Where are the ‘champions’?

Risk-taking corporations needed to jump-start venture funds in state

When Chris Rizik talks about Michigan’s Renaissance Venture Capital Fund, it’s not just a feel-good story about major companies stepping forward in a time of crisis to invest in their home state.

It’s the tale of a double bottom line: investment in Michigan’s start-up economy and strong returns for those who took the risk.

Rizik, chief executive officer and fund manager for Ann Arbor-based Renaissance, spoke Monday at the Wisconsin Tech Summit in Pewaukee. His message: Wisconsin is primed for a similar corporate fund of funds.

All that’s needed is for a relative handful of corporate “champions” to take a calculated chance.

Because it is home to large legacy companies, one of the nation’s leading research universities and an increasingly diverse start-up sector, “Wisconsin is a natural place” for a fund of funds built along the same lines as Renaissance, Rizik told the Tech Summit crowd.

A fund of funds is 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, DTE Energy, Whirlpool, Meijer 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. Money invested in Renaissance is 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 start-ups.

Rizik said some early investors never expected to see their money again but were committed to helping Michigan break out of its economic doldrums. Those investors have been pleasantly surprised.

Financial returns for Renaissance over nine years have outperformed national benchmarks for rate of return and rate of profit distributions. The fund ranks in the top quartile of the venture capital asset class and is now rated “investment grade,” which means pension funds, endowments and foundations may invest in Renaissance on a returns basis alone.

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 $1.41 billion in 2015, according to the National Venture Capital Association. That was good for 12th among the states. Wisconsin had $171 million under management in the same year, ranking 27th among the states.

Michigan reported $281 million in venture capital commitments in 2015, the NVCA reported, which was ninth among the states. Wisconsin reported $30 million, standing 21st on the list.

Although rooted in a sense of civic urgency, the Renaissance Venture Capital Fund is not a charity. There is a sense of enlightened self-interest, however, that emerges when mature industries recognize they have a role in helping nurture emerging businesses that revitalize local economies and communities.

The Renaissance fund was born in a time of deep crisis for Michigan, but Rizik believes a fire drill is not necessary for a similar fund to emerge in Wisconsin. There was no crisis in Cincinnati when a group of corporations led by Procter & Gamble created Cintrifuse, a similar corporate fund of funds.

Rizik’s advice to Wisconsin is to use the state’s natural strengths, to remove the friction that keeps investors from participating in Wisconsin and to create a fund that is profitable and thus maintains the interest of its stakeholders.

Several major Wisconsin corporations have started in-house funds or made direct investments in recent years. The list includes American Family Insurance, Northwestern Mutual, CUNA Mutual, Direct Supply, Logistics Health and Kimberly Clark. While other BigCos may be investing in early stage companies, they’re mostly quiet about it … for now.

Wisconsin has a cadre of major companies. It has experienced investors in the angel and small fund end of the spectrum. Increasingly, it has the right talent and ideas. What’s needed is a shared sense of opportunity about reinvesting in Wisconsin. If its home-grown companies won’t do so, why should others?

The first Renaissance fund attracted more than $24 into Michigan for every dollar invested.