FORETHOUGHT - Whyte Hirschboeck Dudek SC

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According to Zach Brandon, Director of the Wisconsin Technology Council’s Wisconsin Angel Network, if Wisconsin is able to increase its venture capital investing to be on par with just the national average (11%), it could potentially reduce its unemployment rate to almost zero. At the very least, it could become more competitive like Minnesota. Wisconsin’s Recent Attempts to Pass Venture Capital Legislation Gov. Scott Walker proposed a venture capital bill in 2011, which would have provided $200 million in tax credits to insurance companies and out-of-state investment firms known as certified capital companies, or CAPCOs. In return, these companies would be required to invest $250 million in Wisconsin startup companies through the CAPCOs. The state would gain 20% of any profits, but there was no guarantee it would get back any of the revenue lost in granting the tax credits. The governor’s proposal was largely based on the same investment model presented in a program initiated in 1999. The 1999 program provided $50 million worth of Wisconsin tax credits to three CAPCOs, who sold the credits to insurance companies with the promise that they would invest the money in Wisconsin companies. However, the 1999 program had large flaws. The proposal had no established authority to enforce how the money would be spent or managed by the CAPCOs, the CAPCOs were not required to repay the state for the tax credits, and the CAPCOs were only required to invest half of the money in the first five years of the program. As a result, only half of the money promised to be channeled into Wisconsin’s startups ever made it there, the majority of the companies that received money from the CAPCOs haven’t survived, and only a few hundred jobs were created in the state for a decade’s worth of effort. Not surprisingly, the 2011 CAPCO-oriented proposal ran into heavy opposition. Afterwards, the Legislature advanced two proposals. Both bills had the same goal of promoting Wisconsin startup growth through jump-starting venture capital investment. Both bills advocated for $200- 400 million in venture capital investment funds. Money for the funds would be raised by either selling bonds or allocating tax credits to encourage investment. The funds would have required private parties to provide matching money to qualify for the government funds. Assembly Bill 129 and Senate Bill 94 would have established the Wisconsin Venture Capital Authority, as well as an investment fund and investment programs to be administered by the authority to invest in venture capital funds and Wisconsin startup and other businesses. However, the Senate and Assembly differed significantly on how the funds would be funded and they failed enactment. Like the governor’s proposal, Assembly Bill 129 intended to gather the money through insurance premium tax credits to CAPCOs. For example, in exchange for investing $2 million in Wisconsin startups, local and out-of-state insurance companies would receive $2 million in tax cuts in Wisconsin. Insurance companies are ideal for this type of venture because they traditionally have large tax bills and know how to invest large amounts of money. This proposal did not require the state to spend current funds because it was giving tax credits away to investors. But, the state couldn’t guarantee that the money would be returned to it. Historically, CAPCOs have kept 80% of the money related to their investments and returned only 20% to the taxpayers. Senate Bill 94 favored selling bonds, which would essentially provide state grants and loans to selected angel and venture capital firms. The state would pay off the bonds when returns came in from the funds. This proposal could almost ensure that the money invested would stay in Wisconsin. However, when the state is running a budget deficit, borrowing money to encourage risky investments is disfavored. In the end, the Assembly did not want to appear to be seen as borrowing money to fund these funds, the Senate did not want to be seen as loaning money, and neither could agree on the best way to encourage venture capital investment in Wisconsin. 34 WHD <strong>FORETHOUGHT</strong>
What We Learned With the federal elections of Nov. 6, 2012 over, we can expect new passing of a venture capital bill. The GOP now holds both state houses and any proposal it adopts should pass without resistance. What will be interesting to watch is not whether a bill passes, but what changes, if any, are made in the proposal. The critical issues the Legislature must address in any venture capital bill will be: • How should out-of-state funds be treated vis-à-vis domestic, Wisconsin funds • Who will qualify for tax credits, matching funds, or outright grants • How much revenue will the state spend (or give up in the form of tax credits) • How does the state track funds after they are allocated • Will the state guide what kind of companies the funds will be allowed to invest in Insiders indicate that the governor will propose a more modest proposal in terms of capital to be infused by the state, likely $150-200 million, with a focus on early- to mid-stage startups in diverse industries. Further, they will be looking to fund the proposal without using CAPCOs or issuing bonds, perhaps with matching-fund grants. Kegonsa Capital Partners (KCP), a Wisconsin venture capital management firm, suggests that a venture capital scheme that promotes startup creation by spreading venture capital across a wide range of industries, technologies, and locations in the state would be the most profitable. By diversifying its venture capital investments, KCP argues Wisconsin will experience high investor returns because it requires less investment overall and has the potential to create more companies and, thus, more jobs. Another strategy advocates investing in a narrow group of select companies in specific technologies. Rather than making several smaller investments in a variety of companies, this strategy focuses on investors making multiple and increasing investments in select companies. It involves more investment overall, but creates fewer companies in the process. All of Wisconsin’s great employers, from Harley-Davidson and Johnson Controls to RedPrairie and Epic Systems, started as new, domestic enterprises. The state has traditionally grown its own economy. Wisconsin has the entrepreneurial talent and smart leadership to boost growth. It just needs the right type of capital support to do so. n LITIGATION 35
Page 1: FORETHOUGHT Find opportunities. Ant
Page 4 and 5: FOREWORD
Page 6 and 7: TABLE OF CONTENTS
Page 8 and 9: CORPORATE 8 WHD FORETHOUGHT
Page 10 and 11: Taxes The U.S. Tax Code is complica
Page 12 and 13: structures become even more critica
Page 14 and 15: DODD FRANK ACT: A THREAT TO MAINSTR
Page 16 and 17: further, will ensure that the CFPB
Page 18 and 19: A BUMPY ROAD AHEAD FOR EMPLOYERS: E
Page 20 and 21: (2) disclose the analysis to employ
Page 22 and 23: ule or order of the DWD, compensati
Page 24 and 25: Will Employers be Subject to Immigr
Page 26 and 27: TAKE HEED, O INVENTOR: BEWARE THE I
Page 28 and 29: WHY ARE INTELLECTUAL PROPERTY NOTIC
Page 30 and 31: LITIGATION 30 WHD FORETHOUGHT
Page 32 and 33: Conclusion The possibility of creat
Page 36 and 37: IS IT AS EASY AS CLICKING “I ACCE
Page 38 and 39: REAL ESTATE/ ENVIRONMENTAL 38 WHD F
Page 40 and 41: agriculture. Even during normal yea
Page 42 and 43: HUD CERTIFICATION FOR CONDOMINIUM A
Page 44 and 45: ABOUT THE AUTHORS 44 WHD FORETHOUGH
Page 46 and 47: served as Editor of the Nebraska La
Page 48 and 49: employment-based immigration issues
Page 50: U.S. Congressman, in which she rese

FORETHOUGHT - Whyte Hirschboeck Dudek SC

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