Nonprofit forming to invest in Wisconsin start-up companies
A new group led by angel investor Tom Shannon will tackle the question that has dogged Wisconsin for more than a decade: With its wealth of ideas and well-educated students, why can't the state produce more job-creating start-up companies?
Shannon and seven other businesspeople on Wednesday will announce the formation of BrightStar Wisconsin Foundation Inc., an unusual nonprofit fund that will invest donors' money in high-growth, technology-based companies across the state.
Shannon and BrightStar's seven other founding donors have pledged at least $500,000 each, for a total of $6 million, to seed the foundation.
They say they hope to raise at least $60 million more over the next three years.
To have the impact they are seeking, the foundation will have to reach $150 million or more of assets, Shannon said.
BrightStar is unusual because it would seek tax-deductible donations from companies, foundations and wealthy individuals rather than ask them to take big risks in complicated investments where their money could be tied up for as long as a decade.
In doing so, the new foundation could provide a needed boost for the state's job-creating start-ups.
"It needs to be done," said Shannon, who oversaw the sale of Prodesse Inc., a Waukesha biotech company, for $72 million in 2009. "It's a challenge, and I think that my group of founders and I are uniquely positioned to get it done."
Shannon has committed to be the foundation's unpaid president and chief executive officer for three years.
The formation of BrightStar represents an ambitious economic development proposal by members of the state's private sector.
And it comes after much public hand-wringing about a lack of investment capital, countless public initiatives and committee meetings, and years of effort by lawmakers in Madison to craft legislation to fund the state's young, high-growth companies.
The foundation's ability to operate as planned hinges on its securing Internal Revenue Service approval for tax-exempt status so that donations could be tax-deductible.
There are few models for a foundation that would use charitable contributions to make angel- and venture capital-type investments -- but Brightstar has support from state government for the plan.
Reed Hall, CEO of the Wisconsin Economic Development Corp., the state's commerce agency, said he is not aware of anything like BrightStar around country.
But as organizers have structured it, BrightStar has "a very good chance" of getting IRS approval, Hall said.
BrightStar hopes to file its application with the IRS by Aug. 1, and will ask for fast-track treatment, Shannon said.
"Hopefully we'll be able to vet business plans by mid-fall and invest money by early 2014," Shannon said.
The majority of new jobs in the U.S. are created by start-ups, according to the Ewing Marion Kauffman Foundation, one of the country's key entrepreneurship analysis and support organizations.
Wisconsin ranks among the worst-performing states in terms of its rate of entrepreneurial activity and the size of its decline in entrepreneurial activity over the last decade, according to a Kauffman Foundation report released earlier this year.