Analysis by the Legislative Reference Bureau
This bill directs the Wisconsin Economic Development Corporation (WEDC) to
establish an economic development program that operates like what is often referred
to as a "fund of funds." Typically, under a fund of funds investment model, an
investment fund invests moneys with other investment funds that in turn invest
those moneys directly in operating businesses. Under this bill, WEDC must contract
with an investment manager to manage investments in venture capital funds and
Wisconsin businesses.
Before WEDC contracts with an investment manager, WEDC and the State of
Wisconsin Investment Board (SWIB) must form a committee to select the investment
manager. A majority of the committee's members must be representatives of SWIB.
WEDC's proposed contract with the investment manager is subject to passive review
by the Joint Committee on Finance (JCF). However, under the bill, JCF's review of
the contract is limited to determining whether the contract is contrary to the bill or
fails to implement an applicable provision of the bill.
The bill requires WEDC to pay $25,000,000 to the investment manager for
investments in venture capital funds. The bill also requires the investment manager
to contribute to those investments $300,000 of its own moneys and $5,000,000 raised
from other funding sources. The investment manager must attempt to invest all of
those moneys within 24 months after the date the investment manager executes the
contract with the corporation, and the investment manager must invest those

moneys in at least four different venture capital funds. The investment manager
may not invest more than $10,000,000 in any one venture capital fund.
The bill requires the investment manager to contract with each venture capital
fund that receives moneys under the program created in the bill. Under that
contract, each venture capital fund must do all of the following:
1. Invest all of the moneys the venture capital fund receives under the program
in businesses that are headquartered in Wisconsin and employ at least 50 percent
of their full-time employees in Wisconsin and invest at least one-half of those
moneys in businesses that employ fewer than 150 full-time employees when the
venture capital fund first invests in the business under the program. If, within three
years after the venture capital fund makes an investment in a business under the
program, the business relocates its headquarters outside of Wisconsin or fails to
employ at least 50 percent of its full-time employees in Wisconsin, the venture
capital fund must recover the total amount of moneys the venture capital fund
invested in the business under the program, including any matching funds, and
reinvest those moneys in one or more eligible businesses, subject to the bill's
requirements.
2. Invest at least one-half of those moneys in businesses within 24 months after
the venture capital fund receives the moneys and invest all of the moneys in
businesses within 48 months.
3. Invest all of those moneys in businesses in the agriculture, information
technology, engineered products, advanced manufacturing, or medical devices and
imaging industries and attempt to ensure that those moneys are invested in
businesses that are diverse with respect to geographic location within Wisconsin.
4. At least match the amount of the moneys the investment manager
contributes to an investment in a business with an investment of moneys in that
business that the venture capital fund has raised from other funding sources. The
bill also requires the investment manager to attempt to ensure that, on average, a
venture capital fund invests $2 in a business for every $1 the investment manager
contributes to the investment in that business.
5. Provide to the investment manager the information necessary for the
investment manager to make its annual report to WEDC, described below.
6. Disclose to the investment manager and to WEDC any interest that the
venture capital fund or one of its owners or other representatives or agents holds in
a business in which the venture capital fund invests or intends to invest moneys
under the program.
Similarly, the bill requires the investment manager to disclose to WEDC any
interest that it or an owner or other representative or agent of the investment
manager holds in a venture capital fund that receives moneys under the program or
a business in which a venture capital fund invests such moneys. Also, the investment
manager's profit-sharing agreement with a venture capital fund under the program
must be on terms that are substantially equivalent to the terms applicable for other
funding sources of the venture capital fund.
Under the bill, the investment manager must set aside and pay to the state its
proceeds from investments of the moneys contributed to the program by WEDC until

the investment manager has paid the state $25,000,000, the amount of WEDC's
contribution. After that point, the investment manager must pay 90 percent of its
proceeds from such investments to the state.
The bill requires the investment manager to submit a report to WEDC each
year within 90 days after the end of the investment manager's fiscal year that
includes all of the following:
1. An audit of the investment manager's financial statements performed by an
independent certified public accountant.
2. The investment manager's internal rate of return from investments in
venture capital funds under the program.
3. For each venture capital fund that received an investment under the
program: a) the name and address of the venture capital fund; b) the amount of the
investment; and c) an accounting of any fees the venture capital fund paid to itself
or any principal or manager.
4. For each business in which a venture capital fund held an investment of
moneys contributed by the investment manager under the program: a) the name and
address of the business; b) a description of the nature of the business; c) an
identification of the venture capital fund that made the investment; d) the amount
of each investment in the business and the amount contributed by the venture
capital fund; e) the internal rate of return realized by the venture capital fund on the
investment; and f) a statement of the number of employees the business employed
when the venture capital fund first invested in the business under the program, the
number of employees the business employed on the first day of the investment
manager's fiscal year, and the number of employees the business employed on the
last day of the investment manager's fiscal year.
WEDC must submit the investment manager's report to the legislature.
