Why Wisconsin shouldn’t spend $100 million in taxpayer money to invest in private enterprise

Government and venture capital don't mix

Why Wisconsin shouldn't spend $100 million in taxpayer money to invest in private enterprise

By ANDREW HANSON, Ph.D. | May 24, 2021

The Evers administration has proposed ([link removed]) a $100 million public venture capital fund in the state budget. The Republican-controlled Legislature, which jettisoned 400 items from the governor’s budget proposal, left this one intact. Both parties should reconsider since this idea is at best a dubious risk for taxpayers and at worst a bastion for political favoritism.

The idea is to have state government, specifically an oversight board established by the Wisconsin Economic Development Corp. (WEDC) ([link removed]) , distribute funds to new businesses that have also secured funds from a private source. In the proposal, the state would not allocate funds directly to businesses. Instead, it would allocate funds to an advisory board that would allocate to a sub-fund, which then would allocate money to businesses.

For those unfamiliar with how venture capital funding typically works, think of the reality television show “Shark Tank” — big money investors looking to partner with and advise small start-ups in need of cash in the hope of growing the business and making profits.

Venture capital works because it is a risk-reward proposition for both the investor and the small business. The investor seeks a return on capital and uses industry knowledge and skill to choose the best place to employ that capital. Investors necessarily think this through carefully. If the business they invest in is not profitable, they could lose their entire investment.

The small business owners are equally careful. They are giving up a share of potentially lucrative profits and want to be sure they will be sharing their business with a skilled partner.

To read more of this article, click here ([link removed]) . Permission to reprint is granted as long as the author and Badger Institute are properly cited.

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