Two lead representatives from Sun Mountain Capital, the fund managers for the developing Badger Fund of Funds, want to bring a “minnow” funding approach to venture capital in Wisconsin.
Brian Birk, a managing partner at Sun Mountain Capital, said the current number of organizations focused on companies looking for smaller, “minnow” investments “is almost nonexistent.”
Instead, companies looking to put their footprint in Wisconsin must angle for venture capital funding from companies located on the coasts. Those companies are generally only interested in traveling to Wisconsin for major investments.
“Our goal is to get a lot of companies launched that will prove themselves in the marketplace,” Birk said, explaining that small investments between $400,000 and $800,000 could mean nearly 10 times as many new companies compared to a large-investment-only approach. “We want to
make small investment increments that over time will win over the market and improve to where
they can attract 10, 20, 30 million dollar investments.”
Birk and Sun Mountain’s Lee Rand spoke Tuesday in Madison at a monthly meeting of the Wisconsin Innovation Network. Rand said that smaller investments could also allow upstart companies to have 10 or more different funding sources instead of just one or two. With greater diversity in funding comes greater diversity in knowledge bases and ultimately, as Rand said, “a whole new world of opportunities.”
More options also become important because venture fund deals are often made or scrapped because of subjective personal feelings.
“We want to make sure that ideally every entrepreneur in Wisconsin has not only one opportunity to get funding but an opportunity to get four or five shots on goal,” Birk said.
The Badger Fund of Funds was born through a Wisconsin law, Act 41, which was passed last session. Under the law, the fund will contain at least $30 million, with $25 million from the state, about $5 million of private capital and $500,000 from Sun Mountain Kegonsa. Birk and Sun Mountain Kegonsa will then pick at least four venture capital funds to invest with those chosen venture funds in turn picking businesses with which to place their money. Any venture capital fund hoping to get money from the Badger Fund of Funds will have to match the money they receive two to one.
Sun Mountain Kegonsa resulted from a partnership between Sun Mountain Capital, which has managed such funds in the Southwest and Mexico, and Kegonsa Capital Partners, a Wisconsin- based fund that has invested in several Wisconsin companies. Birk and Rand used their past experience with Sun Mountain Capital in states like New Mexico to talk about how their smaller approach will work well with Wisconsin.
They said Wisconsin fits several of their main “building blocks” for a strong place to run a fund of funds and push venture capital, including the presence of research universities and Fortune 500 companies, as well as a strong technology base and a nascent entrepreneurial economy. But Birk said Wisconsin is clearly not realizing its potential when compared to other states. According to his chart, California, a hotbed for venture capital, has about $786 venture capital dollars per capita while Wisconsin only has $13.
“This spells opportunity,” Birk said.
Changes in the state’s venture capital and economic ecosystem will take time, according to Birk and Rand, but there is hope the new atmosphere and availability of capital created from the fund of funds would make Wisconsin a more attractive location for national and international businesses and venture capital firms.
“You start to pull talent here and then that talent pulls other people and ideas here,” Rand said. “These things can then take on a life of their own.”
Sun Mountain Kegonsa is scheduled to start working toward organizing capital and looking for potential venture funds over the next six months, according to Birk.
“We feel confident putting our own funds into this proposal,” he said. “We hope it will achieve the goals of Act 41 which will create a sustainable and robust ecosystem here to ultimately spur job growth and creation in the state.”
— By Jack Casey
WisBusiness.com
