By Tom Still
MADISON – If nothing else, give the State of Wisconsin Investment Board credit for good timing.
The $87-billion pension fund, one of the nation’s largest, announced Monday it will invest $25 million in a venture capital fund managed by Baird Venture Partners and another $15 million in a fund to be co-invested, on a deal-by-deal basis, with Milwaukee-born Baird and other venture capital firms that have dealt with SWIB since 2000.
The announcement, which completes a decision-making process that began early this year, means all $200 million allocated to SWIB’s venture capital portfolio over nine years is now committed to targeted investors.
It also means Wisconsin’s venture capital landscape, once comparatively barren but now bearing some impressive fruit, just got a little greener.
Previewed in total dollars a month ago, the formal announcement by SWIB comes during a run of news about Wisconsin’s investment climate. During the international BIO convention in June, Gov. Jim Doyle announced an independent study that charted a 43 percent increase in Wisconsin’s early-stage investments in 2007. Earlier this month, Inc. magazine singled out Wisconsin in a story on state-based strategies to increase risk capital investments. That was shortly followed by a story in Venture Capital Journal, the industry’s leading publication, on the growth of Wisconsin’s venture and angel capacity. A week ago, it was disclosed that a Florida biotechnology firm is moving to Wisconsin thanks to an investment by Kegonsa Capital Partners and a state Department of Commerce grant.
Within the past year or so, seven venture-backed Wisconsin companies has gone public or been acquired, and the state’s largest early-stage fund, Venture Investors LLC, launched a $117-million Midwest-focused fund.
None of this has escaped the attention of SWIB, which invests a tiny fraction of its overall portfolio in “alternative investments,” a category that includes venture capital. In mid-July, SWIB issued its first-ever white paper on Wisconsin’s private equity landscape and concluded the state “is closer than ever to forming the critical mass necessary” to grow its venture capital culture.
The SWIB report charts the growth in angel financing and described Wisconsin as ripe for venture capital investments – the next level of investing beyond angels – because of an “imbalance in Wisconsin and Midwest between the recognized high levels of research and development occurring in the region and the disproportionately low levels of venture capital dollars seeking investments.”
That imbalance, SWIB analysts added, “creates a highly inefficient market that offers an advantage to investors with deep connections to the research channels and the experience and skill to build companies to commercialize that research. The lack of competition for deals gives early investors the opportunity to invest at attractive valuations and to select the best opportunities.”
While SWIB had allocated $200 million to its venture capital portfolio over time, it had held back on putting some of that money to work. The latest commitment repackages some dollars from previous allocations and gives SWIB’s investment staff the flexibility to move quickly if new deals emerge. There is a clear expectation that most of the latest issue will be put to work in Wisconsin.
“(The fund) does not have a mandated geographic limit in their partnership agreements, but the local nature of venture capital investments and the particular strategy of this fund make it clear they will focus on opportunities in Wisconsin and the Midwest if they fit the fund’s general strategy,” noted SWIB’s July report.
Baird Venture Partners, a venture capital group affiliated with the Milwaukee-based Robert W. Baird & Co., focuses on early- and expansion-stage companies in the health care, life sciences and business services sectors. It has offices internationally, as well as Chicago, Milwaukee and Madison. The $25 million SWIB investment is part of a $170-million fund, its third of that type.
“The local venture capital environment continues to evolve with the quality of startups in Wisconsin and the Midwest being some of the best in United States,” said Chris Prestigiacomo, SWIB’s portfolio manager. “The support structure for early start-up companies is far better today compared to when we first started investing regionally in 1999. We feel the future is bright given what has taken place over the past nine years and expect to be able to capitalize on that.”
Capitalizing on investments is what SWIB aims to do on behalf of the 550,000 beneficiaries of the Wisconsin Retirement Fund. In recent years, investing close to home has helped those beneficiaries and Wisconsin. SWIB is betting that run will continue.
Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal in Madison.