Wisconsin’s early-stage capital program will begin with process and patience

If you doubted the pent-up demand for early-stage capital in Wisconsin, consider this note from a startup company founder before a bill creating a state-leveraged fund had passed the full Legislature:

“We’re eager to learn more about who we can contact, and how soon, about presentation opportunities for our company in front of the new fund. We believe we have a great story to tell!”

With hundreds of compelling startup company stories in Wisconsin, it’s no surprise that aggressive entrepreneurs would jockey to be first in line to make their pitch. That’s what good entrepreneurs do.

However, that line can’t form tomorrow. The Legislature has voted overwhelming to support a $25 million state investment in a larger “fund-of-funds” — and Gov. Scott Walker is likely to sign it into law — but the process of establishing the fund now enters a due diligence phase.

It will take several months before a private fund manager can be recommended by a committee led by the State of Wisconsin Investment Board, and that manager would need a similar amount of time to select four or more private recipient funds that would bring matching capital to the table.

It will likely be early 2014 before the fund is ready to make investments in emerging companies, and even then all the money won’t be invested at once. There’s no sense in force-feeding investment dollars to young companies; that money is better parsed out over time as those companies hit their milestones.

That’s all part of a “belt-and-suspenders” approach baked into the bill by legislators who understandably wanted to ensure the best interests of taxpayers are protected over time. It’s also how private early-stage funds work — especially if they want to succeed. Return on investment is a necessary goal, so venture capital must also be patient capital.

If there’s one certainty about the state-backed fund over time, it will invest in some companies that will fail. That is the reality of all angel and venture funds, which generally succeed over time because the investment failures are outnumbered by successes — at least in terms of dollars returned.

However, the long-term success of the state fund will be measured in two ways. The first way is traditional return on investment, in which the state will share just like the private partners. That return won’t be known for years. The second measure will be company and job growth, which more lawmakers care about over time. That type of economic “return” can be measured more quickly, depending on how quickly investment dollars are put to work.

One indirect result of the Legislature’s action is already being felt. Wisconsin has sent a message that other private investors have heard loud and clear: The state has faith in its startup economy. Those investors, many of whom are based outside Wisconsin, are already increasingly showing interest in what the state’s young companies have to offer.



Funds from California, New York, and Illinois are among those that have signaled interest in Wisconsin’s early-stage economy, in part because they followed the legislative process. That doesn’t necessarily mean those funds will invest in state-based companies, but at least they’re kicking some virtual tires.

In fact, the 2013 “Wisconsin Portfolio” report published in early June by the Wisconsin Technology Council showed that nearly half of the 74 angel and venture deals recorded in 2012 involved at least one out-of-state or international investor.

Within Wisconsin, a recent trend has been the launch of smaller, indigenous funds to make investments in emerging companies. Like outside investors, those homegrown fund managers know Wisconsin has strengths in medical imaging and other electro-medical equipment (third among the 50 states in jobs), electronics components (ninth), software publishing (10th), and much more.

It will take some time for the new state-backed fund to become operational, but entrepreneurs can safely begin polishing their pitches now. Money often attracts money, after all, and the Legislature’s vote of confidence is a magnet.

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