The Wisconsin Investment Fund, a new resource from WEDC, is providing $50 million to boost innovative, young businesses that could energize the state’s economy for years to come.
The fund will partner with professional venture capital managers who will identify promising companies to invest in, and the venture managers will match the state’s investment in each of the companies. As a result of initial private match funding and subsequent funding of successful companies, WEDC expects to leverage more than $500 million in private small business funding over the next 10 years.
“This is a very powerful tool,” says Aaron Hagar, vice president of entrepreneurship and innovation at WEDC, which is administering the fund. “We are really enthusiastic about getting this off the ground. It will provide easier and better access to capital for startups, and it will increase the strength of Wisconsin’s investment community.”
The Wisconsin Investment Fund’s initial capital comes from the U.S. Treasury Department’s State Small Business Credit Initiative (SSBCI) as part of the American Rescue Plan Act.
The first step will be selecting the venture capital fund managers; once that step is complete, company investments will follow.
Interested fund managers have until March 27 to submit their responses to the request for qualifications on WEDC’s website.
Hagar outlines how the Wisconsin Investment Fund will work:
Q: What kind of venture capital fund manager does WEDC want to partner with?
A: We are hoping to line up several managers with different types of specialization to help create a variety of opportunities for businesses seeking funding. Venture capital funds will probably be the best fit, although other similar entities could be selected if they have the experience, structure, and dedicated funds necessary to meet the parameters approved by the Treasury Department.
Q: Who will choose the fund managers and what are the qualifications they will seek?
A: A committee of the WEDC Board of Directors with a spectrum of expertise in early-stage financing will review the proposals. The selection process will be competitive. Managers will need to have the matching funds and the capacity to manage the resources, and we will look at everything from their investment approach to how quickly they deploy funds to their expected return on investment. One of the committee’s roles is to identify the right mix of professional managers who will help us achieve multiple goals.
Q: Are the venture capital managers required to be located in Wisconsin?
A: No, there is no geographic requirement for the managers. All of the companies receiving the funds will be in Wisconsin, and regardless of where they are located, the managers will need to make a strong case that they are committed to finding strong Wisconsin companies to invest in so local funds will be well positioned.
Q: What kinds of companies would be strong candidates for funding?
A: Because it’s a venture capital program, this is meant to boost the early-stage technology and growth startup community—companies engaged in innovation with prospects for scalable growth. We have not set down requirements on the types of companies that should receive investments as those decisions will be up to the venture capital managers. Managers could select very early-stage biotech companies, right out of a lab at the University of Wisconsin, software companies gaining market traction, or anything in between. The key is that the Wisconsin Investment Fund is leveraging the expertise of private sector managers when it comes to finding promising opportunities.
It is worth mentioning that the Wisconsin Investment Fund is only one of the ways we support small business financing needs. We are also leveraging SSBCI resources to partner with nonprofit organizations that provide loans to small businesses. The Wisconsin Housing and Economic Development Authority is working with community development financial institutions to increase access to capital for businesses seeking more traditional forms of financing. Together, we project these resources will assist more than 940 businesses.
Q: Will a portion of the investments be required to go to companies that are historically underserved by venture capital, including those in rural areas?
A: We want to get these resources out as widely as we can and make them as accessible as possible. The federal funding we are using to launch the Wisconsin Investment Fund has a target of investing 29% in businesses that have historical lack of access to capital.
Q: How many companies might benefit from the Wisconsin Investment Fund, and how much of an investment could each company receive?
A: The number of companies receiving investments will depend on which managers are selected and their mix of investment strategies. With that said, we estimate more than 65 Wisconsin companies could receive funding over the next several years through the first cycle of funding. The number of companies will increase over time as the evergreen fund begins to recycle investments into new companies. We want to support as many companies as possible while still providing meaningful impact to a funding round, while also balancing the need to invest additional funds in companies that are proving successful to boost returns for the evergreen fund.
Q: How soon will the first investments be made?
A: We recently received approval and are moving as quickly as possible and developing the timeline. It will be a few months before the venture fund managers are announced, and then they will have to make decisions about which companies to invest in. We plan to provide more information as funds are selected and funding opportunities are available.
Q: What is your advice for companies that would like to be considered for an investment from the Wisconsin Investment Fund?
A: One of our goals in working directly with fund managers instead of companies is to make the process as seamless as possible for companies seeking funding. Companies will need to provide additional documentation as part of the investment process, though they won’t be applying to the Wisconsin Investment Fund in the traditional way. Companies should keep making connections and showcasing their concepts and should continue raising capital. In the meantime, subscribe to WEDC’s Launch Blog, get on WEDC’s email list, and keep an eye on our website for more information on funds we partner with and other resources that are available.
Q: What is your ultimate vision for this program and its impact on the state?
A: Since this is an evergreen fund, returns will be deployed as future investments in companies. We want to establish this as a revolving source of capital with long-term benefits to the state’s economy. If the private sector investors are successful, we will be successful as well. We know that companies developing new technologies and defining new markets provide high-quality jobs with good pay and offer opportunities for recent graduates, seasoned professionals, and people looking for better opportunities in a growing industry. We know from the Qualified New Business Venture Program that average salaries for innovation companies are more than $74,000 per year. These companies and the people they employ help to strengthen not just the communities they call home, but also the rest of Wisconsin’s economy.