One of the enduring gripes about Wisconsin’s startup and scale-up climate has been the lack of enough angel and venture capital.
Perhaps, we’ll look back on 2014 as the year Wisconsin finally turned the corner.
At least 113 Wisconsin early-stage companies raised investment capital in 2014, a 31 percent jump from the prior year, when 86 companies landed angel or venture dollars.
More than $346 million was raised by those 113 companies, nearly three times more than the 2013 total of about $128 million.
Even if 2014’s six largest deals in terms of dollars invested are taken out of the mix, the remaining 107 companies collectively raised more than $112 million – still approaching the 2013 dollar mark.
Those six deals included $127.4 million in equity and debt funding for SHINE Medical Technologies; Google Capital’s $40 million investment in Renaissance Learning; CorvisaCloud’s $30 million investment from parent company Novation; Propeller Health’s $14.5 million Series B round; Comply 365’s $12 million investment from Ohio-based Drive Capital; and EatStreet’s $10 million Series B round.
The numbers come from the “Wisconsin Portfolio,” an annual report of the Wisconsin Technology Council and its Wisconsin Angel Network. The publication gathers data from public reports, filings and surveys of investors to produce a comprehensive look at angel and venture deals in Wisconsin.
Was 2014 an investment fluke? Probably not… for many reasons.
- The rise in deals and dollars aligned with the fact that more early-stage networks and funds were active in 2014 than in prior years. The WAN tracks 35 active networks or funds in Wisconsin, up from six in 2005.
- Many of those groups were “serial investors” in 2014. Wisconsin Investment Partners — the Madison-based group that has ranked as one of the most active angel groups in the Midwest and even the nation — did more deals in 2014 (16) than in 2013 (11). Others that invested in multiple Wisconsin companies last year were Venture Investors, Golden Angels Investors, CSA Partners, startup accelerator Gener8tor, Chippewa Valley Angel Investors Network, American Family Ventures and NEW Capital Fund.
- Out-of-state investors continued to find strong valuations and competitive operating costs in Wisconsin. Investors from Illinois, Massachusetts, New York, North Dakota, Minnesota, Ohio and California were among those engaged in 2014 deals.
- Thirty-eight Wisconsin companies raised at least $1 million from investors in 2014, up from 27 in 2013. That’s a sign deal sizes are growing.
- The entire upper Midwest appears to be a hotbed for early-stage deals, particularly angel deals. The Angel Resource Institute recently reported that the Great Lakes region, which includes Wisconsin, was second in the nation in total deals – only behind perennial leader California.
- Companies earning investments were diverse in terms of their sectors, which speaks well of Wisconsin’s growing tech expertise. Deals covered digital health, consumer products, biotechnology, medical devices, software, advanced manufacturing and more.
- Finally, and perhaps most important, 2015 deal activity appears roughly on par with last year.
Of course, angel and venture investing is risky … and notoriously cyclical. Many factors, including government indifference to the tech sector, could set back the clock.
The budget just passed by the Wisconsin Legislature and awaiting Gov. Scott Walker’s signature (as of Friday) is a prime example. Left on the cutting room floor was a provision to increase – for the first time in 10 years – the amount of money that could be invested in any single company to qualify for early-stage tax credits.
The current maximum is $8 million in eligible investments, which yields total credits of $2 million for investors. Walker’s proposal would have raised the threshold to $12 million, making $3 million in credits available to investors in any single company.
The provision was knocked out of the budget because lawmakers thought it was too costly; about $3 million in the first year, $2 million in the second and about $1 million per year after that. Those estimates overlooked that early-stage companies generate jobs and economic activity – and tax revenues for the state. Every state dollar invested in the early-stage tax-credit program (a record $12.8 million in 2014) attracts $14 in private investment, according to the Wisconsin Economic Development Corp.
Wisconsin isn’t California or Massachusetts when it comes to angel and venture investment, nor will it ever be. However, it is building a stronger support system for young companies and investors who know how to find the most promising deals. That combination can help ensure a cycle with more booms than busts.
Thirty-eight Wisconsin companies raised at least $1 million from investors in 2014, up from 27 in 2013. That’s a sign deal sizes are growing.