The bill also requires WEDC to submit to JCF two progress reports, one in 2015
and one in 2018. Each report must include all of the following:
1. A comprehensive assessment of the performance to date of the investment
program created in the bill.
2. Any recommendations WEDC has for improving the investment program
and the specific actions WEDC intends to take or proposes to be taken to implement
those recommendations.
3. Any recommendations SWIB has for improving the investment program and
the specific actions SWIB proposes to be taken to implement those recommendations.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
SB169,1 1Section 1. 25.17 (72) of the statutes is created to read:
SB169,4,2
125.17 (72) Appoint the board's representatives to the committee under s.
2238.155 (3) (a).
SB169,2 3Section 2. 238.03 (4) of the statutes is created to read:
SB169,4,54 238.03 (4) The board shall appoint the corporation's representatives to the
5committee under s. 238.155 (3) (a).
SB169,3 6Section 3. 238.155 of the statutes is created to read:
SB169,4,9 7238.155 Fund of funds investment program. (1) Definition. In this
8section, "investment manager" means the person the committee selects under sub.
9(3) (a).
SB169,4,12 10(2) Establishment of program. The corporation shall establish an economic
11development program for the investment of moneys in venture capital funds that
12invest in businesses located in this state.
SB169,4,18 13(3) Selection of investment manager. (a) The investment board and the
14corporation shall form a committee, consisting of representatives of the investment
15board and the corporation, to select the investment manager. The majority of the
16committee's members shall be representatives of the investment board. The
17committee shall select a person as investment manager that has expertise in the
18venture capital or private equity asset class.
SB169,4,2119 (b) 1. The corporation shall notify in writing the joint committee on finance of
20the investment manager selected under par. (a). The notice shall include the
21corporation's proposed contract with the investment manager.
SB169,5,722 2. If, within 14 working days after the date of the corporation's notice under
23subd. 1., the cochairpersons of the joint committee on finance do not notify the
24corporation that the committee has scheduled a meeting to determine whether the
25corporation's proposed contract with the investment manager is contrary to this

1section or fails to implement an applicable provision of subs. (4) to (7), the corporation
2and investment manager may execute that contract. If, within 14 working days after
3the date of that notice, the cochairpersons of the committee notify the corporation
4that the committee has scheduled that meeting, the corporation and investment
5manager may execute the contract unless the committee determines at that meeting
6that the contract, in whole or in part, is contrary to this section or fails to implement
7an applicable provision of subs. (4) to (7).
SB169,5,13 8(4) Contract with investment manager; disclosure requirement. (a) Subject
9to sub. (3) (b), the corporation shall contract with the investment manager. The
10contract shall establish the investment manager's compensation, including any
11management fee. Any management fee may not exceed $250,000 annually. The
12investment manager's total compensation under the contract, including all
13management fees paid, may not exceed $800,000.
SB169,5,1714 (b) The investment manager shall disclose to the corporation any interest that
15it or an owner, stockholder, partner, officer, director, member, employee, or agent of
16the investment manager has in a venture capital fund that receives moneys under
17sub. (5) (b) or a business in which a venture capital fund invests those moneys.
SB169,5,19 18(5) Investments in venture capital funds. (a) Subject to sub. (4) (a), the
19corporation shall pay $25,000,000 to the investment manager in fiscal 2013-14.
SB169,5,2120 (b) The investment manager shall invest the following moneys in at least 4
21venture capital funds:
SB169,5,2222 1. The moneys under par. (a).
SB169,5,2323 2. At least $300,000 of the investment manager's own moneys.
SB169,5,2524 3. At least $5,000,000 that the investment manager raises from sources other
25than the corporation.
SB169,6,2
1(c) 1. Of the moneys designated under par. (b), the investment manager may
2not invest more than $10,000,000 in a single venture capital fund.
SB169,6,73 2. Of the moneys designated under par. (b), the investment manager shall
4attempt to invest at least one-half of those moneys in venture capital funds within
512 months after the date the investment manager executes the contract under sub.
6(4) (a), and the investment manager shall attempt to invest all of those moneys in
7venture capital funds within 24 months after that date.
SB169,6,108 (d) The investment manager shall contract with each venture capital fund that
9receives moneys under par. (b). Each contract shall require the venture capital fund
10to do all of the following:
SB169,6,2411 1. Invest all of the moneys it receives under par. (b) in one or more businesses
12that are headquartered in this state and employ at least 50 percent of their full-time
13employees, including any subsidiary or other affiliated entity, in this state, and
14invest at least one-half of those moneys in one or more businesses that employ fewer
15than 150 full-time employees, including any subsidiary or other affiliated entity,
16when the venture capital fund first invests moneys in the business under this
17section. If, within 3 years after the venture capital fund makes an investment in a
18business under this subdivision, the business relocates its headquarters outside of
19this state or fails to employ at least 50 percent of its full-time employees, including
20any subsidiary or other affiliated entity, in this state, the venture capital fund shall
21recover from the business the total amount of moneys the venture capital fund
22invested in the business under this subdivision and subd. 4. and reinvest those
23moneys in one or more businesses that are eligible to receive an investment under
24this subdivision, subject to the requirements of this section.
