Esser Taps Former Wisconsin Funeral Trust Advisors for New Fund

2/3/14Follow @XconomyWI

Teresa Esser, a well-known Milwaukee angel investment manager, has raised $1.5 million for a new venture capital fund that is being co-managed by two investment advisors formerly with the financially troubled Wisconsin Funeral Trust, Xconomy has learned.

Esser has formed Greenpoint Global Mittelstand Fund I LLC with Michael and Patrick Hull, brothers who formerly worked as brokers for Morgan Stanley Wealth Management and later oversaw the Wisconsin Funeral Trust, which went into receivership in 2012.

The new fund is under the umbrella of the Hulls’ Greenpoint Asset Management firm, based in Madison, WI. The fund has raised $1.5 million in equity in a total possible offering of $30 million, according to a filing last month with the U.S. Securities & Exchange Commission. There’s only one investor in the fund so far, the filing shows.

Esser will continue serving as the managing director for Milwaukee-based Silicon Pastures, founded in 2000 as one of the state’s first angel investment networks. She brought the Hulls on as co-managers of the Mittelstand fund, which will focus primarily on Asian investors and will aim to secure follow-on investments in mid-market advanced manufacturers based in Wisconsin, Esser said in an interview.

Michael and Patrick Hull couldn’t immediately be reached for comment Monday.

Wisconsin Funeral Trust was a fund portrayed as a safe way for consumers to cover their future funeral costs, but it went into receivership after the state found it had a deficit of more than $21 million. The Hulls, advisors to the trust, were criticized for making risky investments with the money collected from more than 10,500 investors, according to reports by the Milwaukee Journal Sentinel. The brothers were fired as advisors to the trust in September 2012.

The Hulls, in a 2012 interview with the Journal Sentinel, defended their management of the fund as following industry practices and said the shortfall would have been corrected over time.

The SEC later conducted a preliminary examination of the fund’s investment strategies, the Journal Sentinel reported. An SEC spokeswoman told Xconomy the agency cannot confirm or deny if it is investigating a business or individual, but a search of the SEC website Monday didn’t turn up any documents related to an investigation of the Hulls or their business.

Last year, all 180 funeral homes participating in the trust agreed to a settlement in which they would cover the more than $67 million in funeral benefits promised to customers, in exchange for the funeral homes being protected from potential further legal action.

Esser said she is not concerned by the Hulls’ involvement in the Wisconsin Funeral Trust. A trusted Silicon Pastures member suggested she meet with the Hulls about joining the planned Mittelstand fund, and she was satisfied with the brothers’ responses to her questions about the issue. She said they were completely transparent and met her criteria of “strong, differentiated leadership.” Esser said that to her knowledge, the Hulls are not facing any legal issues tied to Wisconsin Funeral Trust.

“My job is to evaluate risk. My job is to size people up and decide who I want to work with,” said Esser, who has run Silicon Pastures since 2006. “And I said [the Hulls are] going to be a good long-term business relationship and we’re going to be completely up front about everything.”

Esser was inspired to form the new fund afterhearing M&A advisor Basil Peters speak at an Angel Capital Association summit. His key advice? “Don’t neglect the Asian buyers,” Esser said.

And what do Asian investors and businesses want to buy? Ownership in high-tech manufacturers that will help their businesses, according to Esser.

“If we acknowledge that manufacturing has moved to Asia … then we should learn how to serve that market,” Esser said.

She believes that Wisconsin, a long-time manufacturing juggernaut, is well-positioned to attract Asian investment. Although many of the jobs in manufacturing have moved overseas, it remains a core industry in the Badger State. Esser thinks there are plenty of companies here that fit her model with this new fund: mid-sized industrial firms that generally fly under the radar but have patented technology, talented craftspeople, and products and services that solve a real problem. (“Mittelstand” is a German term for smaller businesses that the average consumer hasn’t heard about, but serve important niches and form the backbone of Germany’s economy.)

BioSystem Development is an example of the type of company Esser will target with the fund, and demonstrates the success she wants to replicate. Silicon Pastures invested in the Madison company, which developed a platform to automate certain processes for drug developers and was acquired in 2011 by Agilent Technologies (NYSE: A) of Santa Clara, CA.

Esser has had difficulty attracting investments from possible syndication partners on the coasts because investors there are only interested in information technology, healthcare, and pharmaceuticals, not manufacturing, she said.

“This is not sexy,” Esser said. “[But] I am not jumping on the [IT] bandwagon like everybody else in Silicon Valley.”

When the Angel Capital Association brings corporate development staff from Google and Facebook to the association’s conferences, the line of entrepreneurs and investors sniffing around for investment or an exit is “out the door,” Esser said.

“If I’m one in 5,000, those are bad odds,” Esser said. “I’m not interested in doing IT. They can go to the end of the line and [try to get acquired by the Googles of the world]. … I want to do business with people who actually want the services that Wisconsin people have.”

That means Asia, she said, and her first target is South Korea. The country is Wisconsin’s 13th largest export destination, with more than $403 million worth of Wisconsin goods exported there in 2012, according to Wisconsin Economic Development Corp. data. A free trade agreement signed between South Korea and the U.S. in 2012 is expected to boost Wisconsin exports there.

Esser has started to learn to speak Korean, and in the mean time she wants to hire someone who speaks English and Korean fluently. She has one applicant so far, she said.

“If the money is in Asia, then I should learn how to speak Korean,” Esser said.

Jeff Engel is the editor of Xconomy Wisconsin. Email: jengel@xconomy.com Follow @XconomyWI

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