Badger Fund of Funds to Pump $90M-plus Into Wisconsin Startup Scene
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more details on the plan for the fund-of-funds:
—Size: In order to “unlock” the state’s $25 million investment, the legislation stipulates that Sun Mountain Kegonsa must raise at least $5 million from private investors before it seeks fund managers in whom to invest. The upper end of the goal would be a full $25 million match from private sources, according to Birk’s presentation. Sun Mountain Kegonsa’s managers must also put in at least $300,000 of their own money, and Birk said they’ll actually put in $500,000. That means when Sun Mountain Kegonsa closes on the Badger Fund of Funds, it will total between $30.5 million and $50.5 million.
In addition, for every $1 the new funds receive from Sun Mountain Kegonsa, they must invest in startups another $2 from other sources. This minimum 2-to-1 match means that a $30 million fund-of-funds could leverage another $60 million raised by the recipient funds, resulting in a cumulative infusion of $90 million into Wisconsin startups. If Sun Mountain Kegonsa is able to fully match the state’s $25 million appropriation, the total amount would rise to $150 million.
Of course, this all hinges on successfully attracting the private capital. Birk told the Wisconsin State Journal that the sources “could be from anywhere.”
—Recipient funds: It’s hard to pinpoint how many funds Sun Mountain Kegonsa will invest in until it’s done raising the private matching dollars, but the estimated range is four to eight seed-stage funds and one to four later-stage, traditional VC funds. They are expected to invest across the state in a range of industries, including software, medical devices, agricultural technology, and advanced manufacturing.
Although there will inevitably be some overlap in the companies being scouted by the new funds, that presents opportunities to work together, Rand said. Successful startup communities have been able to take advantage of the complementary skills of different funds’ managers, whether it’s technical or marketing expertise, or deep industry connections, he said.
“You can really start to form syndicates where you’ll see two to four funds consistently work together,” Rand said.
Sun Mountain Kegonsa will likely invest in new fund managers, but existing venture capital funds will also be considered for investment, Birk said. The Badger Fund of Funds can’t invest more than $10 million in a single fund, and each recipient fund’s pot won’t exceed $25 million total.
The 2-to-1 match is an aggregate requirement for the recipient funds, but Birk said the matching percentage for each fund could vary. If, for example, two funds each raise $10 million from external sources, Sun Mountain Kegonsa might put $1 million in one and $3 million in the other, he said. “The $30 million ultimately has to be matched 2-to-1 over time by the recipient funds,” explained Wisconsin Technology Council president Tom Still. “This in essence becomes a $90 million fund in time, as those co-investments are made.”
—Timeline: Sun Mountain Kegonsa intends to finish fundraising and close on the Badger Fund of Funds by the end of the year, after which it could start investing in recipient funds. The soonest that startups could get funded is early 2015, Birk estimated.