Allen Wagner November 25, 2013
Video by Cristine Carlton
Chris Prestigiacomo is a private markets portfolio manager at the State of Wisconsin Investment Board (SWIB), the state-employee retirement-asset manager. In his role, Prestigiacomo manages SWIB’s debt and venture capital portfolios, and has been instrumental in forming 4490 Ventures, a soon-to-launch VC fund started by SWIB and the Wisconsin Alumni Research Foundation that will invest in seed-stage information technology companies in Wisconsin. In this interview, conducted “On the Scene in Wisconsin,” Prestigiacomo discusses SWIB’s strategy as a limited partner, what he looks for in a VC fund before investing and the challenges of starting a venture vehicle from scratch. For a full transcript, scroll to the end of the article below.
One of the major challenges several startup founders mentioned at an early-November entrepreneurship roundtable in Wisconsin was the difficulty of raising angel or seed funding to fill the gap before heftier financing rounds.
“After family and friends, where do you go?” Jeff Rusinow, one of Wisconsin’s first angel investors, asked at the roundtable hosted by Gov. Scott Walker.
It’s a question that startup communities around the country are no doubt grappling with. But Wisconsin has taken an important step toward answering that with 4490 Ventures. Formed with $15 million from both the State of Wisconsin Investment Board (SWIB) and the Wisconsin Alumni Research Foundation (WARF), this $30 million VC fund was created because the two organizations noticed numerous opportunities in Wisconsin to invest in promising startups, but didn’t have the vehicles to make these investments. 4490 Ventures, when it launches with an outside-hire GP manager early next year, will invest primarily in Wisconsin-based information technology startups at the seed and Series A stages.
Chris Prestigiacomo, private markets portfolio manager at SWIB, said that both his organization and WARF identified opportunities to invest, but realized that promising in-state startups were leaving Wisconsin because they had trouble raising money.
“Madison and other areas of Wisconsin have been predominately life sciences focused and a lot of money has gone into that sector,” Prestigiacomo said. “But over the past couple of years we’ve been starting to see more IT opportunities, and a lot of companies have come to us looking for money when we didn’t really have a direct investment vehicle for us to be investing in those companies. So, I think over time a lot of those startups eventually had trouble raising money, and left.
“We were talking with WARF on some different strategies, and about a year ago came up with an idea to start our own fund and find a partner who can pull the trigger and make those investments.”
WARF, the technology patent, licensing and commercialization office of the University of Wisconsin-Madison, works with researchers at the university to patent novel technologies and methods that can be commercialized or spun-off into startups, and has front-row access to numerous life sciences and technology startups coming out of what is one of the largest research institutions in the United States.
During PitchBook’s visit to WARF in early November, Carrie Thome, the director of investments, noted that while drug discovery and life sciences technology were still the major areas of focus for WARF’s patent and commercialization efforts, software and information technology are becoming a more important aspect of the university community’s startup scene. And that’s something WARF hopes to be part of with 4490 Ventures.
“This is brand new for both [WARF and SWIB],” Prestigiacomo said. “GPs tend to come to us with the structure already in place, so we’re just committing to the fund as an LP. In this situation, we’re actually creating the management company and creating the infrastructure for the management company. We’re the ones drafting and negotiating the documents. We’re the ones that are out trying to find our partner. The relationship with WARF has been great, it’s been very easy, and we’re really pleased with how things are progressing.”
Ultimately, Prestigiacomo sees potential for 4490 and his state’s burgeoning startup scene.
“There seems to be a lot of momentum, a lot of excitement,” he said. “I’m starting to see some similarities to what happened in Chicago and Austin years ago. We’re still in the early innings, but with everything that’s happening here I do see a very bright future for the state of Wisconsin.”
Q: Can you tell us a little bit about what you do and what the State of Wisconsin Investment Board (SWIB) does?
A: The State of Wisconsin Investment Board is a money manager. We manage the retirement assets of the Wisconsin retirement system, so that’s the retirement assets of all state employees, teachers, firefighters and police officers throughout the state. I’m a portfolio manager at SWIB and manage two portfolios. One’s a debt portfolio; we’re investing in senior debt and mezzanine debt financings for businesses throughout the state of Wisconsin and the Midwest; and then I also manage a venture capital portfolio. That portfolio is primarily focused on Wisconsin and the Midwest, and we’ve invested in a handful of general partnerships that are really focusing their dollars here within the state.
Can you tell us a little bit about SWIB’s venture capital investment strategy?
