Inside Wisconsin by Tom Still
Corporate investing trend takes root in Wisconsin
MADISON – A few years ago, when Brian Kaas attended some of the nation’s leading conferences for venture capitalists, the audience was predominantly investors from stand-alone venture funds.
Today, when the managing director of Madison-based CMFG Ventures takes part in such gatherings, the makeup includes many more “in-house” funds within larger corporations.
“The mix is basically reversed from what it what about five years ago,” said Kaas, who leads the fund created by CUNA Mutual Group to invest in financial and insurance innovation.
Corporate venture funds aren’t new, but the growth in such funds has been robust in recent years. A January 2017 report in Financier Worldwide noted there were 181 corporate venture funds worldwide in 2004 and more than 1,500 by 2015. About half of all Fortune 100 companies now have in-house funds. The deal flow has also seen “astonishing growth,” reported Financier Worldwide, rising from 698 announced deals in 2011 to 1,790 deals in 2015.
Wisconsin has not been bypassed by that trend. American Family Insurance in Madison is a prominent example with its AmFam Ventures fund, which launched in 2013 as a $50 million fund and has grown over time to become one of the nation’s leading “fin-tech” and “insure-tech” funds.
CMFG Ventures has invested $40 million to date, including follow-on rounds, in six portfolio companies with others under review. The fund’s typical check size falls between $1 million to $5 million, Kaas told a recent meeting of the Tech Council Innovation Network in Madison.
Presenting at the same meeting was Northwestern Mutual Future Ventures, which plans to invest about $50 million over the next six years with a typical check ranging from $500,000 to $3 million. Its portfolio will also include fin-tech and insure-tech firms, as well as companies engaged in digital health.
Other companies in Wisconsin with in-house investment arms or related interests in startups include Kimberly-Clark, Logistics Health, ABC Supply and Direct Supply. The list may be growing.
At the fourth annual Wisconsin Tech Summit, the managing director of Michigan’s Renaissance Venture Capital Fund described Wisconsin as a “natural place” for creation of a corporate fund-of-funds much like what was built over time in Michigan.
What is a fund of funds? It’s a vehicle for pooling capital and investing in emerging firms. Renaissance is an early example of such a fund led by Michigan’s major corporations, such as Ford, La-Z-Boy, Whirlpool and more.
It was created in 2008 when Michigan’s unemployment rate had soared into double digits, major companies were cutting employees and internal research, and there was a chronic shortage of risk capital for young companies.
The first two Renaissance funds raised nearly $124 million from corporate and institutional investors. That money was re-invested in 25 venture capital funds across the nation, bringing those experienced funds to Michigan in a physical sense – sometimes opening a local office – to kick tires and invest in promising startups.
Financial returns for Renaissance over nine years have outperformed national benchmarks for rate of return and profit distributions. The fund ranks in the top quartile of the venture capital asset class.
The first Renaissance fund attracted more than $24 into Michigan for every dollar invested. That’s reflected in the $868 million invested so far by the 25 participating funds in young Michigan companies. Sixty percent of those funds were first-time investors in Michigan companies.
Michigan’s status as a venture capital hub went from middle of the 50-state pack to among the U.S. leaders.
Total capital under management in Michigan stood at $1.4 billion in 2015, good for 12th among the states. Wisconsin ranked 27th in the same year. Michigan reported $281 million in venture capital commitments in 2015, 9th among the 50 states. Wisconsin stood 21st on the list.
Wisconsin has a cadre of major companies. It has experienced investors in angel capital networks and stand-alone funds. Increasingly, it has the right talent and ideas.
What’s needed now is a shared sense of opportunity about reinvesting in Wisconsin and a few corporate champions to take up the challenge. If its home-grown companies won’t do so, why should others?
Still is president of the Wisconsin Technology Council. He is the former associate editor of the Wisconsin State Journal.