Free Market Coalition venture capital letter

The Evers administration included a $100 million public venture capital fund in its state budget proposal. While the Republican-controlled Legislature cut 400 items from the governor’s budget, this measure survived. In an open letter, the Wisconsin Free Market Coalition today calls on legislators to jettison this expensive and risky proposal.

May 26, 2021

Members of the Legislature:

We encourage you to for­go the $100 million public venture capital fund included in Gov. Evers’ state budget.

Venture capital is risky enough in the marketplace, where experienced, deliberate investors use their own money to get behind a project once they’ve determined that a sound plan and potential earnings justify an investment. State government has no such expertise in determining the likely success of new ventures. Of even greater concern, the investments are made with taxpayers’ money.

According to The Wall Street Journal, 95% of start-ups fail to meet specific revenue growth or break-even dates, 30% to 40% are forced to liquidate and lose all investor money and only 35% survive until their 10th anniversary. Three-quarters of venture capital-backed firms never fully return their original investment.  

Why would we want state government taking such a risk with taxpayer dollars?

The fund would create an oversight board established by the Wisconsin Economic Development Corp. (WEDC), which would distribute taxpayer monies to an advisory board that would in turn steer them to sub-funds that would allocate money to business start-ups. The ostensible reason for using separately managed funds is to offset the risk of managers making bad investments.

This would do little to alleviate underlying problems. Without their own skin in the game, selections may well be made without sufficient diligence or objectivity. When government officials or their designees channel taxpayer money to select businesses, it distorts the marketplace. Decisions often favor new businesses over their long-established, taxpaying competitors. When promised economic benefits fall short, no one is held to account, and there’s rarely analytical follow-up to determine what went wrong.

Policymakers would better serve taxpayers by working to create an even playing field for all entrepreneurs and businesses. Administrative efforts and state resources should aim to limit the regulatory burden and create a pro-growth tax structure that makes the state competitive and contributes to broad economic flourishing.

After a year of COVID-19 and government-imposed hardships on businesses, the desire to help invigorate private enterprise is understandable. But this is the wrong way to go about it. We encourage you instead to look for ways to streamline the path for entrepreneurs to succeed without putting $100 million at needless risk. 

The state already seems fairly well-positioned in the venture capital market relative to its size and recent history. According to the National Venture Capital Association, Wisconsin had over $1 billion in venture capital assets under management as of 2018 — more than Minnesota, Iowa and Indiana and similar to levels in more populous states such as Georgia, North Carolina and Ohio.

The downside to this public venture fund is enormous. The upside is minimal, at best.

Mike Nichols, President, Badger Institute

Eric Bott, State Director, Americans for Prosperity-Wisconsin

Brett Healy, President, MacIver Institute

Rick Esenberg, President & General Counsel, Wisconsin Institute for Law & Liberty

Matt Kittle, Executive Director, Empower Wisconsin