BrightStar Wisconsin aims to persuade the wealthy to donate to a very important cause: Wisconsin’s economy

There is a famine of risk capital for young companies in Wisconsin, which is the biggest reason that good ideas that could lead to jobs are going hungry in this state. Sluggish job growth is a perilous trend that threatens the state’s well-being now and especially in the future.

That’s why we’re so intrigued by a creative venture from Tom Shannon, the entrepreneur and angel investor who oversaw the 2009 sale of the Waukesha biotech firm Prodesse Inc. for $72 million.

His BrightStar Wisconsin Foundation Inc. proposes to invest donors’ money in high-growth, technology-based companies across the state. We hope BrightStar succeeds.

This matters because most new jobs are created by young companies. Established businesses are important — this region would be far poorer without the likes of Johnson Controls, Northwestern Mutual and Rockwell Automation. But if a state isn’t creating new companies, it’s probably not creating many new jobs. Exhibit A for this assertion is Wisconsin.

Wisconsin was among the worst-performing states in the nation for entrepreneurial activity in the past 10 years, reports the Kauffman Foundation. The state’s job growth has lagged the nation for at least 15 years, and part of the reason surely is the state’s abysmal record for launching new companies. The state’s rate of business starts as measured as a share of all private businesses was just 2.2% in 2011, far below the 2.9% national rate and next to last among the 50 states.

Shannon’s idea: Create a philanthropic incentive for the wealthy to fund start-ups in Wisconsin. They won’t be “investors.” They’ll be “donors.” They won’t get a “return.” They’ll get the “satisfaction” of knowing that they are giving back to their state and helping to create jobs. And, oh yes, they will get a break on their federal taxes. That, in a nutshell, is the idea behind BrightStar.

Shannon and seven others have pledged at least $500,000 each and raised $6 million so far. They hope to raise at least $60 million more over the next three years, and the goal is to reach $150 million or more of assets, Shannon said.

“This could be our last kick at the can,” Jeff Rusinow, a founding donor, told the Journal Sentinel’s Kathleen Gallagher. He was principal investor in BuySeasons.com, a successful online costume retailer, among other companies. “This is a special opportunity to get it right.”

Will it work? Shannon and the team brim with confidence. But BrightStar needs the Internal Revenue Service to sign off on that tax break — and then its founders need to do the hard spade work of persuading wealthy people with ties to Wisconsin that they should do something charitable for their home state without any hope of a monetary return.

“We’ll never have enough angels, and we’re not going to get the state money because we’re frugal, and that leads to the philanthropic model because Wisconsinites have proven to be extremely generous,” Shannon told Gallagher.

It’s also clear to us that, unlike in states such as Ohio or Colorado, the public purse is unlikely to ever be much of a solution. In its last session, the Legislature passed a bill to raise $25 million for a “fund of funds” that will invest in angel and venture capital funds that will, in turn, invest in young Wisconsin companies (Gov. Scott Walker signed the bill into law on Thursday).

That’s a positive development, but $25 million is a pittance. Much more was needed. On top of its penuriousness, the Legislature, to appease some conservatives, exempted biotech — an area of deep expertise for the University of Wisconsin-Madison. It was a decision that only made sense to the ideologues.

So it’s obvious that the state’s entrepreneurs cannot count on the Legislature no matter how many arms are broken patting pols on the back.

Of course, they shouldn’t count only on Shannon, either.

Even if BrightStar succeeds in raising $150 million, that’s still only part of what needs to happen. We think a slightly larger commitment to economic growth from several of the bigger pots of money in the state — including the State of Wisconsin Investment Board, the Wisconsin Alumni Research Foundation and the University of Wisconsin Foundation — would help. It also would help if WARF was better at creating start-up companies

Wisconsin does not lack for good ideas. Its research universities, led by the flagship UW campus in Madison, are powerhouses. Its private companies produce a wealth of patents. What the state lacks is enough money to commercialize some of the best ideas. This may be the single most important variable that will determine whether children growing up in Wisconsin today decide to stay in Wisconsin when they come of age.

BrightStar is a creative idea that may be able to pry open the wallets of wealthy ex-Badgers around the country, in places such as Silicon Valley and Boston. We hope so. It’s not too strong of a statement to say that the kind of state Wisconsin becomes will depend upon efforts such as BrightStar.

