Despite economic uncertainty in the second half of its fiscal year, the state-sponsored Badger Fund of Funds had one of the most active years for investment activity among its portfolio of five Wisconsin venture capital firms that back Wisconsin startups.
As of June 30, those funds have invested $12.5 million into 34 different Wisconsin startups, including eight new companies during the fiscal year ending June 30, according to the Badger Fund's annual report filed Oct. 27. Those startups have collectively raised an additional $54.4 million from other sources, resulting in a 4.3x investment multiplier, according to the report.
"We are highly encouraged by the pace of investment activity, especially in light of market uncertainty and a broader market pull back in private market investing," the fund's managers Brian Birk and Ken Johnson of Sun Mountain Kegonsa LLC wrote in the report. "While the portfolio has begun to display early positive trends, the future remains uncertain and market conditions may continue to deteriorate."
Houstr Inc., an early-stage Milwaukee startup in the short-term rental industry, is among the latest companies to receive backing through the Badger Fund, according to the report. It's the third portfolio company for Milwaukee VC firm Gateway Capital Gateway, which is led by Dana Guthrie and has also backed Milwaukee startups Tip a Scrxipt and Geno.Me.
The Badger Fund was established in 2013 with $25 million in state funding to spur Wisconsin's venture capital ecosystem. It seeded five new Wisconsin VC firms — Gateway Capital Partners, the Idea Fund of La Crosse, the Winnow Fund and Rock River Capital Partners in Madison, and the Winnebago Seed Fund in Neenah — that each raised additional funds from other investors to total $74.2 million expected to be available to invest in Wisconsin startups, according to the report.
During the last fiscal year, the Winnow Fund backed Wauwatosa's Roddy Medical, Madison's University Eats and Village, which is incorporated as MSB Technologies in Eau Claire but has an address in Wauwatosa, according to the report. Rock River Capital invested in Whitewater's RoofMarketplace, Madison's Atrility Medical and ReadySet VR in De Pere, which previously received backing from the Winnebago Seed Fund.
The Idea Fund of La Crosse and the Winnebago Seed Fund are no longer investing in new companies but are reserving capital for follow-on investments in existing portfolio companies. The Idea Fund of La Crosse has raised $20 million toward its $25 million goal for its second fund, which will not include state money.
The report noted that broader market trends could impact startups in the portfolio, including by making it harder to raise additional capital and achieve liquidity events.
"The combination of increasing interest rates and a broader downturn in public financial markets has resulted in decreasing liquidity and pressure on company valuations, particularly in the later stage," the report states. "While the future is uncertain, Sun Mountain Kegonsa has advised portfolio fund managers to prepare for a challenging period ahead."
