State investors calling for corporate fund of funds in Wisconsin

Inspired by the success of Michigan’s Renaissance Venture Capital Fund, some state investors are calling for companies to band together and create a comparable Wisconsin entity.

John Neis, managing director of Venture Investors, pitched the concept during a panel at the Wisconsin Entrepreneurs’ Conference, which took place this week in Madison.

“People are here at this conference and here in this room because they believe in the entrepreneurial potential of our state,” he said. “I think our business leaders believe the potential is here, and we ought to unleash it — so what are we waiting for?”

He pointed to the example set by Michigan’s RVCF, a corporate fund-of-funds which funnels money into venture capital firms in the state.

Big-name companies like Ford and La-Z-Boy support the fund, which — through asset managers that screen potential investees — has invested in over a dozen VC funds and has made several direct investments in health-related companies. And its impact on the Michigan economy has been “remarkable,” according to Tom Still, president of the Wisconsin Technology Council, which puts on the conference.

“It’s an effective 24 dollars into Michigan for every dollar invested,” Still said, emphasizing that this return on investment was achieved without limitations on where the fund can invest its money.

The Wisconsin-supported Badger Fund of Funds can only invest in Wisconsin-based groups. Other panelists said this stifles economic development, since the state only contributes to part of the fund, but restricts the flow of the entire money pool.

“That is a huge turn-off to a lot of investors,” Neis said. And Dan Einhorn, principal for Capital Midwest Fund, called this type of restriction “really problematic.”

Neis said that 82 percent of venture capital in the country is managed in just three states: California, Massachusetts, and New York. And those firms employ 81 percent of their capital in those same states.

“The rest of us are have-nots,” Neis said. “And it’s not just a Wisconsin problem, it’s a regional problem.”

Neis added that for some existing Wisconsin groups, like the State of Wisconsin Investment Board or the Wisconsin Alumni Research Foundation, investing in a corporate fund-of-funds makes sense because they wouldn’t need to tack on extra costs to examine opportunities.

“They already have the staff on board that has the skill sets to evaluate investors and funds,” he said, adding that partnerships between groups like these and less-prepared companies could help make a corporate fund-of-funds happen.

Since they might not have the professional staff with the right knowledge and experience, these companies could enter limited partnership agreements to share resources and minimize unnecessary costs.

“Then the fund-of-funds starts to make sense,” Neis said,like.

He said for this type of collaborative project to come together, corporate leaders will need to lead the charge.

“I don’t think it’s going to start with the chief investment officer,” he said. “It’s going to be the CEO who says, strategically, this is good for the state, this is good for our business, and goes to the CIO and says, ‘Tell me how we can make this work.’”

–By Alex Moe