BUSINESS COMMENTARY | Tom Still
While most of the nation’s venture capital is clustered on the East and West coasts, the Midwest is home to emerging pockets of early stage investment dollars.
The door is open for Milwaukee to become one such hub, based on the experience of “fund of funds” that are up and running in Michigan and Ohio.
For the model to work in Wisconsin’s largest city, however, some of the city’s major companies, pension funds and institutions must become engaged in new and potentially rewarding ways. Read the Journal Sentinel article here.
Madison’s venture capital climate is relatively strong, thanks in part to corporate investors such as American Family Insurance, which invests in young companies at home and far afield through its AmFam Venture Fund.
The same is not yet true for the Milwaukee area. Despite its size, much of the region’s early stage money is clustered at the angel network or small fund end of the spectrum. Most national venture capitalists have yet to find their way to Milwaukee.
One way to lure more of those dollars to Milwaukee is to salt the mine. Major companies in Milwaukee could take the lead in forming what is commonly called a “fund of funds,” a vehicle for pooling capital and investing in emerging firms.
One model in a comparable Midwest city is Cintrifuse. Established by the business community in Cincinnati, Ohio, Cintrifuse is a non-profit organization that has created a syndicate fund to invest in venture funds that have an interest in backing young companies in the region and beyond. Cintrifuse has nearly 30 corporate, foundation and academic investors, including Proctor & Gamble, Kroger and Western & Southern.
It grew out of business community leadership and a sense that Cincinnati’s future rested not only with legacy companies, but with new companies that might arise close to home.
Another Midwest example is the Renaissance Venture Capital Fund in Michigan. It was formed as an initiative by Business Leaders for Michigan, the state’s business roundtable, which is made up of CEOs and other senior executives from that state’s largest job creators and universities.
With offices in Ann Arbor and Detroit, Renaissance has raised two funds totaling $124 million since 2008 through investments by a number of major Michigan companies, foundations and other institutions. That list includes Ford, DTE Energy, Blue Cross Blue Shield of Michigan, Meijer and more.
Money invested in the Renaissance fund is re-invested in venture capital funds across the nation, bringing those experienced funds to Michigan in a physical sense – opening a local office is usually a requirement – to invest in the state’s promising startups.
Renaissance has invested in 22 venture capital funds so far, which is why Michigan has become home to a rising number of such funds and has experienced double-digit growth in venture capital dollars invested.
In 2012, the Renaissance Fund reported its first $16.7 million in investments in venture capital funds had helped bring $300 million to 20 Michigan companies, creating hundreds of jobs with an average annual salary at the time of $80,141. The story has only gotten better since in terms of dollars invested, venture capital firms located in Michigan and total assets under management.
“While other regions had attempted to attract venture capital as an economic development tool, never had the process been led by major businesses in the region who were willing to ‘go on offense’ to drive success,” wrote Chris Rizik, CEO and fund manager for the Renaissance Venture Capital Fund. Rizik also serves on the advisory board for Cintrifuse in Cincinnati.
Neither the Renaissance fund nor Cintrifuse are charities. Their investors want to make money, as do the venture capital funds in which they invest.
There is a sense of enlightened self-interest, however, that comes when mature industries recognize they have a role in helping nurture emerging businesses that revitalize local economies and communities.
There’s also a role to be played by the state of Wisconsin. It could start by making it easier for the state’s insurance companies ($425 billion in total 2015 assets) to invest in emerging funds. Some of those insurance companies have left Wisconsin over time thanks to outmoded state rules. Fortunately, there are proposed changes on the horizon that could keep them here while providing flexibility to invest.
Milwaukee has that cadre of major companies. It has experienced investors in the angel and small fund end of the spectrum. Increasingly, it has the right technical talent and ideas. What’s needed is a shared sense of urgency about reinvesting in the city and the region.