State spurns new venture fund; Investment panel worried about depth of Broadwell fund's management team

The State of Wisconsin Investment Board has withdrawn its commitment to Broadwell Ventures, the successor company to one of the most active early-stage venture capital funds in the state.

The board, known as SWIB, said in April 2006 it would allocate as much as $50 million to new early-stage funds being raised by Madison-based Venture Investors and Milwaukee-based Mason Wells. The commitment was widely applauded because having Wisconsin-based funds focused on investing in young, local, high-tech companies gives the state a better shot at creating more high-paying jobs and expanding its tax base.

Venture Investors earlier this month closed on a new $115 million fund - the biggest early-stage venture fund ever raised in the state - that included a financial commitment from the investment board.

Mason Wells, though, won't get any SWIB money.

The investment board is committed to investing in state companies, but only when it makes sense from an investment perspective, said Chris Prestigiacomo, a portfolio manager for the board's venture capital and private debt investments.

The board changed its mind after Mason Wells said in May it was spinning off its planned new fund into an independent firm named Broadwell Ventures.

"We originally made our commitment to Mason Wells. We knew the team and knew the Mason Wells group well," Prestigiacomo said. The investment board has been an investor in Mason Wells' buyout funds - the bigger side of that firm's investment business.

The state investment board decided not to roll over its commitment to Broadwell because it viewed it as a first-time fund with a lack of team depth, Prestigiacomo said.

Dan Broderick, a Mason Wells managing director, is leading Broadwell. Others who worked on Mason Wells' previous venture funds, including Trevor D'Souza, did not move to the new firm.

Broderick said he was working to transfer the $35 million to $40 million of commitments to the Mason Wells fund to the new fund. SWIB had committed $10 million to Mason Wells, with an additional $5 million for direct investment in portfolio companies, according to an internal staff report.

"While we respect SWIB and its decision, it is disappointing and it could have an impact on the fund," Broderick said.

Broderick founded and is president of the Midwest Healthcare Investors Network, a group of more than 60 venture capital firms that shares information and tries to get enough capital to deals in this region so they can attract money from the coasts. He is also on the board of the National Venture Capital Association.

Before joining Mason Wells, Broderick was director of technology commercialization at Mayo Medical Ventures, the tech transfer and venture investment arm of Mayo Clinic

Despite his experience and strong networks that would help his new fund have good deal flow, SWIB had concerns, according to a staff report. Issues were raised about Broderick's ability to work with new partners and lack of a deep team; constraints on his time because of a need for him to stay involved in winding down investments in Mason Wells' first fund; and the lack of support from an organization like Mason Wells with a bigger infrastructure, the report said.

SWIB also hired Hamilton Lane to evaluate Broadwell, and the consulting firm came to a similar conclusion, according to a report Hamilton Lane prepared for the board.

When Venture Investors closed this month on its $115 million fund, it included a $25 million commitment from SWIB. The board also held out the possibility of an additional $5 million for its own investments in the fund's portfolio companies.

Venture capital fund performance is closely guarded. But previous funds Venture Investors managed had several successful portfolio companies, including Third Wave Technologies Inc. and TomoTherapy Inc., both of which went public. Acquired portfolio companies include NimbleGen Systems Inc., Intralase and Gala Design.

After selling a small portion of its shares in the initial public stock offering in May, Venture Investors still holds about 5.8 million shares, or almost $137 million worth of TomoTherapy stock, according to filings with federal securities regulators. That's about $68 million more than the amount institutions invested in all three of the firm's previous funds.

Mason Wells didn't have nearly as many successes. The firm was an investor in Gala Design and had one portfolio company, NameProtect, that was acquired.

James Leonhart is concerned about Broadwell's not getting the SWIB commitment.

"We do need another substantial early-stage venture capital fund based in the state because of the nature of the growing business in this state," said Leonhart, executive vice president of the Wisconsin Biotechnology and Medical Device Association.

Prestigiacomo said the board is committed to local venture capital investing.

"We do see some interesting things. We're working to hopefully redeploy that money," he said.

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