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The Approach: Spotlight on Brightstar Wisconsin Foundation Inc.

Todd Sobotka Headshot

Todd Sobotka

Investment Committee Chair,
BrightStar Wisconsin Foundation

BrightStar Wisconsin Foundation

At-a-Glance

Type of Firm: Venture Philanthropy (nonprofit)

Geographic Focus: Wisconsin

Sector Focus: Agnostic

Financing Stage: Pre-seed, seed, some Series A

Investment Amount/Range: 50-250K

Online registration form: https://www.brightstarwi.org/entrepreneurs/registration-form

How did you get into investing, and what do you find rewarding about it?

Years ago, I got an MBA because I wanted to learn as much about business as possible. I then realized to really understand business, you need to get in early and wear every single hat. Before BrightStar, I was an entrepreneur and ran core programs for entrepreneurs in the Milwaukee area.

I’m drawn to this because I want to be part of innovation, part of the next big thing. It’s addicting and fascinating. No matter who walks into my office, I’m always interested to learn how in the heck they came up with the idea. I view startups like they are my kids. You help nurture them, and it’s fantastic when you see them grow up.

Give us a brief overview of your firm and your investment strategy.

Traditionally, we have a two-fold strategy. On the entrepreneur side, we can get money to them faster than most other investors. We typically do seed rounds, but some A-rounds have crept in. We are industry agnostic and typically put in $150-250K. On the investor side, we come in as passive money. We find co-investor leads to follow and don’t ask for a board seat when they put money in.

Non-traditionally, through the end of 2021, we are participating in the WEDC Capital Catalyst Program. With this money, our aim is to get involved a step earlier – at the pre-seed level. The funding amount is in the range of $50-100K with the idea that we can get companies to a place where angels would be more likely to invest.

At what point should entrepreneurs be when they first contact you?

They should believe that they are investible by angel groups. They need to show they have some level of market validation. This could be sales revenue, but it doesn’t have to be. Some ability to showcase the product is beneficial. If I can take a long hard look and say, but for a few hundred thousand dollars, this company could attract follow-on investment, that is a good sign. 

Describe the ideal first interaction scenario you have with an entrepreneur.

Referrals and warm introductions are always fantastic, but we also have an online registration form that takes only about ten minutes to fill out. At BrightStar, every person who registers will receive a call back. We will provide feedback. If we don’t see you as a match, we’ll tell you why.  If we have further interest, we’ll tell you what we need next.   

One thing I will say about that first conversation – be willing to hear criticism and take in the positives to effectuate good change. It’s shocking how many entrepreneurs come off as if they know better than you. Don’t be defensive. Be open to listening and learning.

If there is continued interest, what happens next? 

At BrightStar, we typically move faster than anyone else. This is because we already have a lead investor lined up. We do a series of back and forth due diligence interactions that include looking at financials, slide decks, intellectual property information, and customer history if there is revenue, among other things. We also ask the companies who else they have talked with and ask other investors in the marketplace what they have seen.

In what ways do entrepreneurs often fall short when asking for money? 

One big thing is, be ready.  When you say it’s a go, and I start requesting things for due diligence, you need to be extremely responsive. I’m often looking for a response within 24 hours. There are so many possible deals, most investors are looking for the quickest way to say, No. If you are organized and responsive to every single task, that’s big. Entrepreneurs should plan at least six months to do a fundraise. Be mindful of your cash position and make sure you have enough runway to get through the process. And keep in mind that fundraising is a full-time job. Also, don’t expect investors to sign an NDA.  Most won’t do it. Especially early in the process.

How do you determine the value of the businesses you invest in?

When valuing pre-revenue companies, this is an art form that takes into consideration experience and knowledge. I often see entrepreneurs come in with valuation ideas based on traditional techniques from the financial world. These techniques aren’t valid when you don’t have any sales. For early stage companies, looking at valuations and exits of similar companies in the marketplace is important. Entrepreneurs usually don’t have the network and resources to find these comparables themselves.

What else do you want companies that are seeking funds to know? 

Investors are people and not the enemy. They are in this because they want companies to be successful. It’s not a straight dollar game in Wisconsin. Investors here generally care and will take time to make introductions – especially if you make a good impression on them in your early interactions.

What is one wish you have for the Wisconsin entrepreneurship ecosystem?

Statewide – We are more of an angel state. It would be nice to see more venture capital firms being proactive in the region (as opposed to the companies trying to lure money to the area).

For Milwaukee – There is no hub to attract everyone.  Madison has some hub nature.  Milwaukee needs a place where new entrepreneurs go to get everything they need – somewhat like a concierge.

Want more insight on investors?

The Approach is an interview series that shines a light on Wisconsin investors. Each installment asks 10 basic questions of people in our state’s investor ecosystem. Through their answers, we hope you gain a better understanding of what investors are looking for and how to effectively interact with them. Most importantly, we hope the series will encourage YOU to develop relationships with the people who invest in Wisconsin entrepreneurship.
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Brian Walsh, CTC’s commercialization expert, shares his expertise about the ins and outs of commercialization and investment in Wisconsin in short, quirky, digestible videos.
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Tell us one fun fact about yourself or your firm. 

I have 6 kids, which is really fun this time of year.