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Wisconsin’s VC Challenge

Wisconsin has many great assets for building a thriving high technology climate, most notably one of the nation’s top research universities at the University of Wisconsin-Madison. Yet we continue to hear about the brain drain from Wisconsin because we have lacked one vital ingredient: venture capital to support the development of ideas of our best and brightest.

According to the National Venture Capital Association, Wisconsin, a state with 1.95% of the nation’s population, has only 0.04% of the nation’s venture capital. Venture capital is a hands-on form of investment. Without local investors playing an active role in these companies, it is extraordinarily difficult for our emerging entrepreneurs to attract capital from out of state sources.

In a bipartisan effort that began last spring, legislators and the administration have been gathering information from a variety of sources about the best way address this shortfall. In November, two bills passed the Senate and are under consideration in the Assembly. They provide a variety of incentives for investment in Wisconsin, with a focus on angel, seed, and early stage investments in high tech and manufacturing.

One of these bills renews Wisconsin’s Certified Capital Company, or CAPCO program. The Wisconsin Legislature passed the CAPCO program into law in 1998 and the program began in July 1999. The demand for this type of investment has outstripped the supply in each of the eight states where it has been enacted, and Wisconsin’s program, at $50 million, is the smallest. Even so, Wisconsin’s version of the CAPCO program has been one of the most successful in the nation, with substantial investment in Wisconsin’s emerging businesses. The CAPCOs have been lead investor in 14 of the 17 companies that they have funded, and they have helped attract co-investment of $125.1 million on top of the $23.3 million that they invested thus far in Wisconsin companies.

This 6-to-1 payoff in investment activity has also resulted in job growth during a tough economic period. The CAPCO backed companies have shown a 61% growth in employment to 520 people with an average salary ($58,000) that is double our state per capita average. The income taxes, sales taxes, property taxes, and capital gains taxes generated from these companies are dramatically offsetting the program’s cost, and if these companies continue to grow as expected, this investment initiative will be a part of the long-term solution to our state’s budget problems.
Two CAPCO-backed companies have been especially successful, demonstrating how these programs can have a dramatic impact.

TomoTherapy, based in Madison, is commercializing a radiotherapy device to dramatically improve the treatment of cancer tumors. Spun out from the university in 1997, the company would not be in existence today without funds from the CAPCOs and investors introduced by the CAPCOs. TomoTherapy has grown to nearly 100 employees – it had 28 at the time of the first CAPCO investment. Last year the company began to ship its devices and enters the new with a strong order backlog that will drive continued growth in employment.

Gala Design, based in Middleton, was running out of money in March 2000 when it recived its first CAPCO investment. Another round of CAPCO investment about a year later enabled Gala to break ground on a new biopharmaceutical manufacturing facility. Gala continued to develop its gene insertion technology and grow the company to the point where Cardinal Health made an equity investment in September 2002 and, in October 2003, acquired the remaining shares of the company to provide the resources for continued growth.

CAPCO is a good program that is about to get even better, with a stronger focus on high tech and manufacturing and a bigger potential return to the state, if the Senate-approved legislation is passed by the Assembly. It is an important part of Wisconsin’s total economic package and essential to help us continue building our economy of the future.

John Neis, CFA, is co-founder and Senior Partner of Venture Investors and heads the firm's Health Care practice. He can be contacted at

The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.)

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