Milwaukee Biz Blog: How to improve Wisconsin’s dismal startup economy

A five-point plan

Tom Still
Tom Still

MADISON – There is no shortage of explanations for why Wisconsin routinely shows up at the bottom of the Kauffman Foundation’s business startup rankings, the latest of which pegged the state 25th among the nation’s 25 largest states.

Those reasons include demographics (an aging workforce and low immigration rates); a capital-intense business core (manufacturing and agriculture) that is hard to crack for most entrepreneurs; a below-average share of adults with higher education degrees; and nagging social and economic problems in Milwaukee, the state’s largest city.

The “OK… but” arguments are also pretty well known: Wisconsin companies survive longer than the U.S. average once launched. Also, there’s no crisis for most workers. The state’s unemployment rate is well under the national average. It usually easier to keep the job you have than make one for yourself.

Those roots causes haven’t changed much in decades and more probing isn’t necessary. What’s needed is a plan to do something about it.

Here is a summary of ideas drawn from policy reports by the Wisconsin Technology Council, which routinely examines the state’s tech-based economy and high-growth entrepreneurism with an eye toward advising policymakers.

  • Rethink non-compete employment agreements. Most entrepreneurs have prior industry experience they can leverage to create or join a new company. Employee non-compete agreements disrupt entrepreneurship by erecting barriers to the free movement of talent. California has never enforced non-compete clauses in contracts and it’s often cited as a reason why the Silicon Valley is as vibrant as it is today. A bill that died in a past session of the Wisconsin Legislature would have actually toughened the state’s non-compete law, a step in the wrong direction.
  • Reduce “fence-me-in” occupational licensing. Nearly one-third of American workers are required to have a government-issued license to do their jobs and Wisconsin is no exception. Occupational licenses can act as a barrier to entrepreneurs. It’s time to revisit licenses that hamper competition and small business creation. Consumers can often be protected just as well by certification and registration standards that don’t fence out new entrants to the marketplace.
  • Re-invest in higher education. Study after study concludes that entrepreneurial rates are higher around university and college campuses, not only for faculty and staff engaged in research but for students. Wisconsin is no exception to the rule. Those same campuses produce the talent so desperately needed in Wisconsin’s workforce, which is flattening out in sheer numbers. There’s room for more efficiency in higher education, but it’s also an asset that cannot be allowed to wither away.
  • Accelerate broadband deployment. This is the most important factor in turning around the loss of rural population and jobs, given the importance of broadband to commerce, culture, public safety, health, education, tourism and more. The demographic hollowing out of Wisconsin’s North Woods and parts of rural Wisconsin will continue unless broadband coverage is improved, most likely by wireless technologies.
  • Double-down on the state’s commitment to attracting angel and venture capital. In 2005, the state’s investment tax credit law took effect and it prompted a steady increase in deals that continues to this day. About $18.3 million in credits were paid in 2015, a total that reflects private equity investment of at least four times that amount in companies that earn Qualified New Business Venture status from the Wisconsin Economic Development Corp. That law (commonly called the Act 255 tax credits) has worked and even become a national model. Wisconsin’s high-growth startup rate would be even worse without it. It’s time for some strategic follow-ups. Major provisions of the law haven’t changed in 11 years. There’s a lifetime cap on investments in any one company that makes it harder for emerging companies from surging ahead and creating more wealth, value and jobs. The amount of the tax credit (25 percent) hasn’t changed for investors in the youngest startups. There’s headroom to improve both because the overall cap on state credits is $30 million per year, well above last year’s record. The creation of the $25 million Badger Fund of Funds was a significant step, and that state-leveraged fund is rolling out its privately backed regional funds as envisioned by Gov. Scott Walker and the Legislature. Those regional funds should soon bring much-needed “seed capital” to parts of the state often bypassed by investors. Seed capital alone may not cut it. A far bolder move would be creation of a state-leveraged fund of $100 million or more (again, matched by private dollars) to follow on dollars invested in the most successful seed companies.

These are five strategies; there are others. A starting point is needed, however, and the coming elections and legislative cycle will provide that forum.

Tom Still is the president of the Wisconsin Technology Council.

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