Foxconn executives get a feel for Wisconsin entrepreneurship at Madison conference

Venture capitalists discuss impact of development on deal flow

Two Foxconn employees attended the two-day Wisconsin Entrepreneurs’ Conference in Madison this week to get a feel for Wisconsin’s startup climate.

Alan Yeung speaks at the Wisconsin Entrepreneurs Conference in Madison June 6, 2018.

Alan Yeung, director of U.S. strategic initiatives at Foxconn, spoke at the concluding conference luncheon at his alma mater, University of Wisconsin-Madison, about the company’s commitment to entrepreneurship and innovation.

“We’ve been actually doing a lot of listening. … Two of my colleagues have been here the last couple days really getting immersed in the entrepreneurship environment, culture that I seem to remember from many years when I was a student here,” Yeung said.

He touted the company’s $1 million commitment to its Smart City, Smart Future initiative to seek and develop ideas for smart connected cities and systems, but also hinted at additional investments in startups here.

“We hope in the weeks and months to come, we can come back to you and actually announce more of the work that we want to do to contribute to your success,” Yeung said to the gathered entrepreneurs.

Asked what kinds of technology Foxconn is interested in, he pointed to health care and medical sciences and autonomous vehicles.

“We also would like to be not just a doer and practitioner. We’re also looking towards becoming investor, accelerator and hopefully enabler in the community as well,” Yeung said.

Asked after his talk whether Foxconn plans to establish a venture capital fund in Wisconsin, Yeung said, “I don’t have a comment on that right now.”

He said entrepreneurs in the state can benefit from more variety in deal sizes, more ideas and the ability to tap into risk capital. His colleagues attended the conference to get a feel for the entrepreneurship community in the state, not to seek potential investments, Yeung said.

“We will be doing a lot more. Right now, we’re still in the listening mode,” he said.

Venture capitalists speaking during a panel discussion at the Wisconsin Technology Council’s conference earlier in the day said Foxconn’s presence in the state alone, as well as a potential venture capital fund, could drive more deal activity.

Andy Walker, Ross Leinweber, Jonathon Horne, Richelle Martin, Dan Brooks and David Trotter discuss the Badger Fund of Funds with Tom Still.

“I want to see more big companies in this region as what I see as potential consumers for startup activity and I think Foxconn is one of those,” said Andy Walker, a partner at Rock River Capital Partners. “I think you could also look at Foxconn stating that they’re putting their own venture capital arm in Milwaukee, and I think that’s positive, too. I’d love to be syndicated or working with a fund like that that can tell me what are exactly the problems that a manufacturer like Foxconn would invest in so that I could follow those trends, as well.”

“Wisconsin is in a good position to have discretionary capital to put toward investments, to put toward innovation. Illinois is not,” said Ross Leinweber, founder of Milwaukee-based Bold Coast Capital. “I just see the next 10 years as, in general, well-suited for Milwaukee to take market share. The Foxconn thing … is this cherry on top.”

“Certainly Foxconn by itself is probably not a good deal,” he continued. “But what happens is you’re going to put dominoes in place around Foxconn on the table. And if you can get those dominoes all to fall down, it just provides Wisconsin with this unique opportunity where investment capital can create some really fabulous returns.”

The fund managers, who are raising and deploying capital into startups statewide as part of the Badger Fund of Funds, discussed their “fishing for minnows” approach to venture capital investment, seeking younger companies that need less capital to finance their growth.

“You’re going in a lot earlier than maybe some traditional VC shops would, and for these entrepreneurs I think it’s really great to have the opportunity to get a institutional investor to put in 400 or 500,000 to really let them flesh their idea out and not spend all their time fundraising and really focus on running that business. And when you build a broader portfolio of these really nascent stage companies, you can have a really material impact and also increase your chances for return without having to put out 4, 5, 6, 7 million dollars to chase the later-stage opportunities,” said Dan Brooks, senior associate at Sun Mountain Capital, which co-manages the Badger Fund of Funds.

The fund managers also said they’re open to syndication with other funds, since most are planning to initially invest smaller check sizes of about $300,000 to $500,000.

“We will actively be syndicating with funds in Wisconsin and outside Wisconsin,” Walker said. “It’s good for us to syndicate to make sure we have a larger pool of capital on the cap table.”

“Most likely, the companies that we see are going to need additional dollars,” said David Trotter, managing director of Winnebago Capital Partners.

The fund managers described themselves as industry agnostic, and geographically focused on Wisconsin startups. They are seeing more activity in some industries than others, though.

