Risk-averse Milwaukee makes raising money difficult

12 Jan Risk-averse Milwaukee makes raising money difficult

Posted at 12:40h in Commentary, Economy, Entrepreneurs, Venture Capital by

It’s hard to find someone who cares more about the economic vibrancy of the Milwaukee area than Tom Schuster, a seasoned corporate executive and turnaround expert who is now the managing general partner for the Wisconsin Super Angel Fund.

That doesn’t mean Schuster is above expressing a little tough love when it’s needed.

Schuster spoke Thursday at a meeting of the Wisconsin Innovation Network in Wauwatosa, where he outlined the investment goals for the $9 million fund while pointing out just how hard it is to raise such a fund in a financial risk environment that may be too cautious for its own good.

“I can’t tell you how hard it is to raise money,” Schuster told about 80 listeners. “It’s not only hard to gather the funds, it’s hard to make a deal.”

That’s true across Wisconsin, he said, but especially so in the Milwaukee region, where legacy companies still dominate and people with money are even more reluctant than usual to part with it — even if they realize southeastern Wisconsin needs more entrepreneurs.

“It was absolutely like pulling teeth from a chicken,” Schuster recalled as he talked about raising the initial $5 million needed to get the Wisconsin Super Angel Fund launched nearly two years ago.

Minimizing risk

The good news: The fund has since invested in six companies in Milwaukee, Madison and central Wisconsin, which cover sectors ranging from software to battery technology, and from machine tools to cranberries.

He’s also optimistic about ideas he sees in the pipeline — although he’s quick to remind entrepreneurs that it takes a lot more than a brainy concept to make a business investment-worthy.

To that end, the Wisconsin Super Angel Fund is like a number of other early stage funds recently launched or in the process of organizing. They’re all competing to find their own funding sources — companies, foundations and high net worth individuals — while working to minimize risk in deals that may rise to the top of the pile.

For Schuster, the “de-risking” process starts with entrepreneurs who are willing to put together a team and be open to creating an outside board of directors. He also advised emerging companies to apply for the Qualified New Business Venture program run by the Wisconsin Economic Development Corp., a successful program that allows investors in vetted companies to qualify for state tax credits.

For the most part, emerging companies in Wisconsin are open to advice and there’s far more help available to them today than 10 or even five years ago. That includes a number of accelerators, incubators and business mentor programs, as well as venues such as the Wisconsin Governor’s Business Plan Contest, which is open for entries through Jan. 31 at govsbizplancontest.com.

New investors

There are more investors on the scene, as well. In addition to the Wisconsin Super Angel Fund, recent additions include:

■ BrightStar Wisconsin Foundation, a venture donation program based in Milwaukee.

■ 4490 Ventures, a $30 million information technology fund with money from the State of Wisconsin Investment Board and the Wisconsin Alumni Research Foundation.

■ CSA Partners, a venture capital fund backed by Milwaukee County Executive Chris Abele.

■ Madison HealthX Ventures, which is expected to make its first investments this year.

Meanwhile, the State of Wisconsin has invested $25 million in the Badger Fund of Funds, which is raising its own matching dollars and will seek to partner with at least four “recipient funds” across Wisconsin.

That process will unfold throughout 2015 with the first investments expected either late this year or early in 2016. However, many observers say the fund should grow over time if lawmakers want to see solid results.

A number of angel networks, angel funds and venture capital funds continue to work with emerging companies. Those include the Golden Angels Investors in Milwaukee, Wisconsin Investment Partners in Madison, Chippewa Valley Angels in Eau Claire, Capital Midwest Fund in Mequon, Kegonsa Capital in Madison, Venture Investors in Madison, the NEW Fund in Appleton and Baird Capital, a Chicago fund with offices in Wisconsin and historic roots in the state.

Welcome to Wisconsin

Perhaps even more encouraging is that investors outside Wisconsin have found the road map.

Recent investments have come from Great Oaks Ventures, Drive Capital, Chrysalis Ventures, Arboretum Ventures, Great Point Partners, Open Prairie Ventures, Chicago Ventures, LightBank, Hyde Park Ventures, Google Capital and more.

On balance, prospects for more early stage investments in Wisconsin appear better than they have been in years — and the tentative deal figures from 2014 support that impression.

The devil lurks in the term sheet details and the overall investment climate, however, as veterans such as Schuster can testify. Let’s hope 2015 is the year Wisconsin breaks through for risk-takers such as him.

Recent articles by Tom Still

Tom Still is president of the Wisconsin Technology Council and the Wisconsin Innovation Network. He can be reached by email at communications@wisconsintechnologycouncil.com.

The opinions expressed herein or statements made in the above column are solely those of the author, and do not necessarily reflect the views of WTN Media LLC. WTN accepts no legal liability or responsibility for any claims made or opinions expressed herein.