Amendment SSA1-AB181

LRBs0087/1

MPG:wlj:jf

2013 - 2014 LEGISLATURE

SENATE SUBSTITUTE AMENDMENT 1, TO ASSEMBLY BILL 181

June 18, 2013 - Offered by Senators Lassa, Hansen, Erpenbach, Harris, Shilling, Wirch, C. Larson and L. Taylor.

AB181-SSA1,2,2 An Act to repeal 71.07 (5d) (c) 1.; to amend 1.12 (1) (b), 13.172 (1), 13.48 (13) (a), 13.62 (2), 13.94 (4) (a) 1., 13.95 (intro.), 16.002 (2), 16.004 (4), 16.004 (5), 16.004 (12) (a), 16.045 (1) (a), 16.15 (1) (ab), 16.41 (4), 16.417 (1) (b), 16.52 (7), 16.528 (1) (a), 16.53 (2), 16.54 (9) (a) 1., 16.765 (1), 16.765 (2), 16.765 (5), 16.765 (6), 16.765 (7) (intro.), 16.765 (7) (d), 16.765 (8), 16.85 (2), 16.865 (8), 25.14 (1) (a) (intro.), 73.03 (63), 77.54 (9a) (a), 100.45 (1) (dm) and 230.03 (3); to repeal and recreate 230.03 (3); and to create 13.94 (1) (dx), 13.94 (1s) (c) 9., 16.015, 16.5195, 19.42 (10) (t), 19.42 (13) (p), 20.195, 25.90, 40.02 (54) (n), 70.11 (38v) and chapter 239 of the statutes; relating to: the angel investment tax credit, creation of the Wisconsin Venture Capital Authority, creation of the Wisconsin forward jobs fund to be administered by that authority, and making an appropriation.

Analysis by the Legislative Reference Bureau

Wisconsin venture capital authority

This substitute amendment creates the Wisconsin Venture Capital Authority (authority).

Composition and general operation

Board of directors

Under the substitute amendment, a 13-member board of directors (board) governs the authority. The board consists of a chairperson nominated by the governor who serves at the pleasure of the governor; the chief executive officer of the Wisconsin Economic Development Corporation or his or her designee; seven members with substantial equity investment or angel or early stage seed investment experience, nominated by the executive director of the State of Wisconsin Investment Board (SWIB) and appointed with the advice and consent of the senate; two members appointed by the speaker of the assembly, consisting of one majority and one minority party representative to the assembly; and two members appointed by the senate majority leader, consisting of one majority and one minority party senator. Each of the members of the board nominated by the executive director of SWIB serves a staggered six-year term and may not be an officer, director, or other principal in an equity investment firm. Members of the board may not be compensated but may be reimbursed for actual and necessary expenses, including travel expenses, incurred in the performance of their duties. The substitute amendment requires that the governor, the executive director of SWIB, the speaker of the assembly, and the senate majority leader attempt to appoint the initial members of the board within 60 days after the effective date of the substitute amendment.

The substitute amendment gives the board the powers necessary or convenient to carry out its duties, as well as specific powers to conduct its corporate business. Under the substitute amendment, the authority is a participating employer in the Wisconsin Retirement System. The board may hire an executive director. The members of the board nominated by the executive director of SWIB; the executive director of the authority, if any; and the fund manager of the Wisconsin forward jobs fund administered by the authority are subject to state ethics laws.

Wisconsin forward jobs fund

The substitute amendment establishes the Wisconsin forward jobs fund, which is a separate nonlapsible trust fund. Under the substitute amendment, in each fiscal year, beginning in fiscal year 2013–14, and ending in fiscal year 2018–19, the secretary of administration must transfer moneys to the Wisconsin forward jobs fund from the general fund totaling $208,000,000. Under the substitute amendment, the authority, based upon the recommendation of a selection committee appointed by the executive director of SWIB, must hire a qualified fund manager to manage the Wisconsin forward jobs fund. The substitute amendment directs the authority to delegate powers to the fund manager necessary for the fund manager's administration of the Wisconsin forward jobs fund and the investment programs created in the substitute amendment.

