Walker Pushes to Form Venture Fund

Gov. Scott Walker is pushing to develop a venture capital fund under a CAPCO Program in Wisconsin:

At the request of Gov. Scott Walker, former state Sen. Ted Kanavas is taking the lead in developing a venture capital fund for Wisconsin.

Saying the creation of such a fund would contribute significantly to Walker’s goal of creating 250,000 jobs, his staff is laying out an aggressive schedule that would have venture dollars being invested in high-potential, entrepreneurial companies by July 1, according to a memo written by Jason Culotta that was obtained by the Journal Sentinel.

The memo outlines fund guidelines that reflect many of the ideas financiers around the state have been promoting for keeping politics out of its investment process.

“This fund should be structured so that professionals are investing the money, not government employees who may have an interest in picking winners and losers,” wrote Culotta, Walker’s senior policy adviser for economic development.

Benefits from the fund must accrue to Wisconsinites, and Wisconsin taxpayers must have an economic interest, Culotta wrote.

He wrote the memo on Jan. 14, the same day Kanavas held a meeting called by Walker where Kanavas discussed ideas for the fund with representatives of Baird Venture Partners, Capital Midwest Fund, Peak Ridge Capital, Venture Investors and other angel and venture capital groups as well as economic development advocates in the state.

They have all been saying Wisconsin has a robust angel investing scene for very early-stage companies but needs more venture capital to help those companies as they mature. State companies pull in less than 1% of all the venture capital invested in the United States.

The Walker administration’s aggressive timeline for the fund is based on the idea that legislation could be drafted in February and introduced in the Legislature by March 1.

Neither Sen. Randy Hopper (R-Fond du Lac) nor Rep. Mary Williams (R-Medford) – the chairs of the Senate and House jobs committees who are involved in the venture fund discussions – could be reached last week. Due to the tumult in Madison over Walker’s budget repair bill, the voice mail boxes of both lawmakers were full.

Despite the tumult, Walker and his staff will try to make a venture fund happen “as quickly as they can,” said Jim Connelly, a Walker supporter who is a corporate lawyer and senior partner in the Milwaukee law offices of Foley & Lardner.

Connelly is co-chairman of a bipartisan group called the Wisconsin Growth Capital Task Force, which is working independently to get more venture capital in Wisconsin.

Madison-based Venture Investors is the only firm with more than $100 million of venture capital that is consistently active in the state, said Kevin Conroy, co-chair of Wisconsin Growth Capital Task Force and president and chief executive officer of Madison-based Exact Sciences Corp. Conroy last year considered running for governor as a Democrat but stepped aside when Milwaukee Mayor Tom Barrett committed to the race.

“Unless we get more venture capital into this state, we’ll keep losing opportunities to create good, high-paying jobs,” Conroy said. “If you want to be an innovator in this country, you need capital.”

CAPCO model

The proposed fund should use a certified capital companies, or CAPCO, program; a so-called fund of funds approach; or a combination of the two, according to Culotta’s memo and people involved in the discussions.

There are about 35 CAPCO programs around the country, said Tom Still, president of the Wisconsin Technology Council and a participant in both Kanavas’ group and the Wisconsin Growth Capital Task Force.

Under these programs, the state gives tax credits to insurance companies in exchange for cash. The state hires private companies to invest the money in qualifying businesses.

The advantage of CAPCOs is that they can raise money and deploy investments quickly. Disadvantages are that only specialized firms, not venture firms, run the programs, and that they have been executed poorly in the past.

A state audit released in 2006 found that it had cost $90,000 to create each job under a CAPCO program launched in 1999 that was not yet completed. Two of the three Wisconsin CAPCOs under that program released a study last year saying the payback ended up being better than that.

Most CAPCOs now are structured better than they were a decade ago, Still said.

Fund of funds

About 10 states have fund of funds programs, Still said.

Under fund of funds programs, the state hires a manager to deploy capital to established venture funds. Other states have done this through their state pension funds by creating a public-private partnership funded by taxpayer guarantees. Another approach is to create a partnership in which the state offers investor tax credits to encourage investment and the private sector raises the funding.

Fund of funds programs take longer to raise money and deploy investments than CAPCOs, but they often attract venture capitalists from outside the state to put money into state companies, Still said.

An analysis of the two approaches should be made by a study group, then submitted to the governor to decide which approach advances to legislation, the Culotta memo said.

View the original article on CAPCO Programs.