Capital Investment Update

Talking Points in Support of SB 261 and AB 538

The Hamilton Consulting Group

Sept. 26, 2002

© 2003 The Hamilton Consulting Group

Senate Bill 261and Assembly Bill 538 relate to creating a qualified new business venture tax credit and a capital gains tax exemption regarding investment in certified venture capital funds and qualified new business ventures. These bills were developed by the Capital Formation Legislative Subcommittee of the Wisconsin Economic Development Association, Co-Chaired by Terry Grosenheider and Marcia Theusch. The primary Legislative authors are Senator Ted Kanavas and Representative Ann Nischke. Our thanks to Mr. Grosenheider for preparing the talking points presented below. –James Hough

• Wisconsin needs to feed the pipeline of business development to maintain the vitality of Wisconsin’s future economy.

• More small businesses must be created by entrepreneurs and financed by small investors.

• Wisconsin ranks 47th nationally in the number of new business startups1.

• Wisconsin has fewer Ph.D and Masters Degrees per thousand residents than 35 other states.

• Capital and investment will flow where a better return can be realized.

• This legislation will create an environment in Wisconsin which rewards risk taking at the individual level.

• This legislation will change the risk/reward ratio in Wisconsin to favor investment in new companies and ideas, these companies will be the basis of the next Wisconsin economy.

• This is a market driven proposal that relies upon the skill of the entrepreneur and the willingness of the individual investor, no state funds are put at risk.

• The proposal creates a “Qualified New Business Venture” (QNBV) designation.

• It creates a tax credit for investment in a QNBV.

• It creates a 100% capital gains tax exclusion for QNBV investments.

• The proposal creates a 10 year tax preference limit and sets enterprise income and asset limits.

• This legislation directs DFI, Commerce and the University to conduct and publish an annual characterization survey of “New Business Venture” formations to determine new business formation trends, identify barriers and obstacles faced by new businesses and potential needs of new businesses.

• The proposal also Directs Commerce to maintain an Internet accessible listing of “Qualified New Business Ventures”.

This legislation will:

1. be based upon market principles of risk and reward;

2. create a new public market for private equity capital;

3. reduce the risk of investment in these critical economic sectors;

4. increase the potential reward based upon the success of the enterprise, compliment the existing and future Venture Capitalists and CAPCOs by creating and funding more, and more viable, startup companies;

5. support economic development throughout Wisconsin based upon innovation and initiative without the need for a “Zone designation”; and,

6. significantly increase the number of individual Wisconsinites involved in the process of creating and funding businesses.