“I think the e-commerce wave has come and gone and it’s hard for me to get excited about that space right now.  Cyber, there’s still a ton of room for growth. There’s the classic fintech, insuretech. We have a lot of insurance in the Midwest, I think we’ve got a lot of really good insurance startups because of that. Obviously in the health IT space we’ve seen some really interesting deals as well,” he said.

“If you look at our industry agnostic approach, I think it lines up well with some of the other success stories, like gener8tor,” Walker said. “Our plan is to be a similar type of fund as what they are on the accelerator side.”

“One of the advantages of being a fund size like ours, one of the reasons we sized ours at $13 million, is we can be very happy, and so can the entrepreneur, on a $25 to $50 million exit. And you can do that in any industry,” said Jonathon Horne, managing director of the Idea Fund of La Crosse.

“We’re all about finding the things that are going to be problem-solvers,” said Richelle Martin, managing director of the Madison-based Winnow Fund. “Really the goal is to focus on what we think is going to be the best investment for the fund.”

Walker and Horne, who have had their funds established longest, said they have each met with about 200 entrepreneurs over the past year.

“There’s no shortage of deal flow, and quality deal flow, in the state,” Horne said.

“I’m taking as many entrepreneurial meetings as I can handle right now,” Leinweber said. “I really value person-to-person meetings.”

“We try to help wherever we can,” Walker said. “If we can’t write a check, we try to connect you with somebody that can. In some cases, maybe there’s things we can do on the operational side to help.”

And the fund managers also mentioned their plans to use their capital to attract startups to the state from Minneapolis and Chicago.

The challenge in the Midwest is a lack of density, which impacted even Chicago startup growth 10 years ago, Walker said.

“I think some of the best returns are going to start coming from areas like Chicago,” he said, pointing to Groupon and Cleversafe’s recent exits. “When you start getting some of these unicorn-like exits, it creates some massive momentum in that region.”

Walker said Wisconsin is catching up to Chicago, and is maybe five years behind its larger neighbor.

“I think a lot of what’s happening in the state has to do with risk tolerance. Wisconsin’s a conservative community. As it relates to the cycle, we’re just three or four years behind,” Leinweber said.

“It’s pretty clear that the country and the coasts (are) waking up to the idea that there are returns in other parts of the country,” Brooks said. “The Midwest is really well-positioned to capitalize on that momentum.”

Two Foxconn employees attended the two-day Wisconsin Entrepreneurs’ Conference in Madison this week to get a feel for Wisconsin’s startup climate.

Alan Yeung speaks at the Wisconsin Entrepreneurs Conference in Madison June 6, 2018.

Alan Yeung, director of U.S. strategic initiatives at Foxconn, spoke at the concluding conference luncheon at his alma mater, University of Wisconsin-Madison, about the company’s commitment to entrepreneurship and innovation.

“We’ve been actually doing a lot of listening. … Two of my colleagues have been here the last couple days really getting immersed in the entrepreneurship environment, culture that I seem to remember from many years when I was a student here,” Yeung said.

He touted the company’s $1 million commitment to its Smart City, Smart Future initiative to seek and develop ideas for smart connected cities and systems, but also hinted at additional investments in startups here.

“We hope in the weeks and months to come, we can come back to you and actually announce more of the work that we want to do to contribute to your success,” Yeung said to the gathered entrepreneurs.

Asked what kinds of technology Foxconn is interested in, he pointed to health care and medical sciences and autonomous vehicles.

“We also would like to be not just a doer and practitioner. We’re also looking towards becoming investor, accelerator and hopefully enabler in the community as well,” Yeung said.

Asked after his talk whether Foxconn plans to establish a venture capital fund in Wisconsin, Yeung said, “I don’t have a comment on that right now.”

He said entrepreneurs in the state can benefit from more variety in deal sizes, more ideas and the ability to tap into risk capital. His colleagues attended the conference to get a feel for the entrepreneurship community in the state, not to seek potential investments, Yeung said.

“We will be doing a lot more. Right now, we’re still in the listening mode,” he said.

Venture capitalists speaking during a panel discussion at the Wisconsin Technology Council’s conference earlier in the day said Foxconn’s presence in the state alone, as well as a potential venture capital fund, could drive more deal activity.

Andy Walker, Ross Leinweber, Jonathon Horne, Richelle Martin, Dan Brooks and David Trotter discuss the Badger Fund of Funds with Tom Still.

