Dan Reed (left), manager of American Family Ventures, meets with two staff members to discuss a project they are working on. Credit: Courtesy of American Family

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American Family Insurance Group, the largest insurer of homes and autos in Wisconsin, is running a venture capital arm that is quickly becoming an important driver for the state's entrepreneurial economy.

The group, known as American Family Ventures, hopes to invest $50 million over the next four to five years in new companies that are developing technologies, concepts and business models important to the insurance industry, said Dan Reed, director of the venture capital arm.

"Our goal is to find and partner with innovative, forward-thinking start-ups that can help us better serve our policyholders today and in the future," Reed said.

One of the few corporate venture capital operations in Wisconsin that is operating locally — and one of the few in the state — American Family has invested in about a dozen start-ups, about half of which are based here, Reed said. It also has invested in other parts of the country, and may make investments internationally, he said.

American Family formed the venture capital group to produce financial and strategic returns for the company, Reed said. But new businesses in Wisconsin also benefit from having a Fortune 400's money, product needs and network on their side.

"It's hard to overstate the difference in Wisconsin's venture community since American Family showed up," said Joe Kirgues, co-founder of gener8tor, a for-profit start-up accelerator that operates in Milwaukee and Madison. "They've put a lot of fuel in the fire for Wisconsin's efforts."

Started in 2010

American Family is a financially healthy insurer with $17.9 billion in assets that sells products in 19 states. The company in 2013 posted net income of $378.8 million, a 5% increase from a year earlier, while increasing its policyholder equity to nearly $6.6 billion from about $6.1 billion. Policyholder equity serves as financial protection in the event of unusual catastrophic events or unexpected losses.

The insurer started its venture arm in 2010 but has not discussed it publicly until now. Reed and his three-member team have their offices in a separate location from the parent company, in the 100 Block building on State St. near the Capitol — and in the heart of Madison's entrepreneurial community.

Many corporate venture arms were launched around the turn of the century before the dot-com bubble burst, then their numbers fell off during the Great Recession, said James Mawson, editor of Global Corporate Venturing, a London-based publisher. Since 2010, however, there has been a "massive explosion" of these funds, he said.

"We are getting more corporates with more revenues understanding how important innovation and venture can be," said Mawson, who previously was editor of Private Equity News, part of Dow Jones and The Wall Street Journal in London.

Often operated by technology companies such as Google, Cisco and Intel, there are 200 to 300 active corporate venture groups in the United States, conducting an average of two to four deals a year, he estimated. Glendale-based Johnson Controls, which started a fund in 2011 that has not been very active, is the only Wisconsin company listed in Mawson's database, he said.

American Family Ventures' portfolio includes two companies that have raised later-stage funding: Networked Insights, a social media analytics company that started in Madison, has raised about $38 million, including nearly $30 million in two fundraising rounds led by Goldman Sachs; Shoutlet, which has a social media platform, has raised about $25 million.

"When I started Networked Insights, it was hand-to-hand combat," said Dan Neely, founder and chief executive officer of the company that started in Madison. "Now you have a major corporation saying we believe this is the thing to do for us and for the ecosystem."

American Family Ventures — whose formal name is New Ventures LLC — was not an early investor in Networked Insights.

Essential funding

American Family's venture group was "absolutely critical" to the formation of Zero Locus Inc., said Art Mellor, chief executive officer of the Milwaukee-based data analytics software company. The group gave Zero Locus its first customer (American Family Insurance), the bulk of its first funding and much good advice, Mellor said.

Zero Locus fits into one of three areas American Family Ventures is pursuing in its investing: data analytics. The other two themes are innovation within an insurance context and connectivity, as in connected cars and wearable technologies. An example of the connectivity theme is Revolv, a provider of so-called smart home technology. American Family invested in Revolv with Foundry Group, the venture capital organization run by TechStars founder Brad Feld.

American Family Ventures has brought a much-needed sophistication to the state's financing ecosystem, said several founders of start-up companies.

"They play on a different field. They look at things in the way more standard venture capitalists like in San Francisco or at the Foundry Group deal with companies," said Alec Slocum, chief executive officer of Abodo, a Madison company that connects renters and property managers, mostly in college towns.

Abodo is one of several start-ups that attracted an investment from American Family Ventures after completing gener8tor's program. Gener8tor, with its "energy and drive in this space, has been an organizing force for us and others," Reed said.

Reed and his team are fair in their negotiations, and encourage their portfolio companies to aim for "hyper growth," Slocum said. "They've pushed us to think bigger and attack bigger problems and take bigger swings," Slocum said.

For American Family Ventures, that is the kind of thinking that applies not only to its portfolio companies, but also to itself.

"Hopefully, we're like our own start-up and we'll keep getting better and better as time passes," Reed said.

Paul Gores of the Journal Sentinel staff contributed to this report.