Wisconsin needs state-leveraged venture capital fund

Have you ever thought about the names of the marquee companies, headquartered in Wisconsin, that are our economic calling cards – Oshkosh Corp., S.C. Johnson, Johnson Controls, Manitowoc Company, Harley-Davidson, Briggs & Stratton, Johnsonville, Kohl’s, Kohler and Quad Graphics? These companies all have one thing in common: They were named after the Wisconsin municipality of their founding or the last name of their founders.

There is no truer evidence of entrepreneurial spark.

However, spark requires fuel to ignite and entrepreneurial spark requires capital.

That’s the problem. There is not enough venture capital in Wisconsin, a state that has all the other elements for success in today’s tech-based economy. The state’s assets include a strong tradition of entrepreneurship, above-average research and development investment, high production of patents and other intellectual property, and a skilled work force created, in large part, by the state’s education system. Wisconsin also has one of the strongest angel capital foundations in the country.

Why is this capital important? Venture-backed companies in the United States represent 21 percent of GDP – at an investment rate of about .2 percent. That’s a huge return. Those companies also represent 11 percent of the nation’s private employment. That’s 11.87 million jobs.

Wisconsin represents 1.84 percent of the nation’s population but only .55 percent of the venture capital investment. Worse yet, only .11 percent of the nation’s venture capital under management is by Wisconsin-based funds.

If Wisconsin received its proportional share of venture capital, that would mean 259,215 jobs today versus the 60,156 venture-rooted jobs created over time.

The Wisconsin Legislature has returned for a brief floor period this fall. Job creation and economic growth are likely to dominate the agenda. Lawmakers on both sides of the aisle and Gov. Scott Walker appear committed to getting something done.

One of the best ways lawmakers can help on both of these related fronts is to create a state-leveraged capital program for Wisconsin.

Thirty-five years ago, Connecticut launched the first state-leveraged venture capital program. Today, state-leveraged venture capital programs have been deployed in more than 30 states, including many of our neighbors and economic peers. 

The Wisconsin Growth Capital Coalition, a broad coalition of companies, organizations and angel networks and venture funds, examined Wisconsin’s standing versus peer states, neighboring states, U.S. population and other factors, and concluded Wisconsin could absorb nearly four times the investment dollars it receives today.

Last week, the 58-member coalition presented a comprehensive, 36-page white paper as a roadmap for the state on the best and most efficient way to leverage the state’s limited resources to catalyze these capital investments that will spur company formation, job growth and management talent in Wisconsin.

The report recommends the state:

* Create a state-leveraged “master” fund, called a fund-of-funds, that would invest in 14 to 20 venture capital funds over time. These recipient funds will raise an additional $350 million to $1.05 billion and commit to offices, staff and investments in Wisconsin.
* Catalyze the development of indigenous Wisconsin funds by committing a minimum of one-third ($117 million at the target of $350 million) to certified Wisconsin funds. These “home-grown” funds have existing structures, network connections and deal-flow pipelines, a portion of the money can be put to work quickly.
* Incent additional Wisconsin angel investment through the creation of accelerator funds. These smaller, targeted funds would co-investment with the angel networks and funds that are closest to the entrepreneurial action in Wisconsin. This would also enhance deal flow for venture funds later in the capital continuum.
* Invest across the full capital continuum, from seed stage to growth stages.
* Construct the program in a way that mitigates taxpayer risk and pays back the taxpayer’s investment.
* Competitively select professional fund management to bring experience, national perspective and existing co-investment relationships to Wisconsin’s table.
* Target industry clusters with high-growth, high-wage job creation potential.

Remember the program Connecticut launched 35 years ago? Today Connecticut receives roughly its population equivalent of venture capital investments and venture capitalists have since invested $6.6 billion in 502 Connecticut companies.

Over that same time period, 166 Wisconsin companies received $1.2 billion. More important, today 45 percent of the venture capital invested in Connecticut came from Connecticut-based funds; in Wisconsin it is 5 percent.

There is broad, bipartisan consensus that Wisconsin’s entrepreneurial ecosystem and overall economy need an accelerant. That accelerant is angel and venture capital.

The time is right for Wisconsin to get serious about developing sources of capital for high-growth, early and mid-stage companies.

Zach Brandon is the director of the Wisconsin Angel Network and a co-author the report. You can follow him on Twitter @z_2b. An online version of the report is available at: www.wisconsintechnologycouncil.com/publications/venture_capital.

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