Badger State Initiative Launches Startup Funds in La Crosse, Neenah
A program supported in part by the state of Wisconsin that’s aimed at providing capital to early-stage companies appears to be coming to fruition at last.
The Badger Fund of Funds, an initiative more than five years in the making, launched its first two “recipient” funds earlier this month. The announcements mark a key step toward commencing the actual work of investing in startups, which Badger Fund partner Ken Johnson said could happen later this year.
The first recipient fund to be unveiled is The Idea Fund, which is based in La Crosse, WI, and managed by Jonathon Horne. Horne grew up in that city before earning undergraduate and graduate degrees in other parts of the state, then moving to New York to work in investment banking at J.P. Morgan (NYSE: JPM).
Horne tells Xconomy that during his time at the bank, some of his clients were “newer, disruptive” companies, including one he helped file for an initial public offering. However, he says his duties also involved strategic advising, as well as mergers and acquisitions, meaning that focusing on startups full-time will be a new experience for him.
The second is the Neenah, WI-based Winnebago Seed Fund, where David Trotter serves as managing partner. Trotter, also a native of the Badger State, attended Marquette University in Milwaukee before returning to Northeastern Wisconsin, where he most recently worked as a portfolio manager at Legacy Private Trust in Neenah.
“This area does not have a dedicated professional investor focused on the pre-revenue segment of the market,” Trotter says. “I view being up here as an advantage and an opportunity.”
Horne and Trotter, both 32 years old, were introduced to Johnson and Brian Birk—who, alongside Johnson, is running the Badger Fund under the name Sun Mountain Kegonsa—after they were recommended by leaders in the business communities of La Crosse and Neenah, respectively.
Johnson says that while recipient funds can invest in startups based anywhere in Wisconsin, part of the idea with having the funds be spread out geographically is to pump more money into companies outside of Milwaukee and Madison, the state’s two biggest cities.
Trotter says that he expects Winnebago Seed Fund’s portfolio to be “very diversified” in part because it’s based on the “Money for Minnows” investment strategy Johnson has had success with in the past. But “being in Northeastern Wisconsin, there’s probably going to be more of a tilt toward advanced manufacturing companies,” Trotter says.
The proposal for the fund of funds submitted to the state in 2014 calls for a combination of public and private dollars to flow into both the central Badger Fund and, further downstream, its recipient funds. Both the Badger Fund (which won’t make direct investments in startups) and the recipient funds (which will) must raise outside capital to complement the taxpayer monies they’ve been given to work with, according to the proposal.
Both recipient funds that have been launched must raise at least $8 million in financing. But since the proposal calls for the Badger Fund to commit 40 percent of the total amount managed by each recipient fund, The Idea Fund and Winnebago Seed Fund each only need to raise $4.8 million in outside financing to hit the $8 million threshold. Each seed fund will shoot to raise a total of $10 million, though, according to the proposal.
The central Badger Fund will itself attempt to raise $10 million in private capital to help support the recipient funds, according to the proposal. That’s on top of the $25 million the state of Wisconsin has already committed to the program.
While Winnebago Seed Fund and The Idea Fund are the only recipient “seed” funds that have been unveiled so far, the fund-of-funds proposal calls for creating four more, as well as two larger, “early-stage” recipient funds that would each manage $20 million. According to the proposal, the six as-yet-unannounced recipient funds would need to be created within two years of the Badger Fund’s final closing. Johnson says that close could happen as soon as next month.
Sun Mountain Kegonsa is currently on track to hit all of the benchmarks outlined in the proposal, Johnson says.
The group is currently conducting “due diligence” on three candidates who could potentially be offered the chance to manage new recipient funds, he says.