Original Article:

http://www.jsonline.com/news/opinion/helping-young-companies–creatively-b995734…

It’s time to lead instead of falling further behind

For at least two years now, headlines and editorials have all sounded the same theme: “State lags nation in job growth.”

Thought leaders such as Tom Still of the Wisconsin Technology Council; Dan Steininger of BizStarts; Julia Taylor of the Greater Milwaukee Committee; and entrepreneur John Torinus have eloquently and repeatedly cited irrefutable data to lay out the problem and the solution:

We need to get more companies started in Wisconsin, and to do that we need more access to capital invested in early-stage, high-growth companies.

Why isn’t this job-creating capital investment happening in Wisconsin?

We have the ideas. Our universities have some of the largest R&D budgets in the country. We have the brainpower. Generous wealthy philanthropists and foundations are donating hundreds of millions of dollars for education through scholarships, naming rights, discovery centers and facilities. We have a proliferation of ideas and an educated workplace to implement them into scalable businesses.

Public-sector capital formation is not my forte, but I have listened intently to the numerous proposals for public investment in job creation. After all the talk of declining state budgets, “fund of funds” vs. CAPCO, and with the political wrangling around the issue, it is apparent that meaningful investment just isn’t going to come from Wisconsin’s public sector.

Only $25 million of the state budget is earmarked for potential deployment to high-growth companies, and the odds are slim that even that amount will find its way to where it is truly needed. Colorado, on the other hand, just announced the launch of a $150 million venture fund to invest in local start-ups — and that is small compared with some other states’ initiatives.

We are quickly falling further behind.

Private-sector, early-stage capital formation usually involves investors who band together as angels in groups. They are willing to attend investor pitches, share due diligence, are not rattled by seeing greater than 50% of their investments fail and will wait five to seven years for a return. This is ground zero for job creation in Wisconsin, and we need many more angel groups to get companies off the ground.

These people can be supported and encouraged by us, but they are not easy to clone in large volume. Solely relying on private sector venture funds or angel investments is not the solution to our problem of creating more job-producing companies.

What then is the solution? Can we change the course of a state we all love? I think we can. Here’s how:

Seven of my colleagues and I see only one game-changing way: to do it ourselves in the private sector, without taxpayer dollars. The solution is to call on Badgers throughout the world who care about Wisconsin to come to its aid by changing the discussion from an investment discussion to a charitable discussion.

For this specific purpose, eight of us have created the BrightStar Wisconsin Foundation as a 501(c)(3) entity and have pledged nearly $6 million of our own money to get the ball rolling. These permanent donations will be owned by the foundation and invested directly into early stage businesses. There will not be fees or carried interest.

Through our extensive cumulative investment backgrounds, we will work with local angels and venture firms to identify opportunities and invest with them. Our eventual proceeds will come back to the foundation to be reinvested again and again. Think of the possibilities. As the foundation grows large, we can add additional services.

We are calling for assistance from the same wealthy individuals, corporations and foundations that already are making a difference in education to earmark part of their future donations for creating jobs via BrightStar. You know who you are. We need your help. By allocating a portion of your charitable donations to this job creation solution, we will be able to commercialize more good ideas, create more jobs for our graduates and create a more vibrant state.

This solution is novel, but also simple and obvious. It can put us back in the lead instead of the alternative — falling further behind.

Original Article:

http://www.jsonline.com/news/opinion/a-bright-idea-for-job-growth-b9950821z1-215…

Eight business leaders and investors have joined together to create the BrightStar Wisconsin Foundation, a new nonprofit vehicle for investing in early-stage companies.

The eight have pledged to contribute a total of nearly $6 million to set up the philanthropic foundation, and they expect it to raise another $60 million over the next three years.

Donors will not get any return on their investment; the nonprofit organization will pump nearly all of its earnings and returns back into young companies to create more jobs and grow the economy.

“Our unique approach with BrightStar is focused on creating high-paying jobs,” said co-founder Tom Shannon, who will lead the foundation. “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.”

Shannon was chief executive of Prodesse, a Waukesha company that developed molecular diagnostic tests for flu. Prodesse was purchased in 2009 for $72 million by Gen-Probe, of San Diego, which is now part of Massachusetts-based Hologic.

