By Tom Still
For those who doubt the target market for the $30 million early-stage fund announced last week by two major Wisconsin institutions, just check out its name: 4490 Ventures.
That refers to the 44-degree north latitude and the 90-degree west longitude lines that converge in the heart of Wisconsin – specifically, for geography buffs, just west of Castle Rock Lake in Juneau County.
OK, there’s not likely a venture capital opportunity on County Road G south of Necedah, but you get the basic idea: The fund launched by the Wisconsin Alumni Research Foundation and the State of Wisconsin Investment Board has Badger State deals in mind.
That’s market validation for a growing sector of the state’s early-stage companies, whether they are in Kenosha in the southeast, Ashland in the northwest or many places in between.
More than a year in the making, the 4490 Ventures Fund is a 50-50 partnership between Wisconsin Alumni Research Foundation and State of Wisconsin Investment Board, two organizations well-versed in the venture capital asset class.
Since 2000, SWIB has invested about $305 million in venture capital, but almost exclusively through other venture capital firms in Wisconsin and elsewhere. Since 1999, WARF has invested about $23 million through its internal fund, but almost entirely in companies tied to technologies produced on the University of Wisconsin-Madison campus.
This fund is a breakthrough step for both organizations. It’s not intended to replace anything WARF or SWIB is doing now in terms of early-stage investments. Instead, it has been established to invest in the kinds of promising information technology companies that can be found across Wisconsin.
A typical 4490 Ventures Fund investment would range from about $250,000 to $2 million, meaning about 20 deals over the next five years.
While Wisconsin is known for its life sciences companies, advanced manufacturing and “cleantech” ventures, one of the biggest opportunities for growth from an investor perspective appears to be information technology.
In addition to the 4490 Venture Fund, the recently announced Keane D’Souza Fund in Milwaukee will focus on information technology. The Wisconsin Super Angel Fund announced in early March also will look at that space. Silicon Pastures in Milwaukee has historically centered on information technology with its angel investments.
Other Wisconsin funds, even those with life science bents, have targeted investments in IT, as well.
The reason is simple enough: Information technology investments can mature quickly without massive amounts of cash or regulatory hurdles, which is sometimes the case in life sciences.
“Make no mistake: We’re doing this because we think we can generate return for our investors,” said Michael Williamson, executive director of SWIB, during an announcement at the March 19 Wisconsin Innovation Network meeting in Madison.
“WARF has recognized for some time that there is significant opportunity . . . in information technology companies,” added Carl Gulbrandsen, WARF’s managing director.
The investment board showed about $90 billion in assets under management as of Dec. 31, making it the nation’s ninth-largest public pension fund. Even with the addition of the 4490 Ventures Fund, only a tiny fraction of SWIB’s investment portfolio is committed to venture capital. The same holds for WARF, which has about $2.5 billion in assets under management.
Among those who should draw comfort from the creation of the 4490 Venture Fund are Gov. Scott Walker, who has proposed creating a state-leveraged fund that would likely be matched by private investors, and members of the state Legislature, who will be asked to approve that concept. A placeholder for $25 million has been included in the state budget bill.
The 4490 fund was launched after intense market research found there are more potential deals in Wisconsin than there are dollars to chase them. Past analysis of the need by the Wisconsin Technology Council and the Wisconsin Growth Capital Coalition has suggested the market could absorb about $350 million in early-stage capital over five years.
In short, there’s room for multiple funds at different stages, from seed to venture and everything in between.
Nothing attracts money like money, and the creation of the 4490 fund means investors from beyond Wisconsin are likely to pay more attention to what the state has to offer. In the global competition for capital, companies and jobs, Wisconsin must get its coordinates on the map.