WAUWATOSA – Creation of a state-leveraged venture capital fund that would spur company formation and job growth over time was recommended Thursday in a report by the 58-member Wisconsin Growth Capital Coalition.
The report was released during the fifth annual Resource Rendezvous conference in Wauwatosa, which attracted start-up companies and investors.
Released at the start of the Wisconsin Legislature’s fall floor period, the report recommended:
* Creation of a “master” fund-of-funds that would invest in 14 to 20 venture capital funds over time. The creation of a $350-million, state-leveraged, privately managed fund-of-funds would spur private co-investment at home and beyond. These recipient funds will raise an additional $350 million to $1.05 billion in aggregate and commit to offices, staff and investments in Wisconsin.
* Rapid deployment of some portion of the fund by utilizing indigenous Wisconsin funds with existing structures, network connections and deal-flow pipelines. Investor networks and funds report there are deals on the table today that could be closed within six months of enactment.
* Rapid deployment would also be enhanced through creation of Wisconsin Angel Acceleration Funds, which would establish angel “sidecar” or co-investment funds that would be used to match “super-angel,” angel network and fund investments. Because angel networks and funds are close to the action in Wisconsin, they would be able to invest money quickly through existing deal-flow pipelines. This would also enhance deal flow for venture funds later in the capital continuum.
* Investments would be made across the full capital continuum, from seed stage to growth stages.
* This state-leveraged fund could be backed by taxpayer guarantees and tax credits, which could eliminate the state’s need to incur direct debt. The fund would be constructed in a way that mitigates taxpayer risk and pays back the state’s investment over time.
* Professional fund management should be competitively selected, which brings experience, national perspective and existing co-investment relationships to Wisconsin’s table.
* Industry clusters with high-growth, high-wage job creation potential would be targeted.
* In addition to attracting out-of-state funds, this approach accelerates and catalyzes development of indigenous Wisconsin funds. The coalition recommends that a minimum of the one-third ($117 million at the target of $350 million) be committed to “Certified Wisconsin Funds,” with the flexibility to exceed that percentage. Coalition members agreed one of the best ways to create venture capital in Wisconsin is to increase the number of funds that are sourcing and competing for homegrown deals.
* The fund could be sustained over time with an “evergreen” feature that re-invests a certain percentage of state tax revenue growth from companies in designated sectors.
An online version of the full, 36-page report is available at https://wisconsintechnologycouncil.com/uploads/WGCC_BuildlingCompanies_final.pdf
The Growth Capital Coalition was reactivated through the Wisconsin Technology Council and its Wisconsin Angel Network to provide policymakers with non-partisan advice on proposed venture capital legislation. The report does not endorse any specific bill, but offers specific recommendations based on findings of best practices in Wisconsin and beyond.
The Wisconsin Legislature is expected to consider venture capital legislation during its fall floor period. Gov. Scott Walker and key legislators in both parties have indicated such legislation is a priority.
“The coalition views this report as roadmap for state policymakers on the best and most efficient way to leverage the state’s limited resources to catalyze venture and angel capital investments, and management in Wisconsin,” said coalition member Tim Keane of the Golden Angels Network and director of the Marquette University’s Kohler Center for Entrepreneurship.
“Wisconsin has a strong tradition of entrepreneurship,” said former Wisconsin Commerce Secretary Dick Leinenkugel, also a member of the coalition. “Think of the marquee companies, headquartered in Wisconsin, that are our economic calling cards – Oshkosh Corp., S.C. Johnson, Johnson Controls, Manitowoc Company, Harley-Davidson, Briggs & Stratton, Johnsonville, Kohler, Kohl’s and Quad Graphics. These companies all have one thing in common: They were named after the Wisconsin municipality of their founding or the last name of their founders.
“There is no truer evidence of entrepreneurial spark. However, that spark requires fuel to ignite.”
The report notes that 35 years ago, the first state-leveraged venture capital program was launched in Connecticut. Today, state-leveraged venture capital programs have been deployed in more than 30 states, including many of Wisconsin’s neighbors and economic peers. These programs have provided fuel to be ignited by the myriad entrepreneurial sparks in those states.
In 2005, a bipartisan effort led to the signing of Wisconsin Act 255. This legislation created a national model for developing, promoting and leveraging early stage investment capital in Wisconsin. Numerous states have replicated these tax credits including the Big Ten Conference states of Minnesota, Illinois and Nebraska.
This program, now called Accelerate Wisconsin, along with the creation of the Wisconsin Angel Network, has helped enhance early stage investing in Wisconsin – but largely at the “angel” capital level. The product of our success is a need for continued investing by venture capital firms in emerging companies as they enter the later stages of growth and job creation.
“Wisconsin has all the right ingredients for success,” added coalition member Toni Sikes, a partner in the Wisconsin-based Calumet Venture Fund. “It has an entrepreneurial heritage. Academic research funding in Wisconsin over-performs for its population. So do patent filings and other technology transfer metrics. While Wisconsin has built a strong foundation on research, intellectual property and angel capital, it has lagged in the venture economy.”
“The time is right for Wisconsin to develop sources of capital for high-growth, early and mid-stage companies,” said Eric Apfelbach, president and CEO at ZBB Energy in Menomonee Falls, Wis. “There is broad, bipartisan consensus that Wisconsin’s entrepreneurial ecosystem and overall economy need an accelerant. That accelerant is venture capital.”
In 2010, venture capital-backed companies in the United States employed nearly 12 million people (11 percent of private sector employment) and generated $3.1 trillion in revenue (21 percent of gross domestic product).
Wisconsin represents 1.84 percent of the nation’s population but only .55 percent of the venture capital investment. If the state received its proportional share of venture capital, that would mean 259,215 jobs today versus the 60,000 venture-rooted jobs created over time.
Wisconsin’s productivity, a testament to its well-trained workforce and equally well-developed infrastructure, means that one U.S. job was created for every $20,000 of venture capital dollars invested in the state of Wisconsin. The same job in California costs $75,000.
Year after year, venture-backed companies outperform the overall economy in terms of creating jobs and growing revenue, the report noted. Perhaps most important, venture capital builds new industries nearly from scratch through investments in “disruptive” technologies and business models.
The Wisconsin Technology Council is the independent, non-partisan science and technology adviser to the governor and the Legislature. Its Wisconsin Angel Network fuels the growth of early stage capital in Wisconsin by operating as an umbrella organization providing services and resources to the early stage investing and entrepreneurial communities.
The coalition’s membership includes the following businesses, firms and organizations:
Accuitive Medical Ventures
Baird Venture Capital
Burrill & Company
Calumet Venture Fund
Capital Midwest Fund
Central Wisconsin Angels
Charter Life Sciences
Chippewa Valley Angel Network
Competitive Wisconsin Inc.
DaneVest Tech Fund I
Foley and Lardner
Flaherty & Associates
Geo Investors Fund
Godfrey & Kahn
Golden Angels Network
Great Lakes Ventures
Greater Milwaukee Committee
Michael, Best & Friedrich
Milwaukee Water Council
Neider and Bocher
NEW Capital Fund
Omphalos Venture Partners
Open Prairie Ventures
Peak Ridge Capital Group
Promontory Point Capital
Quarles & Brady
State of Wisconsin Investment Board
St. Croix Valley Angel Network
Sun Mountain Capital
The Falk Group
Triathlon Medical Ventures
University Research Park
Whyte Hirschboeck Dudek
Wisconsin Alumni Research Foundation
Wisconsin Angel Network
Wisconsin Entrepreneurs Network
Wisconsin Innovation Network
Wisconsin Investment Partners
Wisconsin Technology Council