Other BrightStar Wisconsin Foundation co-founders include Mark Burish, partner with the Hurley, Burish & Stanton law firm in Madison and board chairman of Sonic Foundry, and Mike Shannon, a UW alumnus and managing director of KSL Capital Partners, a private equity firm in Denver and New York. KSL unsuccessfully bid against Apollo Global Management to buy Great Wolf Resorts of Madison last year.

Original Article:

http://host.madison.com/wsj/business/wisconsin-business-leaders-form-new-investm…

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.

Original Article:

http://www.bizjournals.com/milwaukee/news/2013/07/10/brightstar-wisconsin-founda…

For Immediate Release

Business leaders, early-stage investors announce formation of BrightStar
Wisconsin Foundation to support job creation, economic growth in state

MILWAUKEE, July 10, 2013 – Eight leading business leaders and early-stage investors today announced the formation of the BrightStar Wisconsin Foundation Inc., a groundbreaking philanthropic approach to supporting job creation and economic growth statewide through investment in early-stage companies. This new approach will enable the formation of new investment capital through charitable donations to the foundation.

Tom Shannon, an experienced early-stage investor who was chief executive of Prodesse Inc. until its 2009 acquisition by global biotechnology leader Gen-Probe Inc. for $72 million, will lead the foundation on a volunteer basis. Mr. Shannon and seven co-founders have made pledges totaling nearly $6
million to establish the foundation. The foundation expects to raise an additional $60 million during the next three years.

The poor track record of capital formation and investment in job-creating young companies in Wisconsin is well known. The Badger state ranks in the middle of the pack for venture capital investment, despite the fact that it consistently outpaces most other states in patents and research and development
spending on a per-capita basis. Angel investing in the state has begun to accelerate, but new investment approaches must be created because many wealthy individuals, corporations and foundations are not inclined to participate in forprofit angel and other early-stage investing.

In an effort to support job creation across Wisconsin, the BrightStar Wisconsin Foundation is in the process of filing an application with the Internal Revenue Service for 501(c)3 tax-exempt status. Assuming BrightStar’s application is approved, contributions to the foundation from corporations, foundations and wealthy individuals will be tax deductible. Because BrightStar is operating as a non-profit, more of the capital raised can be invested. Virtually all earnings and returns from the foundation’s portfolio companies will be reinvested to create additional high-quality jobs and continue to grow Wisconsin’s economy. Donors are not entitled to any return of their contributed capital or any share of BrightStar’s earnings.

“Our unique approach with BrightStar is focused on creating high-paying jobs,” Mr. Shannon said. “We’re doing it through a philanthropic model that promotes capital formation through capital donation, puts more contributed capital to work and reinvests almost all of the returns in companies statewide that are driving Wisconsin’s economic recovery. 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.”

Mr. Shannon is joined by the following seven business and investment leaders as a co-founder of the BrightStar Wisconsin Foundation.

  • Mark Burish, partner, Hurley, Burish & Stanton law firm; chairman of the board, Sonic Foundry Inc.
  • Michael Drescher, co-founder and chief executive, Okanjo Partners Inc.
  • Susan Engeleiter, president and chief executive officer, Data Recognition Corp. former administrator, U.S. Small Business Administration
  • Jeff Harris, investor and director, Somna Therapeutics Inc., Shamrock Energy Corp. and Okanjo Partners Inc., all Wisconsin early-stage companies
  • George Mosher, Milwaukee super angel investor; former owner National Business Furniture
  • Jeff Rusinow, angel investor and founder, Silicon Pastures, Milwaukee’s first angel network
  • Mike Shannon, managing director, KSL Capital Partners LLC, a private equity firm

“The Wisconsin Economic Development Corp. applauds BrightStar’s innovative early-stage investment approach,” said Reed Hall, secretary and chief executive of WEDC. “Capital formation, particularly for investment in earlystage companies, continues to be an ongoing, statewide problem in Wisconsin. BrightStar’s unique model supports WEDC’s mission by engaging new investors and increasing the total amount invested in early-stage companies each year.“

About the BrightStar Wisconsin Foundation Inc.

The non-profit BrightStar Wisconsin Foundation is using a groundbreaking philanthropic approach to support job creation and economic growth across Wisconsin through investment in early-stage companies. This new approach will enable the formation of new investment capital in Wisconsin through charitable donations to the foundation. Contributions to BrightStar will be tax deductible, assuming receipt of a tax-exempt determination from the Internal Revenue Service. The foundation is filing an application to obtain formal recognition of its status as a tax-exempt organization under section 501(c)3 of the Internal Revenue Code. The organization’s non-profit, tax-exempt status will mean that more of the capital raised can be invested in high-growth, job-creating companies and that virtually all earnings and returns can be reinvested. BrightStar hopes to begin screening companies seeking investment in the fall.

