17 Nov Senate Passes an Investment Capital Package; the Assembly Should Follow Suit
MADISON – State Sen. Ted Kanavas was still beaming on Saturday, a day after the Legislature’s upper house passed bills that could close Wisconsin’s venture capital gap and build a stronger in-state network for entrepreneurs
“Not that we haven’t dealt with some pretty big issues this fall, but this is the most important so far to the state’s economy,” said Kanavas, a Brookfield Republican who worked with Democrats and Republicans alike in helping to pass the bills by 3-1 margins. “We have to get this economy moving again.”
There shouldn’t be any argument that Kanavas is correct. But this is Madison, and any excuse to prolong an argument is a good one. The Senate’s work must still be approved by the Assembly, where majority party Republicans are more fractious on how – and even if — to spur venture capital investments. For the good of Wisconsin’s high-tech, high-growth economy, agreement sooner than later is needed.
The bills passed by the Senate would accomplish four things over a span of about 12 years, all with the goal of helping Wisconsin catch up in the race for well-paying jobs:
Authorize $75 million in venture capital tax breaks over the next 10 years to manufacturing or research companies with fewer than 100 employees whose business plans are approved by the state Department of Commerce. Under the bill, 75 percent of the tax breaks would have to be available for new investments. This bill would reorganize and expand the Certified Capital Company (“CAPCO”) investment program, which encourage insurance companies to invest in start-up firms.
Approve $30 million in tax credits for “angel investors.” Angels are typically wealthy individuals who invest some of the first money in start-up companies. Under the bill, an individual could claim a 40 percent tax credit on the first $500,000 investment into a qualified start-up company, and no business could get a credit of more than $1 million.
Provide $35 million in tax credits to companies whose ideas are still working their way from the laboratory to the marketplace. Under this program, investors in qualified companies that have yet to hit the market could receive tax credits.
Spend $45 million over 10 years to run regional centers that would advise entrepreneurs on intellectual property law, review their business plans and connect them to research grants and venture capital funds. These may be new centers or expansions of existing efforts, such as the UW-Extension Small Business Development Centers.
The package is vital for a number of reasons. First, Wisconsin lags seriously behind the nation when it comes to investing in start-up and early-stage companies. Venture and angel capital is about five times more likely to find its way into Minnesota companies – and that state enjoys a per capita income that is nearly $4,000 per year higher than Wisconsin. Multiply $4,000 times 5.2 million citizens and you get an idea of how much of a difference that would make to the Wisconsin economy.
It’s not just Minnesota that is pulling ahead of Wisconsin, by the way, but much of the United States. Wisconsin also lags behind the U.S. per capita income by nearly $3,000 per year. The income gap is most pronounced in rural Wisconsin and in inner-city Milwaukee, places where a little bit of entrepreneurship and start-up capital could go a long way.
The bills passed by the Senate correct problems with the CAPCO program, which had come under scrutiny because of high administrative costs and investments outside Wisconsin’s “sweet spot” of high-tech jobs in biotechnology, advanced manufacturing and computing. Kanavas and other lawmakers worked with Gov. Jim Doyle on devising a revised program that should retain the interest of outside institutional investors, such as pension funds, foundations and endowment funds.
Doyle also laid down five guidelines for a venture capital plan, saying it should be affordable, focused on early stage investments, aimed at sectors that create high-wage jobs, carried out with reasonable administrative costs, and designed to attract and leverage private capital.
The Senate plan meets those guidelines. It represents a serious effort that will be noticed by investors, coast to coast. The Assembly should complete the job and pass the capital bills this fall.
Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.