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Tech leaders say UW budget cuts are a 'dark cloud' on the state's economy
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STATE JOURNAL BUSINESS ROUNDTABLE | TECH LEADERS WEIGH IN ON UW BUDGET IMPACTS

Tech leaders say UW budget cuts are a 'dark cloud' on the state's economy

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A $250 million cut in state funding to the University of Wisconsin System over the next two years could do great harm to Wisconsin’s economy, Madison area tech leaders said.

At the same time, they said, more incentives are needed to lure investors to put money into local startups.

Seven executives met for a recent roundtable discussion at Wisconsin State Journal offices, one year after they gathered for a similar exchange, to see if conditions in the area’s tech industry have improved or slid backward.

Both meetings were organized by the State Journal and Wisconsin Technology Council president Tom Still, and were moderated by Still and State Journal editor John Smalley.

The consensus seemed to be, as Greater Madison Chamber of Commerce president Zach Brandon put it: “I think we’ve made progress. But there’s still a lot of work to be done.”

In addition to Brandon, participants were: Toni Sikes, CEO and co-founder, CODAworx; Kevin Conroy, president, chairman and CEO, Exact Sciences Corp.; Liz Eversoll, founder and CEO, SOLOMO Technology; Mark Bakken, co-founder and chairman, Nordic Consulting and founder and managing partner, Madison HealthX Ventures; John Neis, managing director, Venture Investors; Greg Lynch, partner, Michael Best & Friedrich and co-founder of the firm’s Venture Best Emerging Technology Practice.

“The (technology) ecosystem just gets richer and stronger as time goes by,” said entrepreneur Sikes, who has started several art-related businesses. But $58.9 million worth of “severe” cuts to the UW-Madison budget, authorized by the Legislature and Gov. Scott Walker, are “a dark cloud,” she added. “Everybody in this room is affected.”

“To me, that is the biggest thing that happened in the last year,” said Neis, whose firm focuses on early-stage companies. “I have tremendous concerns about the future of the university and the impact of the depth of the cuts.”

Recruiting and retaining the best faculty members are important for innovation to continue, said Neis. “It is such a powerful force in this ecosystem,” he said.

“The changes won’t be felt right away,” he said. Rather, the impact on research projects might be felt over the course of a decade. “And I’m worried, two years out, that some could argue that, ‘See, the sky didn’t fall, everything’s OK,’ when, in fact, it is falling and we just don’t notice it, yet.”

Neis said some of Venture Investors’ portfolio companies that were trying to work with the UW on clinical trials or contract research have encountered lengthy, unanticipated delays.

They were burning through cash with their monthly expenses and left unable to progress to the milestones their investors expected on time and on budget, he said.

Eversoll concurred, saying she’s experienced the opposite at UW-Whitewater. “You just get on the phone (and call a professor) and you get interns (candidates),” she said.

Conroy, whose company has developed a test to screen for colorectal cancer, said word of the reduced funding gets around.

“I think the perception, around the country, is that this is bad for the University of Wisconsin and it’s bad for business; it’s bad for economic development. This is a tragically poor decision on the part of policymakers in this state to take one of the very, very best public universities in the world and start to diminish it,” he said.

When the best faculty members leave, that affects the entire state’s economy, Conroy said. “And if we want to succeed as a state and grow our economy, the University of Wisconsin-Madison is going to play a role,” he said.

Brandon said local leaders have to convince the rest of the state of Madison’s significance in the state economy.

He said the Greater Madison Chamber of Commerce held its first legislative day at the State Capitol this year.

“Wisconsin has to acknowledge that we cannot succeed without Madison,” Brandon said. “We have to show them that what’s happening in Madison solves problems in the world ... The state benefits by (Verona electronic health records company) Epic having coming up on 10,000 employees. The state benefits by having Fujifilm acquire CDI (stem cell firm Cellular Dynamics International).”

Neis said Venture Investors met with an institutional investor group in northern Wisconsin.

One member said he views Madison as “Moscow on Mendota.” Neis said his firm brought the investors to Madison and took them to companies here. “The gap between their perception of what Madison was all about and what they saw was huge,” Neis said.

Attorney Lynch said he is “not as pessimistic” as the others. The area’s “underlying strengths are still there,” he said.

“Awareness about the potential of Madison has gone up,” said Eversoll, who has founded four local tech companies.

Bakken said with the growing prominence of local companies such as Epic Systems Corp., “the perception of Madison from around the country has shifted. There really is a lot of credibility right now ... Madison and Wisconsin (have) a lot of the raw ingredients that are coming together right now.”

Sikes said two important things are happening: small investment funds, such as Bakken’s HealthX, are forming and more entrepreneurs are seeking out investors in Chicago and on the coasts. “That change in attitude is going to bring more money into Wisconsin,” she said.

As for what can be done to attract more investment into the Madison area, some suggestions included:

  • Adding direct flights from Madison to San Francisco and Boston.
  • Raising the investment total that qualifies for a Wisconsin tax credit from the current $8 million to $12 million.
  • Removing the requirement that Wisconsin companies eligible to offer investors a tax credit — but incorporated out-of-state — must pay Wisconsin taxes on the investments they receive.
  • Organizing more events that bring together entrepreneurs with experienced businesspeople.
  • Establishing stronger business connections with Milwaukee and other parts of the state.

The Midwest has no real entrepreneurial hub, the Chamber’s Brandon said, suggesting Madison could fill that role.

“We want to be the entrepreneurial and innovative hub of the U.S.,” he said.

“I love that mission,” said Sikes, “but if we can’t get there, Madison already is epicenter of health care and health care IT (information technology).”

Conroy said Exact Sciences, which moved to Madison from Massachusetts in 2009, could not have grown in another city as it has in Madison.

The company has more than 700 employees, with 450 of them in the Madison area, an increase of 275 positions during 2015.

“We can do it here because of the quality of life, the quality of the workforce,” he said.

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