From the Publisher
Setting a net to catch startups
New venture fund aims to provide seed capital to potential high-growth entrepreneurs specifically in the Fox Valley
by Sean Fitzgerald, New North B2B publisher
It’s been 12 years since Wisconsin’s Act 255 began allowing special tax credits for investors supporting qualified new business ventures from the state. And while the venture capital and angel funding climate of Wisconsin is much warmer than it was a decade ago, the state still ranks near the bottom of the nation for new company formation and for available venture capital. Even here in northeast Wisconsin, where NEW Capital Fund has been providing early-stage venture capital for more than a decade, there’s still considered a shortage of investment capital available to help enterprising ideas materialize into commercial ventures. One reason – and perhaps a sound one, at that – is many VC funds won’t back business plans that don’t yet have any track record of turning a profit, much less generating its first dollar of revenue. That’s a much bigger gamble for any investor to take. That perceived gap in seed funding – often otherwise fueled by an angel investor, family, friends and the entrepreneur themselves – is where the start-up Winnebago Seed Fund hopes to make its mark. “(Many of the existing funds) don’t focus on pre-revenue. We think that’s the missing link,” said David Trotter, the 32-year-old who left a lucrative 10-year finance career this past spring to establish and manage the day-to-day operations of the Neenah-based fund. “I think we’re operating in two different segments. (Other investment funds) are looking a little bit further down the road.” Winnebago Fund is looking to invest specifically in northeast Wisconsin startups, Trotter noted, targeting an average of three deals per year for the first four years. Trotter is still seeking investors and needs to raise a minimum of $8 million in private investment. He expects the fund will begin seeking new business prospects to invest in by the end of this year. Trotter isn’t alone in trying to pull a few silicon startups out of his hat. The more substantial investment decisions are
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made by a committee of state and local startup professionals, including veteran investor Ken Johnson of the successful Kegonsa Capital Partners in Madison. Winnebago Seed Fund is one of the first two venture capital funds designated for investment from the Badger Fund of Funds, a state legislative directive created three years ago which will be managed through a partnership between Johnson’s Kegonsa Capital and Sun Mountain Capital of New Mexico. The goal of the $25 million state program is to invest in Wisconsin venture capital funds such as Winnebago Seed Fund that will in turn invest in Wisconsin-based new ventures. Together the partnership of Kegonsa and Sun Mountain raised an additional $11 million in capital from private investors, bringing a total of $36 million in venture capital to the Badger Fund of Funds. Once Trotter surpasses the $8 million mark for Winnebago Seed Fund, this Badger Fund would match 40 percent of the total amount raised. The strategy of seeking out pre-revenue firms for investment helps “get us in the door before everybody else,” Trotter said, but it also potentially sets up an earlier exit. Using Kegonsa Capital’s “Money for Minnows” strategy, the plan is to make various smaller dollar investments into a greater number of early-stage firms – the minnows – increasing the odds that one or more will erupt into second-stage companies and beyond. The amount of each investment would vary by company, Johnson said, but as a general rule of thumb, would be enough to provide 15 to 18 months of operating capital. Trotter indicated the firm is targeting smaller exits – and faster exists – than many of the more established venture capital groups in the state, with a goal of selling companies for an amount five times their annual revenue. Ultimately, Trotter feels the strength of Winnebago Seed Fund three to five years down the road will be its ability to help the Fox Valley companies it invests seed capital in find second and third rounds of financing further up the venture capital food chain. Fortunately, when the time comes, Trotter already has a robust network established for sources of capital across the state and beyond. The story that will eventually unfold around Winnebago Seed Fund is a story about helping launch companies that will create jobs here in northeast Wisconsin in years to come. It’s a story B2B will continue to share with readers as investments are made into area startups, those firms grow, and jobs are created across the New North. n
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