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Sep 26, 201712:18 PMInside Wisconsin

with Tom Still

One of Wisconsin’s most effective business growth tools ready for update

(page 1 of 2)

One of Wisconsin’s most successful strategies for spurring the growth of young companies for the past decade or so has been its Qualified New Business Venture law, known as the “Act 255” investor tax credits law because of how the law was titled when it passed.

The program provides tax credits to qualified Wisconsin investors who put money into young companies with some sort of technology base, even if the company is aligned with a more traditional sector such as manufacturing or agriculture.

Since it took effect in 2005, the Act 255 program has prompted at least $466 million in private investments in emerging companies that have earned QNBV status through the Wisconsin Economic Development Corp. (previously, the Wisconsin Department of Commerce) based on standards set by a law that has changed only incrementally over time.

It’s a rigorous vetting process that, once completed, earns the angel and venture capital equivalent of a “Good Housekeeping Seal of Approval” for young companies. Potential investors in Wisconsin often won’t consider companies that are not QNBV-certified because they trust in the process enough to know it’s worth taking a closer look.

They also like the tax credits, which are worth $1 in state relief for every $4 invested. There are scores of examples of investors who took a chance on a young company knowing the credits would help mitigate the risk or allow them to invest more than they had planned.

About $116.5 million in credits have been granted over time, all retroactive to the actual investment, and nearly 1,200 new jobs have been created in the past six years alone. The law has been a model for investment tax credit laws in other states and a major reason why Wisconsin’s early stage investment community has grown from a handful of venture and angel funds or networks in the early 2000s to about 40 such groups today.

In 2016, for example, about $276 million in angel or venture capital was invested in 136 Wisconsin companies — 84 of which were QNBV-certified.

As time passed, however, some parts of the law aged. One update that should be made by the Wisconsin Legislature this fall is lifting the lifetime cap on credit-eligible investments in any single company from $8 million to $12 million.

The $8 million cap has been in place almost since the dawn of the law, and inflation alone suggests it should be raised. The biggest problem is that many tech-based companies, especially those in health care or manufacturing, are so capital-intensive that it takes more money to fuel their growth. The typical venture capital investment of 2005 is not the norm in 2017.

So far, 14 emerging companies in Wisconsin have been “capped out,” meaning those companies hit the $8 million investment ceiling that yielded $2 million in credits for their investors. Another 20 are poised to bump against the ceiling soon, based on an analysis by the Legislative Fiscal Bureau.

(Continued)

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Tom Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal.

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