Badger Fund of Funds ready to launch

The Badger Fund of Funds, seeded with $25 million in state money, will start writing checks to promising, early stage companies in late 2016 and within a few years will be investing in as many as 80 to 100 start-ups, the head of the new venture capital program told a Wisconsin Innovation Network (WIN) luncheon gathering on Tuesday.

Ken Johnson, a former WARF staffer who runs Fitchburg-based Kegonsa Capital Partners and has backed numerous early stage companies, said the seed money will go to nascent firms in all regions of the state and not just in Madison, where he said valuations are “outrageous.”

Johnson characterized his investment philosophy as “money for minnows” and said he is more interested in good managers than the “latest whizbang technology.”

He said he and fellow general partner Brian Birk, managing director of New Mexico-based Sun Mountain Capital, have raised $8 million in private money for the fund. That sum surpasses the $5 million figure required by the Act 41, which was passed by the Legislature in 2013.

Though Johnson said he knows that the majority of the companies in which he’ll invest struggle and some will fail, his years of experience as a venture capitalist and angel investor have shown him that one will be a big winner that reaps returns of 200 percent or more. One of Kegonsa and Johnson’s success stories is the on-line comparison shopping site known as jellyfish.com, which sold to Microsoft in 2007 for $50 million. According to published reports, Kengonsa put $600,000 into Jellyfish.com and earned back an impressive 15 times its initial investment when the company was sold.

Johnson said it’s also his aim to create spin-out companies and use the funds as a training platform to raise the next generation of Badger State venture capital managers. New blood is needed, he said, to boost the Badger State’s poor showing for startup activity in the country. The Kauffmann Foundation ranked Wisconsin 50th in the nation in a report issued this summer.

Johnson said he hopes to bring in at least another $2 million from private investors over the next year. Sun Mountain is in charge of raising money from institutions.

“One thing I’ve learned is that as soon as you make an investment, 80 percent of your investors think you’re an idiot,” he quipped. “So you have to make sure you’ve raised all your money first.”

He said the fund currently has five fund managers working for him who are doing “due diligence” research to determine if the startups are good prospects.

“It’s driven by the fact that all of us here in Wisconsin know that as soon as things go bad, it’ll become political and maybe even both parties will be after you,” he said. “We need to have documentation on everything.”

Though his top goal is to make a lot of money for investors, Johnson said he is bullish on the entire state and believes it’s important to have “geographical diversity” outside Dane County.

“I’m a big believer that there are (a certain number of) entrepreneurs per capita,” he said. “Maybe there are more entrepreneurs in Madison because there are more people here. But there is the same percentage everywhere in the state and the country. We just have to give them the opportunity to take their chance. You don’t have to stick close to universities.”

— By Brian E. Clark
For WisBusiness.com