A spinoff of a Milwaukee 7 working group hopes to establish a $20 million corporate venture capital fund by bringing together several large Milwaukee-area corporations to invest in startups.
[caption id="attachment_334394" align="alignright" width="330"] Ed Javier[/caption]
The effort is being led by Ed Javier, co-founder of Milwaukee Startup Week and sales and marketing consultant at EMJ Consulting. He plans to put together a team with connections to some of the corporations to draw up proposals and approach them about pooling their capital in the fund.
Among the corporations the group would approach are Foxconn Technology Group, Brookfield-based Fiserv Inc. and a health care provider, Javier said.
“I have not directly been meeting with Foxconn, but Foxconn, through different groups, I know they want to be involved in the startup community,” he said.
At a Greater Milwaukee Committee meeting about Foxconn Monday, Metropolitan Milwaukee Association of Commerce president Tim Sheehy mentioned the company may invest in a venture capital fund in the region.
"The opportunity for Milwaukee is to start to develop off this (8K+5G) platform,” Sheehy said. “Foxconn has already talked about investing in a venture fund here to get people to develop on their technology platform. So it’s more than just the plant floor jobs that are there, it's the incredible impact of the technology that is coming as a result of this."
Sheehy did not return multiple calls seeking clarification on whether Foxconn would be investing in Javier’s fund, or a different one.
"We hope so," Javier said of a possible Foxconn investment.
Once the funds have been raised, the tentative plan is to deploy them in increments of less than $250,000 to startups in combinations of loans and grants, via a selective incubator or accelerator program, Javier said. This portion has not been nailed down yet, but would likely be modeled on the Arch Grants program in St. Louis, which provides equity-free grant funding as an incentive to attract startups.
“The corporate fund, we’re almost approaching it like, alright, we want to do something where these are more high risk, and we know most venture capital funds, they want to get a return somewhere,” Javier said. “These are more high risk and we want to look at this from a community standpoint. Not like a nonprofit, but it’s kind of like a mix of that.
“If we can build a great startup community, that just attracts the talent they need to run their companies on the development side. When I say they’re not going to get a return, the ROI might not be in dollars.”
But that could put the fund in the position of always asking for money, so a balance would have to be struck, Javier said.
“Trying to create an evergreen fund is ideal,” he said. “The goal would be to make sure that it’s entrepreneur-friendly.”
Marshaling Our Resources
The plan to create a corporate venture fund arose from a Marshaling Our Resources working group on startup funding. The M7 formed MOR early this year to create a more robust entrepreneurial ecosystem, and it is split into three groups, addressing mentorship, network coordination and access to funding.
The access to funding group included Javier; Todd Broadie, director of Milwaukee 7 Next Generation Manufacturing; Jason Graham, associate director of Brookfield-based Golden Angels Investors; Kerrie Hoffman of Milwaukee-based Silicon Pastures LLC; Todd Sobotka of BrightStar Wisconsin Foundation; Nathan Hammons, director of the Law and Entrepreneurship Clinic at Marquette University Law School; and Ian Favill, president of Milwaukee-based data-center-as-a-service provider Stack41.
Together, the group analyzed data from startup funding site Crunchbase to compare Milwaukee with other Midwestern cities when it comes to startup funding.
According to the group’s findings, in both 2015 and 2016, Madison, St. Louis and Minneapolis beat out Milwaukee in startup funding across the board, ranging from funding rounds of less than $250,000 to greater than $3 million. And from 2014 to 2016, about 50 startups were funded in Milwaukee at a total of about $100,000; about 120 startups were funded in Madison at a total of about $500,000; about 170 startups were funded in Minneapolis for a total of about $700,000; and nearly 200 startups were funded in St. Louis for a total of about $650,000.
Through the study and its discussions, the group came to the conclusion that a corporate venture fund would be helpful in the region, Favill said.
“They’ve been fairly ad hoc discussions. We just try to build on it from one meeting to the next,” Favill said. “It was also suggested that there aren’t as many potential investors in Wisconsin as there might be elsewhere. They were talking about the larger corporations, the corporations that have a vested interest in keeping young people and startups interested in Milwaukee. They mentioned some of the usual corporates, such as Rockwell.”
“Through our findings, we found some gaps that we needed to fill,” Javier said. “We’re really far behind Madison and St. Louis and Minneapolis for being the same size of city and pretty much having the same corporate culture. We have all this venture capital money, but there’s no money below that, and that’s what we’re trying to do with this corporate fund is address that gap.”
That’s when Javier began independently evaluating taking action on some of the findings.
“The way startups work is in order to get the $1 million ones, they have to get the first stage, which is under ($250,000). What we’re trying to do here is fill this gap where we don’t really have angel investors in Milwaukee. The definition of angel investors if you go out to the East or West coast is investing in ideas,” whereas Milwaukee angel groups sometimes require revenue and usually invest in increments greater than $250,000, operating like a mini-VC, Javier said.
Setting an example
One of the early corporations Javier and Broadie approached was Northwestern Mutual Life Insurance Co., which was already planning to invest in venture funding as a way to build a talent network and drive innovation from outside the company. The working group's findings helped confirm those efforts, Javier said. Northwestern Mutual last month announced it will team up with Aurora Health Care to invest a total of $10 million in Milwaukee startups through the Cream City Venture Capital Fund. It is also currently holding Reverse Pitch MKE to garner ideas from local startups, and plans to invest $85,000 in the winning company.
“We’re using NM and Aurora as the examples of the entities in the Milwaukee area that are getting involved," Javier said. "They stepped up, so now we’re going to use the peer pressure or get the bandwagon thing going to approach these entities to say, ‘Hey, you should do the same thing.’”
Broadie stressed the MOR working group is not involved with Javier's plans, and it is still in the idea-vetting phase, determining which of 12 ideas to pursue.
"Once that group decides which one or two of the 12 to work on and talks through its feasibility and everything else, then that’s when I would get involved,” Broadie said.
Brian Taffora, managing director at Milwaukee venture fund CSA Partners, said he’s not familiar with this effort to raise a corporate venture fund, but it would likely be beneficial to companies’ innovation processes.
“There’s a lot of corporations right now trying to innovate,” Taffora said. “They’re trying to figure out what innovation is and if it’s done internally or if they need to partner outside.”
The plan is to approach the companies over the next two to three months and then establish the fund within about six months, Javier said.
“That’s a stretch goal for $20 million. We’d be happy if we could get $10 million, but you have to go big or go home,” he said. “And if we can’t get it from the local corporations, that’s where we go beyond and say, ‘Let’s make this a Wisconsin thing, too.’”
Javier aims to work in cooperation with existing programs like gener8tor, either preparing companies to apply for an established incubator or providing follow-on funding after they have completed one, he said.
The new accelerator/incubator doesn’t yet have a name or a defined vertical, and the applicant profile would depend upon which companies decide to fund it and where those companies’ interests lie, Javier said. As of now, it would be open to the best new or existing companies in any sector.
The effort also includes plans to create a startup and technology hub in the Shops of Grand Avenue in downtown Milwaukee, which Javier has talked to the mall’s ownership about and expects to have a decision on by April.
“All the entrepreneurs want a single place to go to where they can get all the resources, and that’s essentially what the MOR team was trying to do,” Javier said.