At a panel discussion hosted by the Wisconsin Technology Council last week, state corporate venture leaders said they’d like to see more of their invested capital find traction at home in Wisconsin.
Speaking from the Coliseum Bar & Restaurant in Madison, Wisconsin Technology Council President Tom Still described a maturing startup culture as ripe for investment, but urged more visibility and business support to keep investors’ eyes on deals within the Badger state.
“Wisconsin is more of a ‘donor state,’” Still explained to the crowd. “[Investors] are more likely to invest elsewhere than right here in the state.”
The panelists — all leaders from major insurance corporations — included Brian Kass, managing director at CMFG Ventures, a venture capital arm of CUNA Mutual Group; Tim Barthlow, vice president and chief medical officer at WEA Trust; and Molly Lahr, investor relations director at American Family Ventures, the venture capital branch of American Family Insurance.
Wisconsin companies saw record investment in 2018. At least 121 venture-backed businesses raised more than $280 million last year, according to the 2019 Wisconsin Portfolio, an annual report that tracks the state’s investment data.
While traditional VCs still take credit for most of the state’s deals, including those from across state lines, corporate VC investments are quickly gaining steam among Wisconsin’s entrepreneurial class. Other Wisconsin businesses operating venture funds include Northwestern Mutual, Aurora Health Care and the $100 million Wisconsin Valley venture fund, which is made up of $25 million investments from Foxconn, Northwestern Mutual, Aurora Health and Johnson Controls.
The panelists credited an extended startup ecosystem, state tax credits, and new or expanded funds coming online for the recent uptick — factors that weren’t visible as early as five years ago.
The trend is a positive sign for the state’s startups, but is equally beneficial for major corporations flush with cash — especially those with legacy systems at risk of becoming obsolete. The strategic partnerships come down to business survival, the panelists said.
Changing consumer expectations, data sharing, economic strain, and an evolving marketplace have all contributed to the surge in corporate investments, Barthlow said. For WEA Trust, the organization utilizes its corporate VC fund to finance innovation and improve “community vitality” — and is willing to trade a portion of its returns for the collective impact.
“We [recognized] that our capital wasn’t working as hard as it could,” said Barthlow of WEA Trust. “There’s a huge environment ready to go with the correct niche products that will impact our lives in very positive ways.”
Like other corporate VC funds, Kass said CMFG Ventures was created to help CUNA Mutual stay relevant in an increasingly competitive FinTech environment. The company serves 95 percent of the nation’s credit unions.
“The emergence of the organization comes as a response to the disruption occurring in financial services,” he explained. “We’re living in an era of rapid change. We try to be innovative, agile, but it’s hard to keep up.”
Since launching the fund roughly three years ago, the organization has invested nearly $150 million across 15 portfolio companies.
“Ninety percent of our revenue is tied to credit unions,” he added. “If they don’t innovate, we shrink. This levels the playing field.”
Two factors at the heart of corporate venture funding are strategic relevance — and financial returns, the panelists said.
“The typical perception of corporate VCs is ‘How do we protect ourselves from going away,’” Lahr said. “We care about financial returns. We want to secure capital for future funds.”
Lahr says building extensive networks and spotting early opportunities is key. Reviewing deals allows the company to identify technology trends occurring within the industry — even when the organization passess on investing in a company, she said.
“The more you get to look at deals, the more portfolios you have, the better our investment performance," Lahr said. “We want to marry venture speed with industry investment. That’s how we live our mandate.”
American Family Ventures recently launched AmFam VC Fund III, a $200 million fund to invest in startup companies. The arm previously raised $50 million and $150 million for its first and second funds, and expects returns from VC II over the next 12-18 months.
Lahr added that American Family Ventures is open to collaboration with other insurance carriers in their funding efforts.
“We can all benefit by access through other carriers,” said Lahr, adding that the organization’s view traditional VCs, and mega funds, such as Google Ventures (now GV), as top competitors. “When you’re trying to transform a partner, you can’t do it alone.”
Barthlow said the niche nature of the insurtech industry has made it somewhat difficult to capture homegrown companies, but said the state has a lot of potential and is already seeing relocation happening on the ground.
“We’ve had a lot of great ideas that had to go to the coasts. We’d love to have that here,” he said.
Though Madison and Milwaukee remain hubs for investment, the group said emerging tech companies in areas such as Eau Claire and the Fox Valley were all putting Wisconsin’s startup scene on the map.
“It was lonely out there for a few years,” Still said of Wisconsin’s early startup environment. “Now, we’re seeing more investor traffic coming to the state.”
Still, he adds continuous legislative action is needed to create an environment more conducive to investment.
“Corporate VCs are growing, and they have significant assets that could be deployed,” he said. “It’s a phenomenon that is here to stay.”
