Investments

An analysis of Wisconsins new venture capital and early stage finance programs

Bank Of America Investment By Gregory J. Lynch and Chad R. Taylor • 04/19/04 If high tech is the engine of future economic growth, Wisconsin is running low on investment fuel. A recent study by the California-based Milken Institute ranks our state 32nd out of 50 in availability of the risk capital that technology entrepreneurs need to turn innovative ideas into marketplace successes. That may soon change thanks to the recent enactment of 2003 Wisconsin Act 255 by Governor Doyle.

Visit Greylock Partners Index Ventures Index Ventures class technology companies that can become global players in their market. Based in Geneva, Switzerland, with additional offices in London, Index focuses on initial stage investments in information technology and life sciences companies. Since the early 1990's, class information technology and life sciences companies. As one of the early venture firms in Europe, we are committed to the development of the venture capital industry across the continent and UK.

Investment Opportunity Act 255 encourages angel investors and venture capitalists to invest in Wisconsin high tech companies, and helps those companies secure federal and third party funding. Although the Wisconsin Department of Commerce must still resolve a number of questions, its two key provisions investment tax credits, and a grant and loan program hold real promise to generate new sources of investment that emerging companies need for growth.

New Enterprise Associates (NEA) is a leading venture capital firm focused on helping entrepreneurs create and build major new enterprises that use technology to improve the way we live, work, and play. Practicing classic venture capital for over 25 years, NEA focuses on early stage investments, playing an active role in assisting management to build companies of lasting value. With $6 billion under management, NEA's experienced management team has invested in over 500 companies, of which more than 145 have gone public and more than 185 have been acquired. www.nea.com

Banc Of America Investment Investment Tax Credits

New York, NY (May 9, 2007) Tutor.com, a leader in live, on demand tutoring services, today announced new venture investments of $13.5 million to fund expansion of Tutor.com Direct, the company's on demand tutoring service for students and families. The equity growth funding of $9.5 million was led by Intel Capital and included investments from Ascend Venture Group, Kidron Opportunity Fund and previous investor Dawntreader Ventures. Tutor.com also secured $4 million in venture debt financing from MMV Financial based on the strength of its established institutional business.

Banking Investment Act 255 creates two tax credit programs for early stage seed investments and angel investments, both to be overseen and administered by the Department of Commerce. Commerce must certify that the credits go to qualified new business ventures which:

William has extensive experience in finance and investments in both public and private companies. He is the Managing Partner of Cansbridge Capital Corp., a boutique venture investment firm based in Vancouver and Palo Alto, specializing in technology. Cansbridge was an early investor in nCompass Labs (acquired by Microsoft in 2000), Intrinsyc Software ( ICS), Telos Technology (acquired by UTStarcom, UTSI in 2004). William has a MBA and Bachelor of Science in Mechanical Engineering from Queen's University in Kingston, Ontario.

Investment Solution Strategic Are headquartered in Wisconsin
Employ less than 100 people, and at least 51% of those are in Wisconsin
Is engaged in, or has committed to engage in, manufacturing, agriculture, or processing or assembling products and conducting research and development or developing a new product or business process
Is not engaged in traditional financial, consulting, professional services, retailing, hospitality, construction or transportation activity
Have been operated in Wisconsin for not more than seven consecutive years
Have not received more than $1 million in investments that qualify for angel tax credits

Stearns has over 20 years of experience in private capital investments in a variety of industries, capital structures and stages of development in companies located in the U.S.

Investment Banking Services The Early Stage Seed Investment Credit against individual and corporate income and franchise taxes is equal to 25% of the initial investment paid to an investment fund manager to invest in qualified new business ventures in any taxable year, beginning after December 31, 2004. There is a $35 million maximum for all combined credits claimed in all tax years. Partnerships, limited liability companies or tax-option corporations may not claim the credit, and Commerce must certify that fund managers are eligible to accept and properly invest venture capital.

Bank Investment The Angel Investment Tax Credit authorizes an individual angel investor to receive an income tax credit of up to 12.5% of any bona fide angel investment, to a maximum of $500,000 for each investment made in any two consecutive taxable years beginning after December 31, 2004. The maximum allowable aggregate credit amount is $30 million for all tax years. Investments are defined as the purchase of an equity interest or other expenditure in qualified new business ventures, made by an individual or network of individuals who regularly review new businesses for potential investment.

Alternative Investment Commerce must publicly list the eligible venture investors and qualified new business ventures that it certifies, and make an annual report on investment activity. Act 255 also requires Commerce to define what expenditures other than equity investments constitute bona fide angel investments, and to develop rules limiting angel investments to $3 million per year and venture investments to $3.5 million per year.

Online Investment Services Grant and Loan Program

Accompany Essential Investment The second key element of Act 255 is the creation of a Technology Commercialization Grant and Loan Program funded at $2.6 million annually. It is administered by the Department of Commerce to ensure that grant recipients are located and grants are spent in Wisconsin and that the applicants are viable. The program authorizes five types of grants and loans:

Investment Company Early Stage Planning grants and loans, to cover up to $15,000 in professional services needed to apply for federal R&D funding or to achieve business objectives required by third party investors. Recipients must have enough other funding to cover at least 25% of total project costs.

Investment Management Solution Matching grants and loans of up to 20% of project costs or $250,000 (whichever is less) to fund professional services that help a recipient develop or commercialize innovative products, processes or services. Recipients must either have secured, or be about to secure, federal funding to bolster their efforts.

Investment Management Services Bridge grants and loans of up to 75% of project costs or $100,000 (whichever is less) to tide recipients over until they receive third party financing or federal grants to develop or commercialize their innovations.

Guide Investment Stock Venture Capital grants and loans of up to 50% of project costs or $250,000 (whichever is less) to enhance recipients ability to secure early stage third party financing.

Investment Manual Solution Entrepreneurial & Technology Transfer Center grants of up to $500,000 a year to finance centers that serve multiple regions of Wisconsin by providing entrepreneurs with planning, intellectual property, referral and similar business development services.

Investment Stock Two key points to re-emphasize about these Technology Commercialization Grants and Loans. First, they are supplemental funding. Applicants and recipients must be small businesses or entrepreneurs who have applied for or are waiting to receive federal grants for early stage R&D funding or early stage third party financing. And second, the Wisconsin Department of Commerce must confirm that applicants are viable and that their innovative products or services are primarily developed in or sold from this state.

Essential Investment Solution With similar restrictions in place for the investment tax credits, it may take a while to generate substantial momentum among small and emerging businesses to take advantage of the full program. But, thanks to Act 255, the fuel for growth is there and all of Wisconsin will benefit.

Citicorp Investment Services _______
Gregory Lynch and Chad Taylor are attorneys in the Madison office of Michael Best & Friedrich LLP.

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The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.

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