GIVE ECONOMY AN ANGELIC BOOST
Wisconsin lawmakers just received the evidence they need for step two of the state's effort to encourage private investment in fledgling businesses: Step one is working.
The investment that bankrolls early-stage businesses, known as angel investing, exploded by 55 percent in Wisconsin in 2006, topping $100 million, according to a survey by NorthStar Economics.
It's a safe bet that several factors contributed to the stunning and welcome increase. But there is little doubt that a central reason was the state's enactment of angel investor tax credits, which took effect in 2005. The tax credits make it more attractive to risk investing in early-stage businesses.
Lawmakers this year have an opportunity to expand on last year's success with new efforts to make more money available to young businesses.
Gov. Jim Doyle has aimed in the right direction with his proposal for a $10 million expansion of the angel investor tax credit and his plan to create a Wisconsin Venture Center, a public-private partnership that would build relationships among investors, entrepreneurs and the state's universities.
But lawmakers should go further.
The tax credit deserves a $25 million expansion, as proposed by state Sen. Ted Kanavas, R-Brookfield. Tax credits cost the state nothing unless they are used. And if the credits are used, the short-term loss in tax collections is outweighed by the prospects of long-term gain from the growth generated.
In addition, the tax credit law should be made more flexible through changes proposed by the Wisconsin Technology Council. For example, the $1 million cap on angel investments should be lifted.
Doyle's plan for the Wisconsin Venture Center should receive the $2 million in state funding the governor proposes. The state money would be used to leverage private contributions, with a private match required for nearly half the total.
Lawmakers should direct the center to be located in metropolitan Madison, where it could capitalize on the UW-Madison research that is the source of many business ideas and where it would be near the growing community of high-tech entrepreneurs in Dane County.
Furthermore, programs already seeking to connect investors and entrepreneurs should be consolidated or coordinated in the center to avoid duplication.
The need for a more concerted effort to raise the venture capital pool for Wisconsin entrepreneurs is great. Despite the sharp increase in angel investing, overall venture investments in Wisconsin declined by 12 percent in 2006, according to a report from the National Venture Capital Association.
Wisconsin ranked just 33rd among states in venture capital investments in 2006.
Using public policy to encourage private investment in early-stage businesses promises a payoff in jobs, income and tax revenue. Wisconsin should aim for that payoff by expanding the angel tax credit and creating the Wisconsin Venture Center.