Qualified investment capital funds

Under the substitute amendment, the authority may approve a qualified investment capital fund to receive fund capital. Under the substitute amendment, fund capital consists of moneys in or received from the Wisconsin forward jobs fund. In determining whether to approve an applicant as a qualified investment capital fund, the authority must consider the applicant's investment experience, the past performance of investments managed by the applicant, the applicant's commitment to investing in businesses located in Wisconsin, and the applicant's commitment to making investments that are diverse with respect to a business's geographic location in this state and industry classification.

Under the substitute amendment, the authority may invest fund capital in qualified investment capital funds. The authority may not commit more than $15,000,000 to a single qualified investment capital fund. The authority must ensure that an amount equal to 100 percent of the fund capital it invests in qualified investment capital funds, or at least $180,000,000 over the life of the Wisconsin forward jobs fund, is invested by those investment capital funds in businesses that are headquartered in this state and that at least $170,000,000 in fund capital is invested in businesses that meet the following additional conditions:

1. Employ at least half of their full-time employees in Wisconsin.

2. Employ fewer than 150 full-time employees in total.

3. Agree to use fund capital only for research and development, the introduction of a new product in the market, entry into a new market, or other activities that are expected to grow the businesses and create jobs in Wisconsin.

4. Are not primarily engaged in real estate development or sales, insurance, banking, lending, lobbying, political consulting, professional services, or retail sales, other than the direct sales of products a business itself manufactures.

The substitute amendment provides that a qualified investment capital fund must contract with the authority before receiving any fund capital. In the contract, the qualified investment capital fund must agree to a number of conditions, including the following:

1. The qualified investment capital fund must commit to maintaining a significant physical presence in Wisconsin, including an office that is staffed by at least one full-time employee.

2. Within four years after the qualified investment capital fund receives a commitment of fund capital from the authority, the qualified investment capital fund must have an amount equal to 100 percent of that fund capital either invested in or held in reserve for follow-on investments in businesses that are approved by the authority.

3. Unless the qualified investment capital fund is a Wisconsin-based qualified investment capital fund, as determined by the authority, the qualified investment capital fund may not receive fund capital that exceeds 20 percent of the total capital the investment capital fund has raised from all sources. A Wisconsin-based qualified investment capital fund may not receive fund capital that exceeds 50 percent of the total amount of capital the Wisconsin-based qualified investment capital fund has received from all sources.

4. The authority's profit-sharing agreement with a qualified investment capital fund must be on terms that are substantially equivalent to the terms enjoyed for similar investments by other funding sources of the qualified investment capital fund.

5. From any investment of fund capital by a qualified investment capital fund, the qualified investment capital fund may not pay a fee to itself or to any principal or manager of the qualified investment capital fund that is greater than the average fee the investment capital fund earns on its other investments or equals more than 2.5 percent of the total amount of fund capital contributed to that investment by the authority.

6. The qualified investment capital fund must disclose to the authority any interest that it holds in a business in which the qualified investment capital fund invests or intends to invest fund capital.

Angel investor networks

Additionally, the substitute amendment authorizes the authority to invest fund capital directly in a Wisconsin business if that investment is proposed to the authority by an angel investor or angel group of angel investors (angel investor network). The authority may commit up to a total of $20,000,000 in fund capital to such investments if the business in which the investment is made is a Wisconsin business, the angel investor network agrees to invest at least $2 for every $1 in fund capital that the authority commits to the investment, and the authority's profit-sharing agreement with the angel investor network is comparable to the terms enjoyed by other persons in the angel investor network with respect to the investment. Under the substitute amendment the authority must attempt to ensure that its investments in businesses suggested by angel investors or networks are made in businesses that operate in economically distressed areas.

Qualified business development organizations

Under the substitute amendment, the authority may commit up to $8,000,000 in fund capital to qualified business development organizations. The authority may approve a person as a qualified business development organization if the authority determines that the person operates a nonprofit or for-profit business incubator, regional economic development partnership, local economic development organization, or non-profit or for-profit entrepreneurial service agency that directly provides certain business support and other services to start-up businesses.

