Viewpoints: A public-private model, Badger Fund of Funds is performing for Wisconsin

Nearly a quarter of the Wisconsin legislators sworn into office this month are new to the Senate or Assembly this session. Compared to just six years ago, more than half of the Legislature’s 132 faces in 2023 are new.

Fresh blood has its merits, but there’s a learning curve for lawmakers who assume office with little or no knowledge of programs and policies enacted before their time. That’s true for everything to tax policy to social services; it’s also true for public-private investment programs such as the Badger Fund of Funds.

The Badger Fund of Funds is an umbrella for five early stage capital funds spread across Wisconsin. It was funded by the governor and Legislature in the mid-2010s, spent the next few years matching that $25 million with twice that total in private dollars, and it began investing in the late 2010s. Under rules set by the Legislature at the start, it can only invest in Wisconsin-based companies.

The mission is to make money for all investors (including the state) over time, but also to provide a secondary “return” in the form of jobs, higher salaries and momentum to Wisconsin’s startup and technology-based economies.

By most measures, the Badger Fund of Funds is hitting those marks. As of Sept. 30, 2022, the five funds had invested in 36 companies, of which 31 were operating, two had “exited” – meaning, sold for a financial gain – and three had been shut down.

In the angel and venture capital worlds, company failures are a risk that comes with the business, so losing three of 36 thus far is well within the norm.

Operating companies have collectively produced about 200 jobs with a quarterly payroll of $4.34 million, which works out to an average salary of more than $90,000 per job. That compares to the median Wisconsin household income of $63,300, which means those 200 jobs buy more goods, pay more taxes and generate more economic benefit than the median.

The Badger “family” is made up of the Idea Fund of La Crosse, the Winnebago Seed Fund, the Gateway Capital Fund, the Winnow Fund and the Rock River Fund, each with separate management teams, different geographic bases and distinct approaches to the market.

A typical Badger first-round investment has been around $400,000. For every Badger dollar invested by those five funds so far, another $5 has been invested alongside it by other angel and venture capitalists.

Many of those side-by-side investment dollars have come from outside Wisconsin. The list includes 14 out-of-state venture funds that might have otherwise overlooked Wisconsin early stage deals.

That’s another secondary return for Badger: Attracting out-of-state dollars to Wisconsin startups.

Because the five recipient funds within Badger can only invest in young Wisconsin companies, all that local money stays home along with the non-Wisconsin dollars.

An encouraging statistic is that current portfolio companies are attracting additional rounds of investment, which can bring them closer to long-term success and profitability. In 2022, there were more “follow-on” investments in Badger companies than there were initial investments in its startups.

So, why is this important to the 2023-24 edition of the Legislature? More state investment in the early stage economy should be a part of the debate as lawmakers consider the next two-year state budget.

A plan for a $100-million “fund of funds” to invest in larger increments than Badger was proposed two years ago, and something similar could resurface. The goal would be to attract more out-of-state investment and bigger rounds for emerging companies, an approach followed in some other states.

With a $6.9 billion state budget balance expected June 30, there will be no shortage of ideas for how to spend it, return it or sock it away. Because much of that surplus is “one-time” in terms of its source, another logical approach is to invest some of it in Wisconsin’s future economy – which includes young companies and the young workers who often come with it.

That investment should be done in a way that avoids the skeins of sticky yarn that slowed Badger in its early years. Whether it’s reinvesting in Badger, building a new public-private fund with fewer statutory strings or a blend, the basic model is working; let’s improve on it.

Tom Still is president of the Wisconsin Technology Council. He can be reached at tstill@wisconsintechnologycouncil.com.

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