In our series on entrepreneurial Leaders & Influencers, we talk this week with Scott Button, Managing Director at Venture Investors, one of the leading venture capital firms in the Midwest, with over $200M under management. The firm focuses on making seed and early stage healthcare and technology investments.
Tell us a bit about your career before Venture Investors and the areas of expertise you bring to the company.
My path is non-traditional, but I’ve found that most people in our business don’t have a direct path to venture capital. I earned my BA in mechanical engineering from UW-Madison and worked for five years in sales and in the Detroit automotive industry. I decided to get my MBA, which I earned from the University of Chicago, then interned at McDonald’s Corporation. That was a good company, but it wasn’t the right place for me. My then-girlfriend/now-wife was doing her residency in Madison, so I decided I should pursue something here. A friend introduced me to (QTI Group CEO) Jay Loewi as business contact, and he put me in touch with the Venture Investors founders. I did an internship with them in 1996 and have been here ever since.
I think I bring a generalist background to the fund. Much of our business is about people skills and interpersonal relationships, and I also specialize in spinning companies out of universities—it’s something I’ve learned how to do over the years.
What are some recent developments you’ve noticed in venture capital in Madison and the Midwest? And what industries are of greatest interest to you personally?
It’s interesting because there hasn’t been a lot of obvious change, but actually things like the Act 255 tax credit have helped angel groups develop and funds form. And now, with the state’s Badger Fund, this will only help that initiative. Ventures like 4490, HealthX, and Bright Star are forming and are interested in investing in the state. In 2014 there was $228M under management and $86M invested from 28 companies, which indicates that Wisconsin is starting to get on the map. There’s momentum here with funds like Great Oaks and Google Investments, but more could be done in terms of the capital climate of our state. It’s the same for the region—Minnesota has been pretty strong, and Michigan has a strong policy in place with their fund-to-fund program.
As a firm, Venture Investors focuses on the Midwest and funding technology startups out of universities. We invest in academic-based startups, and we’ll continue to do that, but given the presence of Epic, there’s a tremendous eco-system around healthcare IT, and Dean Health and UW Health provide great places to test this new technology.
How do you evaluate a possible portfolio company and its business plan?
That’s a big question, but the short answer is that this is a people business, so first and foremost, it’s about getting to know the team. What are their ambitions? Do they have that “fire in the belly” that drives them to never take no for an answer? Do they have a strong sense of self-awareness and the areas where they do and do not have their greatest strengths? Does their product or service make sense from the perspective of a buyer?
Beyond that, we get into considering the details of market size, barrier to entry, financial strategy, and competitors. At the end of the day, my job is to make money for our investors—we look at several hundred opportunities a year and invest in just two or three.
What book do you think every aspiring entrepreneur should read and why? Any blogs or columns you might also recommend?
In general, any of the work by Steve Blank and his Lean Startup movement, which really speaks to the weaknesses universities had in being so protective of their ideas and their unwillingness to speak with customers. Now, thanks to people like Blank, the idea of getting out there and testing products with the customer is more prevalent.
Also, the work of Brad Feld and David Cohen on startup communities and TechStars, which I think has really impacted entrepreneurs and young entrepreneurs to create that culture and eco-system of the startup.
What’s the single most important change you’d like to see to encourage more innovation and entrepreneurship in Wisconsin?
Well, there’s no silver bullet, but I think there are a number of things we can do to build upon the infrastructure we have:
- The University of Wisconsin. The UW is a tremendous economic engine that has to potential to create world-class start-ups. We need to do more things to support that culture and infrastructure. Some things are already happening there, like the WARF Accelerator Program, but now it’s a matter of creating more activity here. We have this Midwestern value of fear of failure, but that’s a badge of honor in Silicon Valley.
- Industry. Companies like Cicso embrace the idea of someone walking in the door with an idea. Culturally, we need more corporate willingness to embrace entrepreneurship. And we have lots of great companies like Epic and GE right in our backyard to enable this.
- Policy. Act 255 has had a tremendous impact in creating the angel industry we have. What can lawmakers do to help further entrepreneurial growth in our state?
- Capital. We need more capital under management in our state—we’re way below the national average. We could support three to five times the capital under management here, especially given the emphasis on healthcare technologies, which are more expensive to fund.
- Talent. We have a great core of leaders that have led the start-up companies here for awhile and that’s great, but we need five times as many of these people. We need to find ways of attracting people who went to school here and may have moved to the coast but want to move back. They could be real leaders in our community.
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