“I want to see more big companies in this region as what I see as potential consumers for startup activity and I think Foxconn is one of those,” said Andy Walker, a partner at Rock River Capital Partners. “I think you could also look at Foxconn stating that they’re putting their own venture capital arm in Milwaukee, and I think that’s positive, too. I’d love to be syndicated or working with a fund like that that can tell me what are exactly the problems that a manufacturer like Foxconn would invest in so that I could follow those trends, as well.”

“Wisconsin is in a good position to have discretionary capital to put toward investments, to put toward innovation. Illinois is not,” said Ross Leinweber, founder of Milwaukee-based Bold Coast Capital. “I just see the next 10 years as, in general, well-suited for Milwaukee to take market share. The Foxconn thing … is this cherry on top.”

“Certainly Foxconn by itself is probably not a good deal,” he continued. “But what happens is you’re going to put dominoes in place around Foxconn on the table. And if you can get those dominoes all to fall down, it just provides Wisconsin with this unique opportunity where investment capital can create some really fabulous returns.”

The fund managers, who are raising and deploying capital into startups statewide as part of the Badger Fund of Funds, discussed their “fishing for minnows” approach to venture capital investment, seeking younger companies that need less capital to finance their growth.

“You’re going in a lot earlier than maybe some traditional VC shops would, and for these entrepreneurs I think it’s really great to have the opportunity to get a institutional investor to put in 400 or 500,000 to really let them flesh their idea out and not spend all their time fundraising and really focus on running that business. And when you build a broader portfolio of these really nascent stage companies, you can have a really material impact and also increase your chances for return without having to put out 4, 5, 6, 7 million dollars to chase the later-stage opportunities,” said Dan Brooks, senior associate at Sun Mountain Capital, which co-manages the Badger Fund of Funds.

The fund managers also said they’re open to syndication with other funds, since most are planning to initially invest smaller check sizes of about $300,000 to $500,000.

“We will actively be syndicating with funds in Wisconsin and outside Wisconsin,” Walker said. “It’s good for us to syndicate to make sure we have a larger pool of capital on the cap table.”

“Most likely, the companies that we see are going to need additional dollars,” said David Trotter, managing director of Winnebago Capital Partners.

The fund managers described themselves as industry agnostic, and geographically focused on Wisconsin startups. They are seeing more activity in some industries than others, though.

“I think the e-commerce wave has come and gone and it’s hard for me to get excited about that space right now.  Cyber, there’s still a ton of room for growth. There’s the classic fintech, insuretech. We have a lot of insurance in the Midwest, I think we’ve got a lot of really good insurance startups because of that. Obviously in the health IT space we’ve seen some really interesting deals as well,” he said.

“If you look at our industry agnostic approach, I think it lines up well with some of the other success stories, like gener8tor,” Walker said. “Our plan is to be a similar type of fund as what they are on the accelerator side.”

“One of the advantages of being a fund size like ours, one of the reasons we sized ours at $13 million, is we can be very happy, and so can the entrepreneur, on a $25 to $50 million exit. And you can do that in any industry,” said Jonathon Horne, managing director of the Idea Fund of La Crosse.

“We’re all about finding the things that are going to be problem-solvers,” said Richelle Martin, managing director of the Madison-based Winnow Fund. “Really the goal is to focus on what we think is going to be the best investment for the fund.”

Walker and Horne, who have had their funds established longest, said they have each met with about 200 entrepreneurs over the past year.

“There’s no shortage of deal flow, and quality deal flow, in the state,” Horne said.

“I’m taking as many entrepreneurial meetings as I can handle right now,” Leinweber said. “I really value person-to-person meetings.”

“We try to help wherever we can,” Walker said. “If we can’t write a check, we try to connect you with somebody that can. In some cases, maybe there’s things we can do on the operational side to help.”

And the fund managers also mentioned their plans to use their capital to attract startups to the state from Minneapolis and Chicago.

The challenge in the Midwest is a lack of density, which impacted even Chicago startup growth 10 years ago, Walker said.

“I think some of the best returns are going to start coming from areas like Chicago,” he said, pointing to Groupon and Cleversafe’s recent exits. “When you start getting some of these unicorn-like exits, it creates some massive momentum in that region.”

Walker said Wisconsin is catching up to Chicago, and is maybe five years behind its larger neighbor.

“I think a lot of what’s happening in the state has to do with risk tolerance. Wisconsin’s a conservative community. As it relates to the cycle, we’re just three or four years behind,” Leinweber said.

“It’s pretty clear that the country and the coasts (are) waking up to the idea that there are returns in other parts of the country,” Brooks said. “The Midwest is really well-positioned to capitalize on that momentum.”

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