Donors getting BrightStar started; all returns would add to fund

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.

Pursuing tax exemption

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 foundation will reinvest in state companies all earnings and returns from its portfolio. Aside from the tax breaks, donors will not receive any return on their contributions. BrightStar will hire two staff members in the near future, he said.

In their initial discussions with potential donors, BrightStar organizers have encountered “lots of enthusiasm,” said Jeff Harris, a founding donor who encouraged Shannon during a phone conversation in November to pursue the idea.

Along with co-investing in young state companies over the last decade, both Harris and Shannon have for years participated in committee meetings and panel discussions about how to address Wisconsin’s lukewarm entrepreneurial environment.

“This could be our last kick at the can,” said Jeff Rusinow, a founding donor who was principal investor in BuySeasons.com, a successful online costume retailer, among other companies. “This is a special opportunity to get it right.”

Start-ups bring jobs

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.

Wisconsin has lagged the nation in job growth since the mid-1990s, partly because of its low rate of business starts when measured as a share of all private firms in the state, according to a report released earlier this year by the Wisconsin Taxpayers Alliance.

That rate averaged 2.2% in 2011, well below the national average of 2.9% and ranking Wisconsin 49th in the country, ahead of only Iowa.

The more start-ups there are, the more opportunities there are to grow bigger companies and create jobs.

Other states that are further ahead in this area either have a large number of angel investors funding early stage companies or state funding that is driving more investment, Shannon said.

Wisconsin has only about 300 angel investors — wealthy individuals who provide funding and other support to emerging, high-growth potential companies, Shannon said.

About 50 of those are active, and about 10 are very active, he said.

Wisconsin politicians several years ago began trying to pass a $400 million, state-sponsored investment plan, but recently settled on $25 million for venture and angel investing.

Even that came with political strings, with a prohibition against using the money for investment in biotech companies.

That caveat came even though more than half of the research funding at the University of Wisconsin-Madison, one of the world’s largest academic research organizations, is in life sciences

“We’ll never have enough angels, and we’re not going to get the state money because we’re frugal, and that leads to the philanthropic model because Wisconsinites have proven to be extremely generous,” Shannon said.

His pitch to potential donors: You’re making contributions to UW-Madison and other Wisconsin-based colleges and universities; why not add a little more to help BrightStar create jobs for all of those graduates?

Shannon said his commitment to getting the foundation off the ground without compensation comes from the frustration he has felt as an angel investor who hears week after week from start-ups that are seeking funding and coming up dry.

“I have the background, I have the time and I have the desire,” Shannon said. “I don’t want us to go the way of Detroit.”

BrightStar founding donors

Tom Shannon: Former lead investor and chief investment officer at Prodesse Inc., a Waukesha biotech company that was sold in 2009 for $72 million; founder of Shamrock Investments, which puts money into early stage companies.

Mark Burish: Partner at Madison law firm Hurley, Burish & Stanton; chairman of Sonic Foundry Inc.

Michael Drescher: Co-founder and CEO of Okanjo Partners Inc.; co-founder of JDTV Inc., a Glendale cable television listings business that was acquired in 1999 by Tribune Media Services.

Susan Engeleiter: President and chief executive officer at Maple Grove, Minn.-based Data Recognition Corp.; former administrator of the U.S. Small Business Administration. Tom Shannon’s sister.

Jeff Harris: Former general counsel at Sybron Dental Specialties, which became Apogent Technologies; investor in early stage, state-based companies including Somna Therapeutics Inc., Shamrock Energy Corp. and Okanjo Partners Inc.

George Mosher: Co-founder of National Business Furniture, which he sold in 2006 for $82 million; one of the state’s most prolific angel investors.

Jeff Rusinow: Former Kohl’s Corp. executive and a principal investor at BuySeasons.com; active angel investor and founder of Silicon Pastures, Milwaukee’s first angel investing network.

Mike Shannon: Managing director of KSL Capital Partners LLC, a private equity firm. Tom Shannon’s brother.

Original Article:

http://www.jsonline.com/business/nonprofit-forming-to-invest-in-wisconsin-start-…