Gov. Scott Walker announced Monday he plans to invest $25 million to support startup companies in the state in his upcoming biennial budget.
This funding, also known as venture capital investment, will use taxpayer dollars to finance startup and budding businesses in collaboration with private companies. Walker called this a “fund of funds” initiative at a press conference Monday and said the state would only influence private companies managing their investments at an “arm’s length.”
“We’re thrilled about the concept,” Walker said in a statement. “It’s one of those where we just think it’s key to our economic growth and vitality.”
Studies show businesses that have been around five years or less provide the majority of net new jobs and the lack of available capital is the most inhibiting factor facing these businesses, according to the statement.
He added the state of Wisconsin must foster an environment where new businesses can flourish in order to create jobs. The governor added he wants to invest in a venture capital fund because private sector support has given emerging new companies plenty of support. Walker said it is now time for the state to also step up its investment role.
“I think it’s big enough to be significant, but not too big,” Walker said in the statement. “It’s not so big that it’s a target to be taken out of the budget.”
A venture capital bill failed in last year’s legislative session due to issues of trust and efficiency, according to Dan Olszewski, director of the University of Wisconsin’s Weinert Center for Entrepreneurship . He said the Legislature was “bogged down” by debates over where the venture capital would come from and how to regulate the funding program.
Olszewski added much of this disagreement was spurred from the Certified Capital Companies. These companies are firms that sell tax credits to raise business investment funds.
“The main issue with the CAPCOs is they have been used in the past in Wisconsin going back about 10 years ago, but there was a feeling that it wasn’t clear exactly how many investment dollars [it] created and a lot of people felt the accountability of the program wasn’t very high,” he said.
Walker noted CAPCOs were particularly controversial within subsets of Republicans. During the press conference, he said he would not endorse them in the budget, slated for release on Wednesday.
To boost the responsibility of private corporations, Walker said he supports a two to one ratio of private funding to state dollars.
Walker’s statement said this venture capital measure is important because Wisconsin holds the 12th most patent filings and ranks 13th among all states for academic research spending, yet the state contributes just 0.36 percent of venture capital investments.
The state will have to find a balance between ensuring entrepreneurs are stimulating the economy while still providing them autonomy, Olszewski said.
“Not all of these companies are going to be successful and create jobs,” he said. “That’s just the nature of start-up, early stage investing. You have to make a lot of investments knowing that many of them will come up empty, but a few of them will be home runs.”