The strategy we launched in the late ’90s [came as] there was a lot of activity going on in Silicon Valley that was the buildup of the dotcom bubble. And so we started looking here around the state and we were seeing opportunities more on the life sciences side. So our board of trustees at that point in time decided to put in place a strategy where we would be investing in early stage companies in Wisconsin. There’s a tremendous amount of research funding that comes into the state to fund a lot of startup activity and we think that there’s an opportunity to capitalize on that and generate good returns for our beneficiaries.
Venture capital performance has left a lot to be desired. There will be funds that outperform and underperform, but by and large, VC funds have underperformed. When you make those investments and choose which funds to put money in, what are you looking at to pick those funds that will be outperformers?
For one, you’re looking at the marketplace and you’re looking at the strategies that the partners are looking to capitalize on. So it’s very important that you have a stable team that has been doing this [investing] for a while and has been successful. We tend to not invest in emerging managers, we like to see a team that’s been around for a while, that has invested together and that has generated good returns for their investors.
Can you tell us a little bit about 4490 Ventures, a joint venture fund between SWIB and the Wisconsin Alumni Research Foundation (WARF), and your role in this new fund?
4490 Ventures is a strategy we officially launched in March of 2013. It’s a strategy where we’re going to be investing in early stage information technology companies mainly at the seed stage, as well as Series A. Madison and other areas of Wisconsin have been predominately life sciences focused and there has been a lot of money that has gone into that sector. But over the past couple of years we’ve been starting to see more IT opportunities, and a lot of companies have come to us looking for money when we didn’t really have a direct investment vehicle for us to be investing in those companies. So, I think over time a lot of those startups eventually had trouble raising money, and left.
We were talking with WARF on some different strategies, and about a year ago came up with an idea to start our own fund and find a [general] partner who can pull the trigger and make those investments. So we’re looking for someone with venture capital experience and who was a founder or operator of a startup—really, someone who has walked in the shoes of the entrepreneurs who are here. Ultimately we think there are good opportunities here [in Wisconsin] for us to be investing in and we can make good returns for our beneficiaries.
How did the name “4490” come about?
This was actually a competition SWIB and WARF started. We went out to our employees and said, “We want you to come up with a name for this fund.” And we didn’t want the name of the fund to be solely Wisconsin-centric, so we didn’t want “The Wisconsin Fund,” or “The Badger Fund” or “The Cheese Fund.” We wanted a name for the fund that could grow outside of the state, so what we ultimately came up with was 4490 Ventures. 4490 is the latitude and longitude of the center of the state of Wisconsin.
What do you anticipate for 4490 in the future?
Fund 1 will predominately be invested here in Wisconsin, and we’re going to give our partner a little bit of flexibility to invest outside of the state. That’s a way for him or her to develop relationships with other VCs. There’s a lot of give and take in the venture community, [with a mentality of] “if you invest in their company, they’ll invest in ours.” So this is a way for our partner to develop those relationships. Fund 2, if Fund 1 is successful, will most likely be a larger fund where we’ll take off that geographic constraint. They [the fund] still need to be headquartered here, and if they’re headquartered here, since VCs tend to like to invest close to home, they’ll be investing here. But we’ll allow them to invest in a broader region, hopefully the Midwest, and then Fund 3 will have more of a domestic strategy.
What were the main challenges to putting together 4490, essentially from scratch?
This is brand new for both organizations. GPs tend to come to us with the structure already in place, so we’re just committing to the fund as an LP. In this situation, we’re actually creating the management company and creating the infrastructure for the management company. We’re the ones drafting and negotiating the documents. We’re the ones that are out trying to find our partner. The relationship with WARF has been great, it’s been very easy, and we’re really pleased with how things are progressing. But the challenge has really been recruiting, trying to find somebody to come to the Midwest. They need to have or believe that there are opportunities here. The candidates in our pool right now who are probably our top three or four are doing a lot of due diligence on Wisconsin, SWIB and WARF, and are finding that this is an attractive opportunity. So we’re really pleased with the work that’s gone into finding our partner, and hopefully we’ll have somebody here before the end of the year.
Our goal is to hopefully make an offer by the end of the year and first quarter of 2014 we’ll be ready to launch and ready to invest. Essentially all the infrastructure is forming today, so office space where we’ll be renting here in Madison and in Milwaukee, that’s starting to come together, but the most important part of this is finding the right person to invest the money. Without that person we can’t operate.
Do you have anything else you’d like to add?
I think what I would say is that I’m really excited about startup activity in the information technology space [in Wisconsin]. There seems to be a lot of momentum, a lot of excitement. I’m starting to see some similarities to what happened in Chicago and Austin years ago. We’re still in the early innings, but with everything that’s happening here I do see a very bright future for the state of Wisconsin.