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Public-private venture capital “fund of funds” under consideration for creation in Wisconsin

May 18, 2021
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For a long time, in some cases years, economic development groups including the Wisconsin Technology Council and the Wisconsin Startup Coalition have advocated for the creation of a large public-private fund of funds to attract venture capital for Wisconsin’s growing tech industry.

According to a PwC MoneyTree report cited in Governor Tony Evers’ 2021-23 Budget in Brief, Wisconsin’s share of venture capital investment over the past 20 years has been one of the lowest in the country, averaging between 0.01% and 0.5% of the national total.

“We have been trailing our neighbors. We’ve been leaving money on the table,” says WEDC Deputy Secretary Sam Rikkers. “We have just as good, if not better, businesses. We have just as good, if not better, universities to attract those dollars. So let’s bring it here.”

Sparking entrepreneurial investment

 State legislators on both sides of the aisle agree that growing Wisconsin’s entrepreneurial environment is vital to the state’s economic success, and that this growth requires venture capital investment.

The $25 million Badger Fund of Funds was created in 2013 as one way of addressing this deficit. Since then, its portfolio of venture capital funds has leveraged an average of $3.30 in private investment for every dollar they’ve invested.

“I think we’ve just scratched the surface with the Badger Fund of Funds. You have to create that ecosystem, because you have emerging companies and emerging technologies, and they have to have access to capital. Without that, we lose companies, we lose workers, we lose tax base—so it’s something that’s very important,” state Rep. Mike Kuglitsch (R-New Berlin) said in a March 24 Wisconsin Technology Council webinar. Kuglitsch is co-chair of the state Legislature’s Tech Caucus and was one of the bipartisan sponsors of Act 41, the legislation that created the Badger Fund of Funds.

The Wisconsin Fund proposal  

Pointing to the success of the Badger Fund of Funds, Governor Evers’ 2021-23 proposed budget includes the creation of a larger, $100 million venture capital fund of funds. This proposed Wisconsin Fund would be similar to public-private venture capital initiatives launched in Indiana, Ohio, Michigan and Illinois in recent years to attract outside investment.

The governor’s proposal includes a required two-to-one match of private to state dollars, with a maximum investment of $25 million in any one fund receiving Wisconsin Fund dollars. It also requires that 20% of all investments be earmarked for underserved communities, including minority- and women-owned businesses and those in rural areas.

Separately, the governor’s proposed budget recommends waiving the requirement that the Badger Fund of Funds program repay its initial funding, so that it can continue to invest.

Building on the Badger Fund of Funds

 The proposed Wisconsin Fund builds on the lessons state economic development experts have learned from the Badger Fund of Funds and programs like the Qualified New Business Venture (QNBV) tax credit.

“I think the Badger Fund of Funds has been such a success for Wisconsin,” Rikkers says. “Rather than being in competition with the Badger Fund of Funds, this would, as I see it, be an outgrowth and really fund the next phase of the Badger Fund of Funds companies and others.”

The most obvious difference between the two funds is size. The five venture capital funds that make up the Badger Fund of Funds portfolio focus their investments on seed- and growth-stage companies. The size of the proposed Wisconsin Fund—$100 million in public funds matched by at least $200 million in private commitments—would allow it to invest in Wisconsin companies at all stages of growth.

Where the Badger Fund of Funds is overseen by the Department of Administration, the Wisconsin Fund as proposed by the governor would be managed by WEDC. According to the Governor’s Budget in Brief, “By locating this fund of funds program at WEDC, this venture capital initiative will be able to utilize WEDC’s extensive relationships with businesses across Wisconsin to ensure that promising new businesses can be matched with necessary investment capital.”

Rikkers points out that WEDC programs like the QNBV tax credit help get businesses get started in Wisconsin, but “all too often we see those businesses, when they’re looking to grow, leaving Wisconsin and going to where their capital is from.”

Next steps

 The 2021-2023 biennial budget won’t be finalized for weeks or months yet. Whether the Wisconsin Fund represents an evolution or an expansion of the Badger Fund of Funds, Rep. Kuglitsch notes that there are still a lot of details to be addressed before the proposal can make it through the legislature in any form.

That said, a bipartisan group of eight former secretaries of WEDC and the Wisconsin Department of Commerce recently announced their support for the Wisconsin Fund plan.

“I don’t know of a better way we can draw a magnet to all the incredible investment opportunities we have in Wisconsin to the capital that seems to be locked on the coasts and has been for too long,” Rikkers says.

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