The Wisconsin Investment Fund
Committee met for the first time Friday morning, just over a week after Gov. Tony Evers unveiled plans
for the new $50 million fund, funding which is coming from the federal government's American Rescue Plan Act. The committee, which is tasked with selecting venture capital fund managers to receive portions of the State Small Business Credit Initiative
funding and creating fund guidelines, learned exactly what parameters they need to work within.
The Wisconsin Investment Fund will work with VC fund managers and then match these companies’ own private investments on at least a one-to-one basis. The fund will only invest in Wisconsin companies. The goal of the fund is to partner with other venture capital funds in the state that are investing in Wisconsin-based startups.
“We’re always looking for ways to really expand WEDC’s footprint in a way that has a positive impact in Wisconsin and is less reliant on just taxpayer dollars. I think this type of activity is one of those things where success should lead to more success,” said Hank Newell, board chair of the Wisconsin Economic Development Corp., which is creating the Wisconsin Investment Fund.
SSBCI funding is intended to provide long-term leverage of $10 in small business lending and investment for every $1 invested.
Companies receiving SSBCI funding cannot have more than 750 employees and must average 500 employees or less. Loans and investments must have an average principal amount of $5 million or less and the overall business financing transaction cannot exceed $20 million.
“(The funding is) really thought of, at least in the beginning, of an umbrella over two, $25 million funding tracks funded by SSBCI,” said Aaron Hagar, vice president of entrepreneurship and innovation and sector strategy development at WEDC.
The first funding track is a direct model. This means the SSBCI funding is put into a sidecar fund. Selected fund managers then invest private capital through a primary fund. In this scenario, fund managers are not able to accept an investment fee. They will most likely be compensated through some portion of investment returns.
The second track is called a funds model. This means both SSBCI funds and private money are put into a single pool of capital.
All of the SSBCI funding will be released in three roughly equal waves. To get the second funding round, the Wisconsin Investment Fund must use 80% of the initial round. If the investment fund does not use 80% of the first funding round by the three-year mark, it will lose access to the second and third funding rounds.
Funding from other states could also be re-allocated if those states do not meet these guidelines.
A portion of Wisconsin’s SSBCI money must also be allocated to SEDI-owned businesses, or businesses owned by socially and economically disadvantaged individuals. This is determined by a business owner’s background and the geographic location of their company.
“We certainly want to provide as much capital as possible to businesses that meet that definition because Treasury (Department) could re-allocate dollars under the SEDI portion of federal funding to states that are doing well,” said Hagar.
Selecting fund managers
The Wisconsin Investment Fund Committee is still in the process of selecting which fund managers it will work with. So far, the committee has received 14 initial responses from managers interested in taking part in the program. Additional responses are still being accepted until March 27, at which point the committee will begin reviewing applications.
The committee’s members include Elaine Stephens
, head of customer engineering for Google in Wisconsin; Anne Smith
, co-founder of the Law & Entrepreneurship Clinic at the University of Wisconsin Law School; John Brogan
, CEO at The Bank of Kaukauna; Toni Sikes
, co-founder and CEO at CODAworx; and Willie Smith
, executive director of the Milwaukee-based Northwest Side Community Development Corp.
“We’re vetting our fund managers. We’ve gathered this committee with a very high level of subject matter expertise to figure out who we should give these funds to and who has the experience and ability to meet program objectives,” said Maya Haese
, senior staff counsel at WEDC. “We’re also internally reviewing each transaction and investment against our investment checklist prior to funding.”
Every fund manager will be subject to an audit to ensure they comply with their individual contracts. SSBCI funds cannot be used to support investments that would benefit any individual committee member. There is also a 12-month “look-back” period in place. If a committee member had a business partner a year ago, that business partner is not able to receive funding.
“There’s lots of places where something like this could result in accountability issues,” said Newell. “Having a strong set of controls around this – every step of the way -- is really important.”