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WisBusiness: New Company Plans to Fund Start-ups in Wisconsin and Midwest

Brian E. Clark

A new company based in Minneapolis -- dubbed Kips Bay Partners -- should begin pumping money into Wisconsin bioscience start-ups by next summer, according to one of the founding partners.

Tim Mathison, who worked for five years for Baird Venture Partners in Madison, said the firm hopes to make investments of up to $10 million in fledgling life-science companies -- mainly in the Midwest.

In addition to Mathison, 38, the other founding partners of the investment group are John Babitt, whose background is in medical technology finance; and the almost legendary Manny Villafana.

Villafana, a native of Brooklyn, is the founder of Cardiac Pacemakers, Inc. (the predecessor to Guidant Corporation, now the Cardiac Rhythm Management business of Boston Scientific, Inc.), St. Jude Medical, Inc. and three other medical technology companies. He spoke last month at the Early State Symposium in Madison.

WisBusiness editor Brian Clark interviewed Mathison recently.

Clark: How did Kips Bay Partners get its moniker?

It is named after the Kips Bay Boys and Girls Club in Manhattan. Manny Villafana grew up in the Bronx. Manny credits the club, which was backed by midtown Manhattan businessmen, from keeping him off the streets and on the straight and narrow. Manny talks about growing up Puerto Rican in the Bronx and the amount of gang activity that was there. He really believes the Boys Club put him on the path to his success in life. He remains a trustee there and has been very active with the club. Because of his work and donations, he’s in the National Hall of Fame for the Boys and Girls Club of America.

Clark: How did he end up in Minnesota?

That goes back to his days when he started with Medtronic. He was somewhere around number 75 in a company that now has tens of thousands of workers. He was the first international employee and was responsible for international sales, mostly in Latin America.

At the time, Medtronic was a pacemaker company and not diversified into medical devices like it is now. Medtronic was the leader at the time, but the problem in that era was that pacemakers would only last 12 to 18 months. Then the power source would wear down and you’d have to have a surgical procedure remove the pacemaker and implant a replacement. In some cases, these pacemakers would just fail abruptly, which was not very good for the patient.

Manny then founded Cardiac Pacemakers, which became Guidant. It was through his work in seeing that the pacemaker had its limitations as it was then being designed and sold in the marketplace that made him think there had to be a better way. At Cardiac Pacemakers, he teamed up with Bill Greatbach, who was one of the original founders of the pacemaker. The two teamed to design a new power source – the lithium iodine battery which is commonly used today. It was designed to last for the lifetime of the patient. Some continue to run 30 years after they were implanted.

Clark: Is Manny an engineer?

No. He jokingly says he is a graduate of the U of M – the University of Medtronic. But he’s spent his entire career in the OR with surgeons. Last year alone, he observed more than 30 open-heart procedures. He is always interested in finding a new way to do things.

Clark: You used to work in Madison?

I did, with Baird Venture Partners. I was on the health care team there, investing in early growth stage health care companies. I was there for five years and a total of seven with Baird.

Clark: What were some of the companies you invested in?

In the Wisconsin area, Baird Venture Partners was an investor in Tomotherapy and NimbleGen Systems, among others. Most recently was Caden Biosciences, which moved from Illinois to Madison. It closed about a week after I left for Kips Bay. We had a preference in the Midwest, but we invested nationally and a number of the 10 health care companies in the portfolio are doing well.

Clark: When did you make the jump to Kips Bay?

I wrapped up my responsibilities in the first part of August with Baird and moved to Minneapolis later that month.

Clark: What prompted you to make the switch?

In large part, it was the opportunity to work with an industry icon like Manny. He is a national and international figure. He’s really a pioneer. And along with him is John Babitt, who was recruited by Manny to work at a medical device company and this new enterprise.

Clark: How much do you hope to raise and invest?

There I have to be careful because of SEC guidelines. We are precluded from talking about how much capital we are seeking. What I can say is we plan to be able to invest up to $10 million in any one company. We are very focused on the startup and early stages.

Clark: And Wisconsin will be one of your main areas?

