There is one thing I especially like about the Wisconsin Competitiveness Fund, the new capital formation plan devised by former city of Madison economic development director Tim Cooley, and a cast of several. Although not meant as a slap to coastal investors who've done their best to ignore us, it takes a long overdue "grow-your-own" approach toward capital formation. It's about time.
In his new role with the Wisconsin Economic Development Corp., Cooley proposes to create a $500 million fund that the Legislature should take seriously, especially with the public focused on a lack of economic progress. The plan follows the collapse of the "Fund of Funds" approach, which relied on the controversial CAPCOs that funneled capital elsewhere.
Key components include funding via tax credits to help fast-growing "gazelle" companies (those growing at 20% or more per year), in-state fund management (critical for a Wisconsin perspective), and a true statewide focus that is "industry agnostic" and doesn't only look for deals in the Madison-Milwaukee corridor. That means the technology and biotechnology industries won't be the only beneficiaries, and that legislators throughout the state, where universities outside of Madison engage in their own discovery for tech transfer, have a very good reason to get on board.
Cooley, who had been involved in a similar effort in southern California, said this is the first state program to take a hybrid approach that takes the best parts of what's already been done and combines them with what is needed specifically in Wisconsin to support new business formation and job growth. In effect, he has developed a framework to address what he calls the entire spectrum of early- to expansion-stage equity capital needs.
"Some of these are things that, knowingly or not, the original proposals didn't address," Cooley noted. "They were concentrated only on traditional venture capital. The problem with that? Most opportunities in Wisconsin that need growth capital are not venture capital-level deals. They may be in industries not focused on by VCs or have growth potential in the $25 to $50 million level in sales, far less than what a typical VC would normally look at."
Nevertheless, these companies are candidates for good returns on investment.
The Wisconsin Competitiveness Fund has four distinct investment strategies: First is the Wisconsin-based Angel Co-Investment allocation, matching the initial angel investment round up to a maximum of $250,000 on the same terms and conditions as angel investors; the second allocation will be to the Wisconsin-based New & Emerging Venture Funds to build up bench strength among professional investment teams and get them dispersed throughout the state; the third allocation would be for Wisconsin-based follow-on investments for deals that originally have been funded under the Angel Co-Investment and New & Emerging Funds strategies and now require another round of financing; and the fourth allocation pool would be used to invest in regional and national top-performing funds so that Wisconsin has syndication potential to bring money in from the outside.
As for industry types, Cooley points out there is a tremendous amount going on in Wisconsin that doesn't fit into one of the technology domains that typically attract funding. For example, specialty food and beverage manufacturing are big here, and there's an international market for those companies and their brands. Water and agricultural technology, basic manufacturing, OEMs, financial services, and gaming for entertainment, training, and education also have growth potential.
For Wisconsin, the stakes are high, according to Cooley. "If we don't or can't create the opportunities here," he noted, "we lose our most valuable resource to places that support new businesses to start, take root, and grow."
For IB's recent discussion with Tim Cooley on the Wisconsin Competitiveness Fund, click here.
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