Idea Fund of La Crosse Raises $4.9M More, Eyes First Investments
While the Badger Fund of Funds is still working toward the program’s stated goal of investing in Wisconsin-based startups, the pool of money its leaders will draw from when they do so continues to expand.
The Idea Fund of La Crosse, one of the “recipient” funds created under the public-private Badger Fund of Funds program, recently raised $4.9 million from investors, says Jonathon Horne, the fund’s managing director. That brings the total amount the Idea Fund has raised since launching in mid-2016 to $13 million.
The Idea Fund plans to invest in 10 to 12 early-stage companies over the next four years, Horne says. The fund is currently looking at a number of Wisconsin-based startups seeking growth capital, but does not have a concrete timeline for making its first investment.
“I’ve got a number of businesses under active diligence right now,” Horne says. “But nothing is ready to go yet. You don’t want to rush it.”
The latest funding does not change the number of companies the Idea Fund is targeting for investment. Horne says the decision to raise the additional $4.9 million had to do with the difficulty many Badger State startups encounter when they try to raise Series A funding rounds—the so-called “valley of death.”
“One of the biggest challenges in Wisconsin is raising that first follow-on round, a Series A round,” Horne says. “We wanted to upsize the fund a little bit so we’d have more follow-on capital to stand behind the portfolio [companies].”
The Idea Fund is not limited to investing in companies headquartered in Western Wisconsin, where La Crosse is located. It can put money into virtually any Wisconsin-based startup, even ones in cities home to other recipient funds formed as part of the Badger Fund of Funds. Those include the Neenah, WI-based Winnebago Seed Fund, which raised $11 million last month; and Rock River Capital Partners, which is based in Madison, WI, and received $6 million from the central Badger Fund in April.
The Badger Fund of Funds is structured to have a combination of public and private dollars flow into 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) have raised outside capital to complement the taxpayer money they’ve been given to work with.
The outside fundraising requirements and other details related to the program are laid out in a proposal submitted to the state in 2014. Leaders of the Badger Fund of Funds drew up the proposal following the passage of a bill in 2013 in which the State of Wisconsin committed $25 million to the program.
Some advocates of entrepreneurship in Wisconsin have argued that the state is badly in need of more early-stage investment activity. Wisconsin was last among states in a ranking of startup activity compiled by the Ewing Marion Kauffman Foundation.
Healthcare software has been one recent bright spot in Wisconsin’s investment landscape. Companies such as Datica, Propeller Health, and Redox—all based in Madison—raised funding rounds of $6 million or more in the past year.
The deal flow in the western part of the state has been relatively slow, however. Horne says that when it comes to venture capital investments, he believes La Crosse and the surrounding area are “uniquely underserved, in a underserved state.”
If Wisconsin is to improve its climate for potential high-growth startups, large corporations based in the state will likely need to play some sort of role. Horne points out that the family of Don Weber is the general partner of the Idea Fund of La Crosse. Weber is the founder and chairman of Logistics Health, a healthcare services firm based in La Crosse that was sold in 2011 for an undisclosed amount to OptumHealth, part of Minnesota-based UnitedHealth Group (NYSE: UNH). According to Horne, building a relationship with Logistics Health has helped the Idea Fund as it sizes up potential investment targets.
“With Don and the Logistics Health connection, and ultimately the UnitedHealth connections, that has really helped us with diligence on some businesses, and to think about the value we can add,” Horne says. “The Weber connection is really one of the differentiators I talk about with a lot of [potential] portfolio companies—about what resources we can bring to bear with them.”