12 Mar Visions: Carbone bullish on Wisconsin venture capital
Baird Venture Partners, the U.S. venture fund of the Baird Private Equity platform, has followed up on its presence in China by partnering with the Indian investment and advisory firm Tholons, Inc., to serve portfolio companies as they establish a foothold in the Indian market. In the following interview with WTN, Paul Carbone, managing partner of Baird Venture Partners and director of Baird Private Equity Group, explained the venture fund’s pan-Asian strategy and why he’s bullish on Wisconsin’s ability to attract venture capital.
Excerpts are as follows:
WTN: What can your new presence in India do for your portfolio companies?
Carbone: We’re active in supporting the growth of our companies, so we have an operational approach to developing and growing these businesses. What we’ve found is that as you work with middle-market and growth companies, it’s critical to provide the resources, the talent, and the access that they wouldn’t necessarily have on their own. That was one of the reasons we initially launched our presence in China – to support our companies as they take advantage of the opportunities of Asia and deal with the competitive threats from Asia.
We have 300-plus employees of our various portfolio companies already in India, and we made the decision that we really needed to be on the ground there to help our companies take that next step to execute their strategies.
WTN: Can you cite a specific company that has a presence there, and what this can do for them?
Carbone: If you look at early-stage businesses, what’s exciting about India is you can scale, rapidly scale, younger businesses by leveraging the talent of India, and therefore make the U.S. businesses that much stronger, that much more efficient, and allow them to steward their limited capital base much more effectively.
We have a company in our portfolio called True Advantage that needed time-intensive, labor-intensive back-office activities that would have chewed up capital for this young growth company. What we found is that using some specific talent and resources in India, we could execute the company’s business plan faster and more economically, and build a U.S. business to be a much more competitive business by leveraging those resources.
WTN: When some hear news about an association between an American company and India, they might think in negative terms like offshoring. Why don’t people view this as mutually beneficial?
Carbone: Well, I think, fundamentally, it is mutually beneficial. I made the point that on the venture side, it allows these young U.S. companies that are capital constrained to use their cash most effectively. Fundamentally, we’re U.S. investors, and so what we’re about is growing U.S. businesses as rapidly as we can, as cost effectively as we can, to serve an ever-changing competitive marketplace.
And again, it’s not just a question of savings and outsourcing. It’s a question of revenue opportunities and growth and competitiveness, so it’s not necessarily an issue that outsourcing is bad, it’s an issue of let’s use the tools and capabilities of a global marketplace to make our U.S. businesses stronger.
WNT: And eventually, will that translate into job growth here?
Carbone: Absolutely. I don’t think there’s any question that if we can make the companies more cost effective and access markets on a global basis, we’re going to generate revenue growth, and revenue growth will translate into more jobs and better jobs here in the states.
WTN: Although incremental progress has been made, why does Wisconsin, with all of its sophisticated science and success stories like Berbee and TomoTherapy, still lag so far behind other states in attracting venture capital?
Carbone: I think it’s absolutely critical that we put that question in the context of where we’ve come from, and where we think we can go. When Baird launched its private equity business back in the late 1980s, and you compare the venture environment and venture activity in this state over the last five, 10, 15, 20 years, the progress has been phenomenal.
Venture is not a business that you evaluate on a quarter-by-quarter basis. Venture is a business that you evaluate over the course of years, and so I think we’ve made a lot of progress here.
Second, there’s no question that we have lots more to do, but the opportunities are attractive. I think people need to remember that. We’ve got all the basic elements here in Wisconsin: tremendous technology coming out of places like the UW, Marshfield Clinic, and the Medical College. You’ve got interesting opportunities with which to source and back management teams.
We’ve got a developing and burgeoning entrepreneurial community here in Wisconsin, and we’ve got the beginnings of serial entrepreneurs. We’ve got management teams coming out of larger corporations who bring experience and talent and capabilities to work with smaller businesses.
And then, finally, there really is capital. It may not be as prevalent up and down the maturity curve as we would like, but capital finds opportunities where the barriers are low.
WTN: Prior to the repeal of the shareholder wage lein law, those in the know said outside investors considered Wisconsin a fly-over state. To what extent has that changed?
Carbone: One of the important things is that as you work with younger and younger companies, the capital base of those companies tends to be more regional in focus. So what’s important is if there are venture firms outside this region that are interested in investing here, they will look to local players to help them establish a beachhead to be the local lead for local companies.
One of the key issues, though, is they are going to look to local players, especially if it’s a younger company, to play that local lead and help these companies along. And that’s why I think the local venture community, the local network of angel investors, is absolutely critical because that will form the basis of business growth that will attract funds from outside the region.
When we syndicate investments here in Wisconsin, we talk to regional players and coastal players to bring in the best talent, the most appropriate capital to build these companies. So it’s natural to think about this being a fly-over state. Most venture capital is, in fact, deployed on the coasts, but we’ve got the elements of attractive opportunities in Wisconsin and the Upper Midwest, and if we can put together those right elements of capital, technology, and people, with the right local leadership from a venture point of view, you will find that as these companies mature and require more and more capital, syndicates will include investors outside the region, including coastal venture firms.
WTN: Do you think the proposed Wisconsin Venture Center has a chance to make a significant difference?
Carbone: I’m for anything that improves the capital formation activity and lowers barriers to access and information. So anything that improves that, and does it effectively and efficiently, I’m supportive of because that’s what this is all about – having access to information, communicating that information to the right investors, and making sure there is a free flow of capital into the community.
So with the venture center here in Wisconsin, I think it could be a very interesting idea if we can make sure it gets done economically, efficiently, and doesn’t duplicate other structures that we already have.
WTN: Is there a missing link?
Carbone: Management is absolutely critical to these young companies, and we need professional managers who can take and build companies and use scarce capital to maximize the opportunity of the technology. So we need to do whatever we can to retain the talent that we have and attract talent from outside the state, and to me that’s the piece that needs additional work.