By Tom Still

MADISON – Another dismal report on venture capital investing in Wisconsin has some business leaders wondering what the state must do to attract more private equity financing for its emerging companies. An interested observer in that debate could turn out to be the State of Wisconsin Investment Board.

The agenda for this week’s meeting of the investment board, which is the ninth largest public pension fund in the United States, includes a discussion of “Investment Opportunities in Wisconsin’s Emerging Technologies.” That may seem like a broad topic – and it is – but behind SWIB’s interest in discussing homegrown tech investments is a sense that it could prove profitable for the fund’s beneficiaries.

With about $70 billion under management, SWIB is also the 23rd largest public or private pension fund in the world. It invests worldwide in a wide array of funds, constantly monitoring the mix to ensure that a prudent balance is maintained. Private equity, a broad category that includes venture capital and leveraged buyouts, is one area where SWIB invests less (3 percent of total assets versus about 7 percent) than other funds in its class. And some SWIB-watchers are wondering if the board will seize the opportunity to invest more.

In 2004, SWIB realized a 21.2 percent return on its private equity investments, about double for the fund as a whole. In California and Massachusetts, major public pension funds recently reported private equity returns ranging from about 23 to 26 percent – and those funds invest more heavily in that sector. With 520,000 members of the Wisconsin Retirement System expecting healthy returns, it only makes sense that SWIB board members and managers would train a keen eye on those trends.

There is another factor at work – Wisconsin’s lack of recent venture capital investment. National figures through the second quarter of 2005 indicate that Wisconsin will report fewer venture capital deals and investments this year than in any year since the mid-1990s, when the last venture wave began. In part, that’s a national story. The “dotcom” crash of 2000 and world events since September 11, 2001, have generally reduced the number of venture capital deals – and the number of venture capitalists. Those who remain are decidedly more conservative in their outlook, and they’re raising smaller, more manageable funds.

However, some states are doing far better than Wisconsin in attracting venture capital, and it’s for reasons beyond national and world trends. For starters, Wisconsin may have more early-stage companies than “venture-ready” companies, which are more mature. Location doesn’t help, as most venture capital is clustered on either coast. Then again, Minnesota, Utah and Colorado lack beachfront property, too, but they show up ahead of Wisconsin in venture rankings.

Some pension funds appear to be leading the charge. In Maryland, for example, a 2004 state report recommended that its public pension fund become more aggressive in seeking out venture capital investment opportunities. If not, the report concluded, Maryland’s high-tech economy would not grow at an acceptable rate. Maryland now has two state-backed venture companies that are ranked among national leaders, and the state reported $66 million in venture deals in the last quarter versus $5.6 million in Wisconsin.

This is not to suggest that SWIB hasn’t invested in Wisconsin venture deals before. In fact, four venture capital firms with state ties are managing SWIB dollars. The question is whether SWIB sees opportunities in other forms of private equity, perhaps coming before the venture stage.

Wisconsin has an enviable technology base and, for the most part, the right talent. More dollars invested in the right places could help the state grow – and pay strong returns for those who invest.