SWIB, WARF Narrow Search for Investment Manager at 4490 Ventures
By the time the champagne begins to flow on New Year’s Eve, tech entrepreneurs in Wisconsin may know who they should pitch if they want an investment from 4490 Ventures, the state’s new $30 million, information technology-focused venture fund.
The State of Wisconsin Investment Board (SWIB) and the Wisconsin Alumni Research Foundation (WARF) are working to review candidates for the job of managing the fund, which aims in part to fill a gap in the state’s high-tech economy by providing seed investments to Wisconsin-based tech startups. The search could be complete within a couple of weeks, with an announcement to follow shortly after, according to Chris Prestigiacomo, a private markets portfolio manager at SWIB.
The ideal manager for the fund would have a strong track record in the private investing industry, perhaps on Wall Street, and would be passionate about supporting the technology community taking shape in Wisconsin, Prestigiacomo says.
“We have been working with a recruiter that we engaged months ago, and we are getting close,” he says. “We have narrowed it down to a few finalists, and we are going through a couple of background diligence items. We have said publicly that we are hopeful we’ll have someone picked by the end of this year.”
SWIB and WARF unveiled their plans for 4490 Ventures back in March, in an announcement that emphasized the need to diversify investing operations at the two bodies beyond their historical emphasis on life sciences companies—and to provide more local support for nascent software or hardware ventures.
SWIB manages over $90 billion in assets for the Wisconsin Retirement System, which pays retirement benefits for former employees of state and local government agencies. WARF is the patenting and licensing operation for the University of Wisconsin-Madison, and manages $2 billion in assets for the benefit of the university.
“If you look at what the early stage investing environment has looked like in Wisconsin for a number of years, it has predominantly been about life sciences and biotechnology,” says Prestigiacomo. “We’ve been investors in the life science space since the late 1990s, and for good companies in medical devices, diagnostics, therapeutics, or tools, the capital will find those companies. For information technology companies, both consumer and enterprise, it has been a little more challenging.”
It’s not that there aren’t interesting infotech startups in Wisconsin, Prestigiacomo says. It’s that the traditional investing guidelines, at least at SWIB, have explicitly ruled out direct investment in these startups.
“I watch these companies and they are getting traction in the marketplace and starting to see revenue and scale, and we know there are going to be good investment opportunities,” he says. “But what tends to happen is, the companies find capital, but it’s not here, so they have to move to either Chicago or Silicon Valley or New York or Boston, where the pockets of venture capital are. And that’s disappointing.”
Over the last two years, Prestigiacomo says, officials at SWIB “started thinking about whether there is a direct way for us to participate in those types of startups.” Executives at WARF, which invests mainly in companies that are licensing intellectual property generated within the University of Wisconsin system, were thinking about the same problem around the same time, Prestigiacamo says.
“It was really the two chief investment officers of those two organizations who started to talk about all this, and out of that came the 4490 fund.”
The name 4490 is a reference to 44 degrees north latitude, 90 degrees west longitude, a location symbolizing Wisconsin’s rough geographic center. (The actual spot is just off Murmuring Pines Lane in Juneau County, near the Wisconsin River linking Castle Rock Lake and Petenwell Lake.)
Deciding exactly how to apportion the $30 million in capital that SWIB and WARF are supplying for 4490 Ventures will be the job of the yet-to-be-named managing partner. The fund might supply seed investments as small as $250,000 and Series A investments as large as $2 million, Prestigiacomo says. The aim is to spread the money across a portfolio of 12 to 18 companies, in fields ranging from healthcare IT to financial services, advanced manufacturing, education, gaming, and hardware.
The majority of the 4490 portfolio companies must be based in Wisconsin, according to Prestigiacomo, but there will also be some flexibility to invest in companies outside the state. “It would have to be a fantastic investment, or maybe a relationship they are trying to cultivate, so the investment makes sense,” he says.
And he emphasizes that the fund will invest beyond the state’s big university towns. “Some people say it’s a Madison or Milwaukee fund, but it’s not,” he says. “It will focus on the entire state of Wisconsin.”
While there’s a sense that infotech startups have been neglected by the state’s largest investment funds, evening out the balance and growing that part of Wisconsin’s economy is only a side goal for the fund. More importantly, SWIB and WARF want to participate in the potential upside if Wisconsin-born IT companies go big in the future.
“We are not doing this for economic development or job creation,” Prestigiacomo says. “We have a fiduciary responsibility to our beneficiaries to make money. If this fund helps the local ecosystem, that is the icing on the cake.”
Carrie Thome, director of investments at WARF, said in a statement that she’s confident there are infotech entrepreneurs worth backing in Wisconsin. “WARF and the state investment board continue to work closely together as we prepare for the launch of 4490 Ventures in 2014,” Thome said. “We believe the region offers excellent investment opportunities and the fund will certainly help some exciting innovations advance to the marketplace.”
4490 Ventures is not related to a separate $25 million “fund of funds” created by Act 41, which Wisconsin Governor Scott Walker signed into law in July 2013. That venture fund, which will come mostly from the Wisconsin Department of Administration and will look for 2-to-1 matching investments from traditional venture funds, is intended for businesses in agriculture, information technology, engineered products, advanced manufacturing, medical devices, and the medical imaging industry. To qualify for an investment, at least half of a company’s employees must work in Wisconsin. The search is on for a manager for this fund of funds as well; that person will be expected to invest at least $300,000 of his or her own money and raise an additional $5 million from outside sources.
There are enough investment opportunities to go around in Wisconsin that 4490 Ventures and the new fund of funds won’t be competing for deals, Prestigiacomo predicts. “It’s a little hard to tell right now what the underlying funds will look like, but I’m hopeful it will be complementary,” he says.