January 11, 2022 –
Good morning, Chairman Kooyenga and Members of the Senate Committee on Financial Institutions and Revenue.
Thank you for taking the time today to discuss two pieces of legislation intended to improve access and opportunities for Wisconsin’s start-up business communities and investors. I will provide information on both bills in my testimony today.
Recent years have demonstrated exceptional growth for investments in Wisconsin startups. Using data provided by the Wisconsin Technology Council, in 2020, more than $485 million were invested in more than 114 companies. While we are still finalizing 2021 figures, preliminary estimates show investors provided more than $675 million to 100 early-stage Wisconsin companies – a 40% increase in one year. These results are up from $209 million invested in 2015. In short, investments in Wisconsin entrepreneurs and innovators are strong and growing, a testament, at least part, to the work being done by WEDC and Governor Evers’ administration.
These investments are having a significant impact on Wisconsin’s economy. In 2020, 446 startup and early-stage companies reported activity of nearly $565 million in new funding and generated more than $319 million in revenue for a total of more than $884 million in new capital generation. These companies supported 2,232 full-time jobs and 1,952 part-time jobs in Wisconsin and paid an estimated $163 million in annual wages.
Senate Bill 729
I would like to begin by providing some insight into our entrepreneurship and innovation efforts, most notably through the Qualified New Business Venture (QNBV) program. WEDC has several major programs that directly support entrepreneurship and innovation, including the QNBV tax credits, capital catalyst matching grant, seed accelerator and We’re All Innovating programs. WEDC’s entrepreneurial programs are designed to further advance startup activity by supporting the full path from startup to commercialization.
The QNBV program, a central pillar of our suite of startup support programs, helps startups headquartered in Wisconsin that offer innovative products, processes, or services raise the capital they need to grow by offering tax credits to investors. QNBV certification allows businesses to offer their equity investors tax credits as an incentive for investing in their business. In 2020, the QNBV program supported 242 companies including 42 new certifications.
QNBV companies are responsible for creating high-paying, high-skilled jobs throughout Wisconsin. By supporting investment in cutting-edge companies, the QNBV Program sets the stage for Wisconsin’s future success in a globally competitive environment.
A business may be certified as a QNBV if:
- It is headquartered in Wisconsin.
- At least 51 percent of the employees employed by the business are employed in this state.
- It has the potential for increasing jobs and/or capital investment in Wisconsin.
- It is engaged in innovation or applying differentiating technology in target industries.
- It had less than 100 employees at the time of initial certification.
- It has been in operation in this state for not more than 10 consecutive years at the initial certification.
WEDC works with QNBV businesses to meet their needs and support their ability to remain in good standing while still maintaining high standards of compliance and transparency. WEDC makes every effort to avoid adding unnecessary bureaucratic barriers to company success and can collaborate with companies to cure discrepancies, so those businesses are able to thrive.
WEDC is aware of circumstances in which a QNBV company has fallen out of compliance with the program guidelines due to a merger or acquisition. SB 729 sets clear standards and codifies in statute our ability to work with companies who will benefit the state of Wisconsin to remain qualified even if, for a brief period, they fall out of compliance due to a merger or acquisition of a business outside of the state.
Senate Bill 785
As I mentioned, our QNBV Program provides tax credits to eligible angel and venture fund investors who make cash equity investments in Qualified New Business Ventures. If all eligibility requirements are met, investors receive a Wisconsin income tax credit equal to 25 percent of the investment made in the certified company.
Currently, venture investors without a Wisconsin tax liability may transfer their QNBV credits to someone with a Wisconsin tax liability. The proposed change in SB 785 extends this ability to angel investors.
It should also be noted that the QNBV program is currently disbursed on a first come, first-served basis and has a cap of $30 million. Conservatively, WEDC estimates the proposed change would result in at least $4 million of QNBV credit utilization a year. While we have never hit that the program’s cap, it is possible this tax credit transfer allowance would bring us closer to it and potentially even hit it.
The QNBV Program has been successful over the years and is an integral part of our efforts to help early- and mid-stage Wisconsin businesses attract the capital they need to grow and compete in the global marketplace.
WEDC hopes the Committee shares in our commitment to take our efforts to foster entrepreneurship and innovation to the next level. As members may recall, Governor Evers last year proposed creating a $100 million venture capital fund to help retain Wisconsin start-ups seeking to expand. Many businesses have identified the lack of access to local capital as a key factor in their decisions to leave our state. Establishing such a fund would send a clear message that Wisconsin supports its innovators and entrepreneurs not only in their start-up phase, but as they mature and prosper.
Thank you for your time today. I am happy to answer any questions from committee members.