Wednesday, January 18, 2012

Venturing Into Wisconsin’s Capital

Mike Ivey has a pretty good article in the Capital Times (I know… I know…) about venture capitalism in Wisconsin. He has a lot of great commentary from different sources and some different perspectives on the issue. I encourage you to click through and read he whole thing.

Basically, it’s an issue now because the Wisconsin legislature is considering various means of creating a public or public/private entity for venture capital in Wisconsin. There are a few other states doing something like this that range from the government directly investing in companies like a private venture capital firm does to funneling money to a private agent who does the investing to using their borrowing power and extending it to select firms. There are varying success rates with current iterations in other states.

The reason for this activity is that Wisconsin sucks when it comes to attracting venture capitalists to invest money in Wisconsin companies. It happens, but we are way behind other states. Because of this, some legislators are seeking to fill the void.

There are some inherrent problems with this. First, it doesn’t fix the problem. The problem is that too many venture capitalists don’t want to invest in Wisconsin companies, and in conjunction with that, there aren’t enough startups for them to invest in.

Second, anything the government does in this area will serve to squeeze out private investment. Private venture capitalists may be reluctant to compete with a government-backed investment firm on high-risk companies.

Third, and perhaps most difficult, there’s virtually no way to craft something likt this that isn’t fraught with problems. For example, if it’s set up as just another government agency that invests taxpayer dollars in companies, then it’s ripe for fraud, cronyism, and bribery. It is also prone to bad investments since the people managing it aren’t investing their own money. What do they care if a company goes bankrupt? Furthermore, many venture capitalists set up the egreements where the investors own a sizable portion of the firm and can take it completely over in certain circumstances. We certainly don’t want our state government directly running a bunch of formerly-private companies.

Or let’s take another way to do it… if the government uses taxpayer money to fund a private firm who will they “independently” invest in other private companies, who picks the investment firm? Again, it’s a recipe for fraud, cronyism, and bribery.

While I’m not opposed in concept to the government finding a way to spur capital investments in Wisconsin companies, I’d much rather they focus on fixing the underlying reasons for why Wisconsin lags behing in venture capitalism in the first place.

(3) Comments
Posted by Owen at 1716 hrs
Economy + Politics + Politics - Wisconsin

  1. Walker just turned down the early innovator grant money: http://www.thewheelerreport.com/releases/January12/0118/0118walkerfunding.pdf

    Posted by .(JavaScript must be enabled to view this email address) on January 18, 2012 at 1851 hrs


  2. With all due respect, The Capital Times business writers are actually very good, as well as their education journalists.  If you venture off of their editorial page, you’ll see some actual journalism.

    Posted by .(JavaScript must be enabled to view this email address) on January 18, 2012 at 2045 hrs


  3. I think angel investment is so much more important and I think Wisconsin is pretty good at that. By the time you are ready for VC, chances are you have a national presence and bringing VC into Wisconsin from the coasts works for me. I don’t think the government should be picking winners, certainly not in high tech.
    I think Walker is wrong in resisting HIE’s. Regardless of how affordable our healthcare system, easier access to health info saves money and lives.
    Just like defining legal tender, only the Federal government has the reach to start this.

    Posted by Charlie Hillman on January 18, 2012 at 2145 hrs


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