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It isn’t that the State of Wisconsin Investment Board hasn’t tried to pump life into the venture capital scene in the state. It’s that Wisconsin is still short of critical mass in that game.

Since 2000, at the direction of its board, SWIB has stepped up with a $200 million allocation to venture investments, much of it directed to funds with a Wisconsin orientation.

The bottom line, though, is that Wisconsin still lags more dynamic parts of the country when measured by business formation. With the possible exception of Madison, the state still does business start-ups in an episodic rather than systematic manner.

A July white paper put out by the investment board paints the landscape of venture capital in Wisconsin in a complete and sobering way. It identifies the gap between the state’s major horsepower in academic research and the commercialization of that research into the creation of new enterprises and good jobs.

It’s one of the most important issues in the state. Wisconsin is still losing manufacturing jobs, and nothing that either presidential candidate is proposing will change that pattern. Further, Wisconsin is not a state that does well in recruiting corporations from outside its borders. Indeed, we probably lose more than we gain on that score. Witness the MillerCoors exit to Chicago.

We do fine on expansions. Witness the new or expanded headquarters for Manpower, Epic Creative, Gehl and West Bend Mutual Insurance. But expansions depend on some entrepreneur starting something first. And the state will get more entrepreneurs if ready cash is available for new ventures.

The growth in angel investment groups over the last decade is encouraging. The SWIB white paper notes 16 across the state (the Wisconsin Angel Network now counts at least 20), but most are small and have done only a few deals. Nonetheless, angels are flying in the right direction: upward.

Venture investing, in contrast, is not growing as well. Of the national total of venture capital, Wisconsin gets only a slim share. Most venture money is spent on the coasts, though Chicago and the Twin Cities draw significant dollars.

Of the $200 million in SWIB commitments, only one venture firm, Venture Investors Early Stage of Madison, is doing heavy lifting in the state. It put $13.4 million of its 2000 SWIB allocation of $20 million into Wisconsin companies. It was blessed with another $30 million in 2006.

The Mason Wells Biomedical Fund won $25 million in SWIB money in 2000 and put $16.5 million to work in the state. It won another $10 million in 2006, but then, unfortunately, decided to exit the venture sector.

Baird Venture Partners won $30 million in 2003 and has invested $17.6 million, including $2.2 million in Wisconsin.

Frazier Technologies Ventures, a Seattle-based outfit, won $60 million in SWIB commitments in 2004. It has invested $22.5 million and has looked at Wisconsin deals, but it has consummated none here.

So, the long and short of the SWIB initiative is about $30 million invested here. The good news is that Keith Bozarth, SWIB executive director, believes that a critical mass of players — entrepreneurs, SWIB, other venture capital groups, angels, public and private researchers, support organizations, government agencies — can make things happen.

Because of its sacrosanct obligation to invest prudently on behalf of retirees, SWIB will never put a large percentage of its huge resources into the venture sector. Nor should it. But fully employing the $200 million is well within bounds. So is the newly authorized $20 million in discretionary funds that can be used for follow-on investing in some of the portfolio companies.

In addition, the giant pension fund soon will announce investments in a fifth venture fund with a Wisconsin interest.

The investment board is looking pretty good in recent years in terms of venture returns. Thanks to some nice cash-outs by Madison enterprises, it returned 61.4% in 2007 and 18.9% for the past three years. Its patience after lower returns in early years is paying off.

Its thesis — that there are good deals in the Midwest that get overlooked by the big venture capitalists — is proving out.

The whole state wins if we create an entrepreneurial culture. Happily, the SWIB white paper concluded on a positive note: “Wisconsin is closer than ever to forming the critical mass necessary to develop this venture capital sub-culture.”

http://www.businesstoolchest.com/articles/data/

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