Take Five With Brian Birk, Part I: Introducing Wisconsin’s venture capital captain

To manage a state-sponsored venture capital program established in 2013, the State Department of Administration has selected Sun Mountain Kegonsa, comprised of Sun Mountain Capital, a venture capital firm based in Santa Fe, New Mexico, and Kegonsa Capital Partners, the Wisconsin-based half of the partnership that’s led by Ken Johnson, a man familiar to the Wisconsin investment community.

Less familiar to Wisconsinites is Brian Birk, managing partner of Sun Mountain Capital, who will partner with Johnson as fund manager for the Wisconsin program. The $30 million fund-of-funds is comprised of a $25 million commitment established by the state in Act 41, the law that set up the state-sponsored program, plus $5 million raised by Sun Mountain Kegonsa and $300,000 raised by Birk and Johnson.

IB recently interviewed Birk to discuss how the program will work. Part I of our interview is below. Part II can be found here. (Note: Once the state’s contract with Sun Mountain Kegonsa is finalized, the new entity will create a handful of funds across Wisconsin to provide seed capital to early stage companies in a variety of industry sectors.)

Here are some excerpts:

IB: Part of your strategy is to build the state’s culture of investing and heighten the capital-raising expectations of Wisconsin companies with a “money for minnows” strategy that would spread venture capital across industries and locations. Can you explain the “money for minnows” strategy? It sounds like a departure from a venture capital firm’s typical portfolio strategy.

Birk: It’s not really a departure from the portfolio strategy, but rather it’s a departure from the investment stage at which they would like to invest. A venture capital fund usually has a portfolio with a diversified set of investments, and we would look at these venture fund managers as having the exact same approach. They would have a diversified set of investments. The key difference is that these managers would invest in very early stages, they would help entrepreneurs put together companies, and they might even put together the companies themselves. For example, acquiring the intellectual property from WARF (Wisconsin Alumni Research Foundation), hiring a management team, helping get some very early stage funding to actually help create the companies.

A traditional venture capitalist usually — usually — does not get involved at that early a stage. They let the entrepreneur do those things. They want to look at something that’s a little bit more fully baked. Do you have the team? Do you have the product developed? Do you have the intellectual property secured? Ideally, do you have some initial customer interest? Is there a beta product that we could look at? Venture capital money comes in at a little bit later stage.

Our belief is that the company creation phase is the place to focus. In order to get the bigger funds, the venture capitalists, to be interested, we need to have more minnows. Let’s get the early stage in the ecosystem going, and that will bring the venture capitalists, as opposed to if we just feed the venture capitalists, they might not find any interesting investment opportunities in the state. So let’s create those investment opportunities, and the venture capitalists will come.

IB: Can you evaluate the success of this type of strategy the same way you would with any other investment portfolio?

Birk: The way to evaluate the success of that strategy is to look at the overall mission of the program and to develop criteria that look at how that plays out. When I look at the overall mission of the program, it’s to create companies and jobs in Wisconsin, and to be a fiduciary with the taxpayer’s money, to invest the money so that it gets a financial return for the state. When I look at our strategy and where the emphasis is, again, on that company creation and early stage, that strategy should be much more successful in achieving that company creation and job growth than a traditional venture capital strategy.

We’ve seen that in other states that we’ve worked in, New Mexico being one example, where that has produced a good financial return, where it has created a very vibrant startup community, and where we have seen some real success in how this strategy has brought in very significant investment sums from funds all around the country, not just based here locally, but all around the country.

(Continued)

IB: Sun Mountain Kegonsa will create a handful of funds across Wisconsin to provide seed capital to early stage companies in a variety of industry sectors, but is another goal to use this program to populate the state with a new generation of young venture capitalists that could improve Wisconsin’s ability to deploy venture capital?

Birk: One of our goals is to create a sustainable venture capital community in the state of Wisconsin. When we look at sustainable, we mean venture capitalists who will raise one, two, three, or four funds before they hang up their cleats. Each fund has a 10-year life, so if you start when you are 60, four funds later, you are in your 80s.

The way you make this sustainable is with the younger generation of successful entrepreneurs who already have skills they can bring to help their portfolio companies. So we have some experience, some very relevant, direct experience, but they also have an appreciation for early stage technologies. They have a whole generation of investing ahead of them.

We believe venture capital is a full-time job. It’s not a part-time job that you do after you’ve retired from your career. To be successful, it requires very, very significant long hours; it requires a commitment to working 24/7. It’s a very challenging profession and it’s different than, for example, angel investing. You can do angel investing part time. To be a venture capitalist, you really do need to concentrate 100% of your time and energy on your portfolio and helping to build those companies because, believe me, they need help.

IB: Have you been able to cultivate a younger generation of venture capitalists in other states?

Birk: One of the great things, partnering with Ken Johnson, is that he’s a lifelong Wisconsinite. He went to the University of Wisconsin. I worked there for a number of years for GE Medical in Waukesha (GE Health Care Worldwide), but I don’t have a network like Ken does. He knows the entrepreneurs around the state. He has worked with, directly or indirectly, hundreds of people. We think his knowledge of the local waters will be extremely helpful in identifying that next generation.

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