Versions of bills focusing on increasing venture capital investment in Wisconsin are circulating in the state Legislature. Lawmakers are rationalizing support for versions of the bill by saying it will help create jobs in the state, especially those in high-tech industries. Investing in these firms is risky, mainly because they are in their nature risky investors. If the legislators want to proceed with a bill they must do so with caution.
Venture capital firms invest in “high-potential, high-risk” companies. Companies need to take chances to be successful, and they often need outside help. This is where outside investors can make a world of difference. The plan, championed by Gov. Scott Walker, aims at helping to bring more venture capital to the state. Capital helps companies grow, which can result in better paying jobs and more tax revenue.
If this type of programs hadn’t been tried before, it would be easier to support. The state had a program in 1999 that doled out $50 million to certified capital companies (CAPCOs). The CAPCOs were not required to pay back the state, and some of the funded firms didn’t even use all of the money they were given. According to Sen. Glenn Grothman, R-West Bend, “It was a horrible bill.”
The new bill is still being worked on, and it must look at the past failures to protect tax-payer dollars from fraud and undue risk. Fortunately, legislators like Sen. Julie Lassa, D-Stevens Point, urges taking time to revise the bill to ensure that “oversight will be in place to provide openness and transparency,” according to her press release.
The economy is still faltering, and if the government feels it is necessary to infuse public dollars to private firms, that is a choice it can make. But accountability must be a major concern in the bill. This includes making the venture capital firms and the government officials accountable throughout the process, something the 1999 bill lacked.
One way that lawmakers are trying to do this is by having a better investment plan. Instead of investing in CAPCOs that were not required to pay back any principle on loans, lawmakers like Grothman and Sen. Alberta Darling, R-River Falls, are looking into a model where a manager would invest money gained from bonds in different venture capital funds, according to the Milwaukee Journal Sentinel. Firms would have to “raise additional money from private investors.” However, not all state legislators are in agreement about this model; Rep. Jeff Fitzgerald, R-Horicon, and other assemblymen have introduced a proposal that includes the controversial CAPCOs. That approach failed in the past and hopefully Fitzgerald will reconsider.
Whatever model the Legislature decides upon, there will always be a high level of risk. Venture capital is risky by nature; it invests in fledgling companies that have no guarantee of succeeding, regardless of how much money they get. Even though the new bill will have better payment terms to the government, only time will tell if the risks the government takes will result in anything positive. People should begin asking the question whether government should be involved in this sector at all.
A reason to be skeptical of government-funded venture capitalism comes from the federal investment to Solyndra, a now-defunct solar company. Even after receiving half a billion dollars in government loans, the company still failed. By playing venture capitalist, the federal government lost half a billion tax-payer dollars and failed to create any of the promised permanent jobs.
Though Wisconsin will not be making the loans directly to companies, it will be delegating that duty to private investment firms. This does nothing but promote private gains at the risk of socialized losses while making accountability more difficult. The added layer of the venture capital firms takes the already difficult task of tracking government spending to a whole new level.
In general, the government should be staying out of businesses affairs. When government starts doling out money to companies, it introduces bias and the possibility for cronyism while distorting the market in favor of companies the government deems to be worthy.
Regardless, it looks like venture capital will now be part of the Wisconsin government’s job strategy. It introduces risks, and it will present some opportunities for the lucky few who get government-funded venture capital. At least legislators are looking at the mistakes of the past and taking a more serious focus on oversight.
Matt Beaty is a junior majoring in math and computer science. Please send all feedback to opinion@dailycardinal.com.
