Job Creation through Capital Donation

Helping young companies — creatively

Milwaukee Journal Sentinel
Thursday, July 18, 2013

BrightStar Wisconsin aims to persuade the wealthy to donate to a very important cause: Wisconsin's economy

There is a famine of risk capital for young companies in Wisconsin, which is the biggest reason that good ideas that could lead to jobs are going hungry in this state. Sluggish job growth is a perilous trend that threatens the state's well-being now and especially in the future.

That's why we're so intrigued by a creative venture from Tom Shannon, the entrepreneur and angel investor who oversaw the 2009 sale of the Waukesha biotech firm Prodesse Inc. for $72 million.

His BrightStar Wisconsin Foundation Inc. proposes to invest donors' money in high-growth, technology-based companies across the state. We hope BrightStar succeeds.

This matters because most new jobs are created by young companies. Established businesses are important — this region would be far poorer without the likes of Johnson Controls, Northwestern Mutual and Rockwell Automation. But if a state isn't creating new companies, it's probably not creating many new jobs. Exhibit A for this assertion is Wisconsin.

Wisconsin was among the worst-performing states in the nation for entrepreneurial activity in the past 10 years, reports the Kauffman Foundation. The state's job growth has lagged the nation for at least 15 years, and part of the reason surely is the state's abysmal record for launching new companies. The state's rate of business starts as measured as a share of all private businesses was just 2.2% in 2011, far below the 2.9% national rate and next to last among the 50 states.

Shannon's idea: Create a philanthropic incentive for the wealthy to fund start-ups in Wisconsin. They won't be "investors." They'll be "donors." They won't get a "return." They'll get the "satisfaction" of knowing that they are giving back to their state and helping to create jobs. And, oh yes, they will get a break on their federal taxes. That, in a nutshell, is the idea behind BrightStar.

Shannon and seven others have pledged at least $500,000 each and raised $6 million so far. They hope to raise at least $60 million more over the next three years, and the goal is to reach $150 million or more of assets, Shannon said.

"This could be our last kick at the can," Jeff Rusinow, a founding donor, told the Journal Sentinel's Kathleen Gallagher. He was principal investor in BuySeasons.com, a successful online costume retailer, among other companies. "This is a special opportunity to get it right."

Will it work? Shannon and the team brim with confidence. But BrightStar needs the Internal Revenue Service to sign off on that tax break — and then its founders need to do the hard spade work of persuading wealthy people with ties to Wisconsin that they should do something charitable for their home state without any hope of a monetary return.

"We'll never have enough angels, and we're not going to get the state money because we're frugal, and that leads to the philanthropic model because Wisconsinites have proven to be extremely generous," Shannon told Gallagher.

It's also clear to us that, unlike in states such as Ohio or Colorado, the public purse is unlikely to ever be much of a solution. In its last session, the Legislature passed a bill to raise $25 million for a "fund of funds" that will invest in angel and venture capital funds that will, in turn, invest in young Wisconsin companies (Gov. Scott Walker signed the bill into law on Thursday).

That's a positive development, but $25 million is a pittance. Much more was needed. On top of its penuriousness, the Legislature, to appease some conservatives, exempted biotech — an area of deep expertise for the University of Wisconsin-Madison. It was a decision that only made sense to the ideologues.

So it's obvious that the state's entrepreneurs cannot count on the Legislature no matter how many arms are broken patting pols on the back.

Of course, they shouldn't count only on Shannon, either.

Even if BrightStar succeeds in raising $150 million, that's still only part of what needs to happen. We think a slightly larger commitment to economic growth from several of the bigger pots of money in the state — including the State of Wisconsin Investment Board, the Wisconsin Alumni Research Foundation and the University of Wisconsin Foundation — would help. It also would help if WARF was better at creating start-up companies

Wisconsin does not lack for good ideas. Its research universities, led by the flagship UW campus in Madison, are powerhouses. Its private companies produce a wealth of patents. What the state lacks is enough money to commercialize some of the best ideas. This may be the single most important variable that will determine whether children growing up in Wisconsin today decide to stay in Wisconsin when they come of age.

BrightStar is a creative idea that may be able to pry open the wallets of wealthy ex-Badgers around the country, in places such as Silicon Valley and Boston. We hope so. It's not too strong of a statement to say that the kind of state Wisconsin becomes will depend upon efforts such as BrightStar.

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