SB169,7,3
12. Invest at least one-half of any moneys it receives under par. (b) in businesses
2within 24 months after the date it receives those moneys and invest all of those
3moneys in businesses within 48 months after that date.
SB169,7,84 3. Invest all of the moneys it receives under paragraph (b) in businesses in the
5agriculture, information technology, engineered products, advanced manufacturing,
6or medical devices and imaging industries and attempt to ensure that all of those
7moneys are invested in businesses that are diverse with respect to geographic
8location within this state.
SB169,7,149 4. At least match any moneys it receives under par. (b) and invests in a business
10with an investment in that business of moneys the venture capital fund has raised
11from sources other than the investment manager. The investment manager shall
12attempt to ensure that, on average, for every $1 a venture capital fund receives under
13par. (b) and invests in a business, the venture capital fund invests $2 in that business
14from sources other than the investment manager.
SB169,7,1615 5. Provide to the investment manager the information necessary for the
16investment manager to complete the annual report under sub. (7) (a).
SB169,7,2017 6. Disclose to the investment manager and the corporation any interest that
18the venture capital fund or an owner, stockholder, partner, officer, director, member,
19employee, or agent of the venture capital fund holds in a business in which the
20venture capital fund invests or intends to invest moneys received under par. (b).
SB169,7,2421 (e) The investment manager's profit-sharing agreement with each venture
22capital fund that receives moneys under par. (b) shall be on terms that are
23substantially equivalent to the terms applicable for other funding sources of the
24venture capital fund.
SB169,8,4
1(6) Special requirements for investments of moneys contributed by the
2corporation.
(a) The investment manager shall hold in an escrow account its gross
3proceeds from all investments of the moneys designated under sub. (5) (b) 1. until the
4investment manager satisfies par. (b).
SB169,8,75 (b) At least annually, the investment manager shall pay any moneys held under
6par. (a) to the secretary of administration for deposit into the general fund until the
7investment manager has paid a total of $25,000,000 under this paragraph.
SB169,8,118 (c) After the investment manager satisfies par. (b), the investment manager
9shall pay 90 percent of its gross proceeds from investments of the moneys designated
10under sub. (5) (b) 1. to the secretary of administration for deposit into the general
11fund.
SB169,8,15 12(7) Annual report of the investment manager. (a) Annually, within 90 days
13after the end of the investment manager's fiscal year, the investment manager shall
14submit a report to the corporation for that fiscal year that includes all of the
15following:
SB169,8,1716 1. An audit of the investment manager's financial statements performed by an
17independent certified public accountant.
SB169,8,1918 2. The investment manager's internal rate of return from investments under
19sub. (5) (b).
SB169,8,2120 3. For each venture capital fund that contracts with the investment manager
21under sub. (5) (d), all of the following:
SB169,8,2222 a. The name and address of the venture capital fund.
SB169,8,2323 b. The amounts invested in the venture capital fund under sub. (5) (b).
SB169,8,2524 c. An accounting of any fee the venture capital fund paid to itself or any
25principal or manager of the venture capital fund.
SB169,9,2
14. For each business in which a venture capital fund held an investment of
2moneys the venture capital fund received under sub. (5) (b), all of the following:
SB169,9,33 a. The name and address of the business.
SB169,9,44 b. A description of the nature of the business.
SB169,9,65 c. An identification of the venture capital fund that made the investment in the
6business.
SB169,9,87 d. The amount of each investment in the business and the amount invested by
8the venture capital fund from funding sources other than the investment manager.
SB169,9,109 e. The internal rate of return realized by the venture capital fund on the
10investment in the business.
SB169,9,1511 f. A statement of the number of employees the business employed when the
12venture capital fund first invested moneys in the business that the venture capital
13fund received under sub. (5) (b), the number of employees the business employed on
14the first day of the investment manager's fiscal year, and the number of employees
15the business employed on the last day of the investment manager's fiscal year.
SB169,9,1816 (b) No later than 10 days after it receives the investment manager's report
17under par. (a), the corporation shall submit the report to the chief clerk of each house
18of the legislature, for distribution to the legislature under s. 13.172 (2).
SB169,9,21 19(8) Corporation progress reports. In 2015 and 2018, no later than March 1,
20the corporation shall submit reports to the joint committee on finance that include
21all of the following:
SB169,9,2322 (a) A comprehensive assessment of the performance to date of the investment
23program under this section.
SB169,10,3
1(b) Any recommendations the corporation has for improvement of the
2investment program under this section and the specific actions the corporation
3intends to take or proposes to be taken to implement those recommendations.
SB169,10,64 (c) Any recommendations the investment board has for improvement of the
5investment program under this section and the specific actions the investment board
6proposes to be taken to implement those recommendations.
SB169,10,77 (End)
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