Absolutely. I value the relationships I built up there over the past five years. While I was there, I was on a number of different committees and organizational boards. There was always a lot of talk about regional collaboration in order to strengthen the position of the Midwest. I want to continue those relationships. We were back and participated in the Early Stage Symposium and met with companies and people of influence at the university and in tech transfer to talk about our investment thesis and things that we are interested in.

Clark: How will you be different than Baird or Venture Investors?

Venture Investors is held out as one of the premier firms in the Midwest that will actually invest in the start-up phase of a company. But what we find is generally and across the Midwest in particular, is that fewer and fewer firms are inclined to take that early stage and start-up risk. Part of that is because they don’t have the operational or clinical expertise to really dig in and collaborate with the entrepreneur and shorten the development timeline.

Our value proposition is to take the years of operational experience of Manny Villafana and John Babitt and pair that with my background in venture capital and being disciplined as investors and also being hands-on and able to guide and assist.

Clark: Are there any other firms that support start-ups?

Mason Wells invests at the early stage level in Wisconsin. As a state, you are fortunate to have two firms that are there at the start-up level. Baird will invest in Series A rounds, but typically it is one step after where Mason Wells and Venture would be. They are really more to grow the operations of a company rather than be involved in the start-up phase.

Clark: Where do angel investors fit in?

I think we will be working along with angel investors. I don’t view that as competitive, more so as cooperative. From the entrepreneur’s perspective, angel investors offer an important source of capital. But it often doesn’t come with the ability to follow up that investment with a follow-on round of financing. It also doesn’t often come with the guidance or mentorship that institutional capital does. We would provide more depth and more resources to the companies.

Clark: How soon do you think you might be able to make your first deals?

I think we will be in a position to start looking at companies and doing due diligence after the first of the year, with the first investments coming in the middle of the year.

Clark: Where did you go to school?

My undergrad was at the University of Minnesota, and I got my MBA at the University of Chicago.

Clark: Have start-ups been limited in Wisconsin because of lack of capital?

That’s a complex question. I would say that the lack of early-stage capital is one reason. Other factors are having the management team and depth of expertise to shorten timelines and get start-up companies ready for venture capital investment. When you look around the Midwest in particular, I think that Wisconsin is head-and-shoulders above its peers from the organizational level that the Wisconsin Angel Network (WAN) provides in its ability to share ideas. Certainly the Wisconsin Technology Council (WTC) and Joe Kramer at WAN have been instrumental in that.

In terms of early-stage capital, I think there are various sources out there. I don’t think Wisconsin is any worse off than any other Midwestern state. In some ways, it’s almost stronger here because of firms like Venture Investors and Mason Wells, who are interested in funding companies at the start-up phase and have a parochial interest in the state. Other states have fewer firms focused on that level.

The number of start-ups in some sectors may have more to do with the lack of infrastructure and support for the early-stage entrepreneur community. Wisconsin is more established in the life science area and I know Baird Ventures, as it invested in Caden Biosciences, relocated Caden from Illinois to Wisconsin because of the depth of the infrastructure and resources here. A life science reagent and tools company is a natural fit for the Madison area.

Clark: Is that growth of infrastructure a change you’ve seen in recent years?

Certainly over the last several. The last two has continued the work that was put in place by both the private and public sector through the WTC and the Wisconsin Biotechnology and Medical Device Association, by WARF and UW-Madison having more of an open door to collaborate with early-stage companies and making their resources available. Charlie Hoslet and Alan Dynes (at the UW-Madison Office of Corporate Relations) have contributed to that as well.

There has been a lot of focus on building the life science industry in Wisconsin. You’ve seen a lot of the different constituents come together to support that infrastructure and is starting to really make a difference.

Clark: Will you also invest outside the Midwest?

We will have the opportunity to invest nationally, but we are really focused on the Midwest with the premier research institutions here, as well as with entrepreneurial community.

In addition to the University of Wisconsin, we will be looking in our own backyard with the University of Minnesota, as well as the Mayo Clinic and over to the Cleveland Clinic.


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