Exits are the lifeblood of any investment fund. They are also essential for continued progress throughout Wisconsin. Here are three reasons why:
A successful exit expands the capital available for the early stage marketplace: investors have more to re-invest and the exiting entrepreneurs now have the means to become active angel investors themselves and/or begin their next innovative venture. Successful entrepreneurs that choose to invest are often some of the best investors as they possess a better knowledge of specific industries and can often offer advice and connections others cannot. No matter the source though, capital is, without a doubt, one of the essential elements that fuels an innovative entrepreneurial ecosystem and exits generally greatly enhance the pool available. Additionally, exits are also important for geographic regions and innovative ecosystems for psychological reasons. When people see success and hear the stories, they believe more success is possible. This breeds more involvement and engagement by individuals and businesses with start-up entrepreneurs and technology. Behavior and culture can be shifted because of these psychological factors. Lastly, successful exits supply that same area and ecosystem with the experienced and quality talent coming out of the exiting company that can be leveraged by corporates or other small and early stage businesses. A more vibrant ecosystem allows an area to attract and retain necessary talent for continued effective economic growth. With each new growing company in its portfolio, BrightStar and other community leaders are relying on this expansion of talent for Wisconsin to reach its innovative potential over the next generation.
EXITS and BrightStar
BrightStar is no different than other investment funds in needing exits, but as we pursue our mission for Wisconsin, they mean so
much more to us for all the ecosystem benefits stated above. Our legacy is driven by exits in the long-term because of the expansion of capital and their transformative effects (both on psychology and talent). Catalyzing the cycle of ideas, investment, innovation, growth, returns, and especially quality job creation through the availability of early stage capital is the core of our BrightStar mission. This is why we have developed an investment structure for the Foundation that maximizes the amount of each donated dollar that goes to support Wisconsin entrepreneurs, innovation, and the ecosystem. BrightStar is purposefully a lean organization that also monetizes available QNBV tax credits (see below) that it is awarded as an investor to allocate more capital into the space. This is what makes our philanthropic model immediately extraordinary – the potential for every dollar donated to us results in more than one dollar invested into Wisconsin early stage companies. Beyond that, our eventual returns have a compounding effect from the original donation as every dollar gained via exits is rolled right back into more Wisconsin entrepreneurs to kick-start the process over again and again. This results in more capital to fund companies, the changing of culture, and the necessary development of talent to support it.
Qualified New Business Venture Tax Credits
Virtually everyone actively involved with early stage entrepreneurship and investment across the state agrees that the Qualified New Business Venture (QNBV) tax credit program sponsored by WEDC has been a positive force in getting more capital invested into Wisconsin innovative companies. The program is quite simple. If an early stage company gets certified as a QNBV with the state, then investors can be awarded a 25% state tax credit on each dollar invested in that company for equity up to a specified cap. For example, if an individual angel or a fund invests $100,000 into a QNBV, they have the ability to be awarded $25,000 in credits if the QNBV company has not already hit its maximum allowable credit amount. This helps to mitigate the risk of early stage investing and thus incentivizes investors to deploy dollars into Wisconsin companies. It facilitates efficient investment and the re-investment of capital right back into the early stage ecosystem—the core purpose of the program. For those readers who are prospective angel investors, please be aware that these tax credits might be available to you. Additionally, this program is especially important to BrightStar. As an investor, we have a right to receive credits but have no tax liability to use them against, but as a certified fund, we have the ability to sell the credits. We have done this quite effectively over the past 3 years. For potential financial supporters of BrightStar, it is the QNBV tax credits that allow us to invest into Wisconsin entrepreneurs at a rate of more than $1 for each $1 donated to the Foundation, and that is even before the anticipated returns from exits within the portfolio. It’s exciting to offer a multiplying effect for Wisconsin!