13 May Progress of Badger Fund of Funds matches trends in early stage investing
Ken Johnson, the veteran Wisconsin investor who is a partner in the Badger Fund of Funds, has held true to his vision from the start.
Even before the Badger Fund of Funds was officially seeded in 2014 with a $25-million investment from the state of Wisconsin, Johnson described the early stage fund as “money for minnows” to be led by young, regionally focused managers.
In time, Johnson predicted, those 30-something managers would be seasoned enough to raise second and third funds – boosting return on investment for everyone, including the communities in which the funds were rooted.
Two years later, the vision shared by Johnson, of Fitchburg-based Kegonsa Capital Partners, and his business partner, Brian Birk of New Mexico-based Sun Mountain Capital, is taking shape.
Two announcements this month reflect the regional fund approach that persuaded the Wisconsin Legislature and Gov. Scott Walker to invest in the Badger Fund of Funds three years ago, well before Johnson and Birk were selected in a competitive process to run it.
The Idea Fund of La Crosse was the first “recipient” fund to be announced. It will be managed by Jonathon Horne, a La Crosse native who previously worked in investment banking at J.P. Morgan in New York. He was recommended by community leaders in La Crosse, Johnson said. Horne, 32, once worked part-time for the Wisconsin Technology Council’s Wisconsin Angel Network.
The Winnebago Seed Fund was the second recipient fund to be announced. It will be managed by David Trotter, 32, a northeastern Wisconsin native who most recently was a portfolio manager at Legacy Private Trust Co. in Neenah. He is a Chartered Financial Analyst and a graduate of Marquette University’s Applied Investment Management Program.
Just as the Idea Fund of La Crosse will focus on seed-stage investments in western Wisconsin, the Winnebago Seed Fund will drill down into Wisconsin’s Fox Valley, mainly Appleton, Neenah and Oshkosh.
Both funds must raise a minimum of $8 million in private dollars. The Badger Fund has committed to make a matching investment of 40 percent of any money the new funds raise, Johnson said. Also, both funds will invest in the newest of start-ups, regardless of industry sector.
It’s not yet known how many recipient funds will eventually be tied into the Badger Fund of Funds, but at least a half-dozen and potentially more will be created if Johnson and Birk meet their milestones. That’s why it’s called a “fund of funds;” it’s a network of smaller funds tied into the main fund.
A lot of heavy lifting must take place before investment dollars flow to Johnson’s “minnows,” those young startups that promise to grow into much bigger fish. However, the climate for early stage investing in Wisconsin continues to improve, which could make that always-risky asset class more appealing.
More than 100 early stage deals were closed in Wisconsin in 2015, according to tracking by the Tech Council. Those details will be published later this month as part of the Tech Council’s annual “Wisconsin Portfolio” report.
So far in 2016, 38 Wisconsin deals worth about $125 million have been tracked, continuing the momentum in Wisconsin angel and venture capital investing that has been building for the better part of a decade.
Those 38 deals include seven at $100,000 or less each, 12 at $1 million or less each, and 19 in excess of $1 million, with an overall average approaching $3 million per deal.
Industry sectors are diverse, as well, with health information technologies, software, social media, manufactured products, consumer products, medical imaging, recreational products and engineered solutions all a part of the mix.
At least two-dozen different investment groups are involved in those 38 deals, including at 14 from outside Wisconsin.
The law that created the Badger Fund of Funds came with red tape, but the fund is slowly taking shape at a time when Wisconsin is producing more investment-worthy startups in regions where such activity was previously weak. Let’s see if Johnson’s minnows grow into fish big enough to swim upstream in a competitive world.
Still is president of the Wisconsin Technology Council, producers of the Wisconsin Entrepreneurs’ Conference, June 7-8 in Madison. He is the former associate editor of the Wisconsin State Journal.