tax employer-sponsored health insurance, which is a federal tax break bigger than any other – including deductions for mortgage interest and charitable giving. About half of all Americans benefit from that break, paying no taxes on what their employers contribute to their health insurance. If that break disappears with a "fiscal cliff" rescue, those same people will share in $150 million in new taxes.

How the energy industry adjusts to the oil-and-gas boom: The United States is well on its way to becoming virtually energy independent in less than two decades, in no small part because hydraulic fracturing and other technologies are unlocking new supplies of oil and natural gas within our borders.

That's good news for the economy, but unnerving for those who worry about prolonged reliance on fossil fuels. The debate needn't be framed as boom-or-bust, however. With careful planning, a balance can be struck between the short-term benefits of the nation's oil-and-gas bonanza and the longer-term need to conserve and diversify. 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.

How the financial markets deal with democracy: The owner of the New York Stock Exchange, NYSE Euronext, agreed in December to be acquired by the Intercontinental Exchange, an Atlanta-based upstart that has prospered by trading derivatives over the Internet. It symbolized decades of change in the financial markets, where technology, regulatory reform and competition have slowly replaced market monopolies run by member brokers.

The next test may be the much-advertised spread of "crowdfunding" to the startup economy. Largely an online phenomenon, crowdfunding could help entrepreneurs seeking to raise $1 million or less from small investors – assuming rules to protect those investors are put in place by federal regulators. In a high-risk investment class, warning labels for mom-and-pop investors will be vital to the movement's long-term success.

How the airline industry flies through market turbulence: In cities such as Milwaukee, business executives are feeling the pinch of direct-flight cutbacks by major carriers. For companies that have dozens or more than 100 branch operations, that's a productivity hurdle. It also makes it harder to sell Wisconsin as a business relocation destination.

Meanwhile, business traveler groups are lining up to complain about the lack of transparency in ticket prices and the proliferation of add-on service fees. Look for increased friction between the airlines, regulators and travelers before this issue comes in for a landing.

How the nation comes to grips with cybersecurity: The Internet is the defining technology of our era, but it's nearly 40 years old and getting a bit long of tooth, especially when it comes to protecting digital data. "The major glaring weakness (of the Internet) is the lack of security, because the protocols and the technology were not designed to support security," warned Wisconsin computer science pioneer Larry Landweber, a member of the Internet Society's Hall of Fame.

Wisconsin is a state with large health-care and financial service sectors, both of which come with growing cybersecurity needs. Look for researchers working with the UW-Madison, the Milwaukee Institute and the Wisconsin Security Research Consortium to help probe for answers.

How policymakers treat startup companies: Obama raised a few eyebrows among entrepreneurs during his campaign when he said, "If you've got a business, you didn't build that. Somebody else made that happen." While his comment was later portrayed as an "it-takes-a-village" moment, there's lingering doubt about how well Obama understands the innovation economy.

The same holds for some Wisconsin policymakers, who approved sweeping tax changes for major companies nearly two years ago but have yet to pass a much smaller investment capital program that could grow tomorrow's companies today. Let's hope 2013 is truly the Year of the Entrepreneur and not another startup cliff.

-- 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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