Madison’s “Sand Hill Building”: Four Venture Funds Together Under One Roof
Going purely by the numbers, Wisconsin is hardly an ideal place for startups seeking investment.
According to the 2015 National Venture Capital Association Yearbook, companies in the Badger State raised $86.8 million in venture capital investments in 2014. That was good for 26th in the U.S. and accounted for less than 0.2 percent of the $49.3 billion national total.
A more comprehensive study by the Wisconsin Technology Council pegged the total amount raised in the state last year at more than $346 million, yet the fact remains that Wisconsin still lags major startup hubs around the country when it comes to investment dollars.
But the landscape may be shifting, said Greg Robinson, whose fund 4490 Ventures is one of four investment groups that have moved into gleaming new offices at 111 N. Fairchild St. in the heart of downtown Madison. Some in the city’s business community call it the “Sand Hill building,” a nod to Silicon Valley’s Sand Hill Road, the source of many of tech’s biggest bets.
“It’s still really early for Wisconsin,” Robinson said. “The dollar amounts are small and the number of companies is limited. People have to remember these ecosystems are built over decades, not years.”
Other tenants include Baird Capital, HealthX Ventures, and American Family Ventures, the Madison-based insurer’s investing arm that occupies the entire top floor. AmFam Ventures had already signed on to move into the building when 4490 finalized its lease in July 2014, Robinson said, and he later helped recruit Baird and HealthX.
While one of the state’s biggest and oldest venture capital funds, Venture Investors, is located across town in University Research Park, being downtown affords the four funds at 111 N. Fairchild proximity to the University of Wisconsin-Madison and other players in the startup scene, such as the accelerator Gener8tor and co-working space 100state, both just a couple blocks away on the Capitol Square.
There’s also plenty of collaboration happening inside the building, which has been renovated and expanded in recent years. The space features a bright, angular common room known as “the tip,” in a suite that’s also home to Redox, which makes an application programming interface (API) that helps get electronic health record data into the hands of developers, who can build apps around the information.
Shortly after Robinson moved from the San Francisco Bay Area to Madison in early 2014 to become 4490’s managing director, the fund co-invested with AmFam Ventures in online apartment-finding service Abodo’s $1.3 million Series A round. Mark Bakken, managing partner of HealthX Ventures, said he has also invested in Abodo as an angel.
HealthX hasn’t made any investments yet, but will likely have the money it needs to get started by summer’s end, Bakken said.
Bakken is a serial entrepreneur who co-founded Nordic Consulting Partners, which advises on implementations of Epic Systems’ record-keeping software in hospitals and clinics throughout the country. He said HealthX will mainly target seed-stage health IT companies.
That sets HealthX apart from 4490 and Baird, Robinson said, whose respective “sweet spots” are Series A and Series B deals.
“We’re focused on investing in companies looking to raise $4 to $5 million to significantly scale their businesses,” he said. “Most often, this will come in the form of a Series A investment. It’s interesting how [4490 and its neighboring funds] overlap a little, but not that much. I see what we’re doing and what the other funds are doing as complementary.”
AmFam Ventures, by contrast, doesn’t fit into a stage-specific box, said Kyle Nakatsuji, a venture capital principal with the $50 million fund.
“Generally speaking, and although the nominal boundaries of the terminology vary, we look to invest in seed, Series A, and Series B rounds,” he said.
Nor does AmFam Ventures limit its investments to a single sector. Instead, Nakatsuji said, it searches for companies that can improve American Family’s core insurance business.
“It’s always important that the investments we make have the potential to generate a meaningful, positive impact for American Family Insurance and our policyholders,” Nakatsuji said.
That impact can take different forms: analytics-minded companies that could improve the insurer’s actuarial models, for example; or “Internet of things” startups, which connect heretofore offline devices like smoke detectors and thermostats to the Internet and to each other.
For 4490, a $30 million, two-investor fund whose name comes from the geographic coordinates near the center of Wisconsin—44 degrees north latitude, 90 degrees west longitude—the scope is narrower. Robinson said 4490 seeks to fund conventional tech startups based in the Upper Midwest.
“We don’t do devices, biotech, or cleantech,” he said. “It’s pretty much traditional tech investing, which means a lot of software. My background is enterprise, or business-to-business, software.”
One of 4490’s two primary limited partners (fund investors) is the Wisconsin Alumni Research Foundation (WARF), UW-Madison’s technology transfer office. According to its website, WARF has a $2.6 billion endowment.
The other limited partner is the State of Wisconsin Investment Board (SWIB), which has around $100 billion under management for organizations like the Wisconsin Retirement System. In September, 4490 and SWIB co-invested $4 million in online food-ordering service EatStreet’s Series B round.
Robinson said even if in the big picture of funding startups today, Wisconsin is more grains of sand than Sand Hill Road, the state is on the radar of more and more venture capitalists.
“If you talk to a lot of investors outside Wisconsin with capital to deploy, this is one of the top areas they come to and look for opportunities,” he said. “I think people are recognizing there’s something interesting happening here.”