Co-investing trend in Wisconsin can help startups in search for money
BrightStar Wisconsin Foundation isn’t your father’s venture capital fund. Self-described as a “venture philanthropy” group, BrightStar is a nonprofit organization that makes investments in emerging companies without any expectation the fund’s donors will turn a profit.
In fact, if BrightStar makes money on any of its six investments thus far in Wisconsin, it will pump it back into other emerging companies in the form of future investments.
The creation of BrightStar in late 2013 is the latest example of innovation in a sector that historically invests in innovation — angel and venture capital. As Wisconsin works to increase the number of startup companies in the state, funds and networks such as BrightStar will be a big part of making it happen.
In addition to its nonprofit, job-creation mission, BrightStar’s model is based on co-investing with other funds or networks. With an average investment of $100,000 so far, BrightStar is not taking the lead on any deal — at least, not yet, according to portfolio manager Todd Sobotka. That means BrightStar is focusing on deals already vetted by other investors, whether in Wisconsin or beyond.
“Co-investing is core to what we do,” Sobotka told a recent meeting of the Wisconsin Innovation Network in Wauwatosa.
BrightStar’s investment in Fishidy, a fishing social media company, built upon an investment in the Madison-based firm by Hyde Park Angels in Chicago and Central Illinois Angels in Peoria. It’s just one example of how Wisconsin investors are increasingly looking outside the state for syndication partners, especially in deals that may require more money.
The Wisconsin Technology Council and its Wisconsin Angel Network annually chart the state’s angel and venture deals. In 2012 and 2013, 160 such deals involved startups that raised a few thousand dollars to companies that attracted tens of millions of dollars. Nearly 70 of those 160 deals involved at least one investor from outside Wisconsin, and sometimes outside the country.
There are only a handful of venture capital funds in Wisconsin, but all of them co-invest with others beyond Badger state lines.
Calumet Venture Fund has five portfolio companies with three out-of-state investors — Hummer Winblad and Zetta Ventures in California’s Silicon Valley, and Baird Capital in Chicago.
Kegonsa Capital recently partnered with Sun Mountain Capital, a fund-of-funds based in New Mexico, to win a state contract to manage $25 million to be matched by private venture dollars. The contract was approved May 6 by the Legislature’s Joint Finance Committee.
When the Wisconsin Alumni Research Foundation and the State of Wisconsin Investment Board financed the $30 million 4490 Fund, the first step was hiring a manager with Silicon Valley experience to help shop homegrown deals on the coasts.
Funds such as New York-based Great Oaks Ventures have regular feet on the ground — and four investments — in Wisconsin. Ohio-based Drive Capital, started by investors with Silicon Valley ties, is poised to invest here. Other recent out-of-state investments have come from Chrysalis Ventures, Arboretum Ventures, Great Point Partners, Open Prairie Ventures, HLM Ventures, Summit Partners, and more.
Oh, yes, a little group called Google Capital recently invested $40 million in Renaissance Learning, a Wisconsin Rapids firm that quickly sold for $1.1 billion.
A number of these funds and others from outside the state have attended early-stage events in Wisconsin over time, such as the June 3-4 Wisconsin Entrepreneurs’ Conference in Madison.
Venture Investors, LLC, the state’s largest venture capital fund, has co-invested with more than 80 VCs over the course of its five funds. The list includes 12 California funds (five at least twice), 11 East Coast funds (four at least twice), four Texas funds, five international funds, eight corporate funds, and many Midwest funds.
“Since there are so few firms in the state, we have no choice but to syndicate with firms outside the state,” said managing director John Neis, who leads the firm’s health care practice.
Does the trend toward co-investing mean Wisconsin entrepreneurs can expect to see investors from coast to coast clamoring to bet money on their success? That’s not automatically so, based on national figures. Less than one in 10 business startups in the United States land angel financing — and less than one in 10 of that subset wind up in a venture capital fund’s portfolio.
Imposing statistics aside, it’s encouraging that non-Wisconsin investors are looking at deals in Wisconsin, and investors here are seeking them out. Dollars from outside Wisconsin spend just as well, and sometimes better, than those that can be found within its borders.
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