Eight business leaders and early-stage investors are forming an unusual type of investment capital group: a nonprofit that will spur startups and job creation statewide through charitable donations.
The co-founders have pledged nearly $6 million to establish BrightStar Wisconsin Foundation Inc., Milwaukee, and they expect to raise another $60 million over the next three years.
The group is currently seeking 501(c)3 tax-exempt status and its founders hope to begin screening companies in the fall.
The formation of BrightStar comes after other recent announcements of initiatives to invest in startups, including a $25 million venture capital bill passed by the state Legislature and a $30 million venture capital fund formed by the State of Wisconsin Investment Board and Wisconsin Alumni Research Foundation.
Tom Shannon, a veteran early-stage investor who was CEO of Waukesha-based Prodesse Inc. until its 2009 acquisition by global biotechnology company Gen-Probe Inc. for $72 million, will lead the foundation as a volunteer.
The group wants to reverse Wisconsin’s meager capital investment track record. The state’s early-stage investments increased more than 6 percent last year to $162.3 million, but it ranks in the middle of the pack for venture capital investments, according to a recent report from the Madison-based Wisconsin Angel Network. This despite Wisconsin performing better on a per-capita basis than most states in patents, academic research and development spending, the group said.
Angel investing is also picking up steam, partly aided by a state tax credit, but BrightStar said “new investment approaches must be created because many wealthy individuals, corporations and foundations are not inclined to participate in for-profit angel and other early-stage investing.”
If the Internal Revenue Service approves BrightStar’s nonprofit status, donors’ contributions would be tax deductible, more of the capital it raises will go toward investments and virtually all earnings from portfolio companies would be re-invested to feed more job creation and economic growth, BrightStar said.
Donors would not receive any return from their contributions or any share of BrightStar’s earnings.
“Our unique approach with BrightStar is focused on creating high-paying jobs,” Shannon said in a written statement. “BrightStar will go a long way to help fill the significant gap of more than $250 million in Wisconsin between the need for and the availability of early-stage capital that supports job creation.”
The Wisconsin Economic Development Corp. applauded BrightStar’s “innovative” model.
“Capital formation, particularly for investment in early-stage companies, continues to be an ongoing, statewide problem in Wisconsin,” said Reed Hall, WEDC secretary and CEO, in a written statement.
The other BrightStar co-founders are:
- Mark Burish, a partner in Hurley, Burish & Stanton law firm, Madison, and chairman of Sonic Foundry Inc., Madison.
- Michael Drescher, co-founder and CEO, Okanjo Partners Inc., Milwaukee.
- Susan Shannon Engeleiter, president and CEO of Data Recognition Corp., Maple Grove, Minn., and a former U.S. Small Business Administration official and Republican Wisconsin state senator. She is Shannon’s sister and holds bachelor and law degrees from University of Wisconsin-Madison.
- Jeff Harris, investor and director of Somna Therapeutics Inc., Shamrock Energy Corp. and Okanjo Partners, all Wisconsin early-stage companies.
- George Mosher, Milwaukee super angel investor and former owner of National Business Furniture, Milwaukee.
- Jeff Rusinow, angel investor and founder of Silicon Pastures, Milwaukee’s first angel network.
- Mike Shannon, managing director of private equity firm KSL Capital Partners LLC, Denver. The UW-Madison alum is the brother of Tom Shannon and Susan Shannon Engeleiter.