Under the substitute amendment, a qualified business development organization is subject to contract requirements similar to those applicable for qualified investment capital funds. Among other contract requirements, the qualified business development organization must invest fund capital in a business the qualified business development organization itself serves through its business development programs. Also, a qualified business development organization must at least match the amount of moneys it receives from the Wisconsin forward jobs fund with an investment of capital in the business that the qualified business development organization has raised from other sources. The authority must attempt to ensure that qualified business development organizations invest fund capital in businesses that operate in economically distressed areas.

Reporting requirements

Under the substitute amendment, the authority must submit an annual report to the legislature and the governor that contains all of the following information:

1. An accounting of the financial status of the Wisconsin forward jobs fund, including the opinion of an independent certified public accountant.

2. The current investment policy of the Wisconsin forward jobs fund.

3. The authority's internal rate of return from its investments of fund capital.

4. For each qualified investment capital fund in which the authority held an investment of fund capital during the preceding year, the name and address of the investment capital fund; the amount of fund capital invested with each qualified investment capital fund; the internal rate of return realized by the qualified investment capital fund on each investment; and an accounting of any fee the qualified investment capital fund paid to itself or any principal or manager of the qualified investment capital fund during the preceding year.

5. For each business in which a qualified investment capital fund held an investment of fund capital during the preceding year, the name and address of the business; a description of the nature of the business; the amount of each investment of fund capital in the business and the amount contributed to that investment by the qualified investment capital fund; an identification of the qualified investment capital fund that made the investment; and a statement of the number of employees the business employed when the qualified investment capital fund first invested fund capital in the business, the number of employees the business employed on January 1 of the preceding year, and the number of employees the business employed on December 31 of the preceding year.

6. For each investment held by the authority with an angel investor network in a business during the preceding year, the name and address of the business; a description of the nature of the business; an identification of the angel investor network; the amount of the investment and the amount contributed to the investment by the angel investor network; and a statement of the number of employees the business employed when the authority first invested fund capital in the business, the number of employees the business employed on January 1 of the preceding year, and the number of employees the business employed on December 31 of the preceding year.

7. With respect to grants to qualified business development organizations, an accounting of the total amount of moneys the authority granted to qualified business development organizations during the preceding year and the name and address of each qualified business development organization and the amount of each grant. For each business in which a qualified business development organization held an investment of grant moneys during the preceding year, the name and address of the business; a description of the nature of the business; an identification of the qualified business development organization that made the investment; the total amount of each investment in the business and the amount contributed to that investment by the qualified business development organization or by other funding sources; and a statement of the number of employees the business employed when the qualified business development organization first invested grant moneys in the business, the number of employees the business employed on January 1 of the preceding year, and the number of employees the business employed on December 31 of the preceding year.

The substitute amendment also requires the authority to submit a report to the Joint Committee on Finance in January 2018 that includes all of the following:

1. A comprehensive assessment of the performance to date of the Wisconsin forward jobs fund and the programs administered by the authority concerning the Wisconsin forward jobs fund.

2. Any recommendations the authority has for improvement of the programs administered by the authority concerning the Wisconsin forward jobs fund and the specific actions the authority intends to take or proposes to be taken to implement those recommendations.

3. Any recommendations SWIB has for improvement of the programs administered by the authority concerning the Wisconsin forward jobs fund and the specific actions SWIB proposes to be taken to implement those recommendations.

Winding up of the investment programs

In December 2031, the authority must liquidate all of its assets, including its remaining investments, related to the Wisconsin forward jobs fund and pay the proceeds of that liquidation to the secretary of administration for deposit into the general fund, except that the authority must use 25 percent of the amount of that liquidation that exceeds $208,000,000 for an economic development program that serves economically distressed areas in Wisconsin. After the authority liquidates those assets, makes that payment, transfers any tangible personal property to the Department of Administration, and assigns any contracts to the secretary of administration, the authority may not conduct any more business concerning the Wisconsin forward jobs fund.