Tom Still: Seeding Our Startups
Wisconsin’s private investment scene for young companies is comparatively small, which is why partnering with equity funds outside the state is a key piece of the funding puzzle
Many myths swirl around the angel and venture capital business in Wisconsin. One is that every young company should seek private equity financing (it’s wrong for many) and that investors are tripping over themselves to fund every bright idea that walks in the door. They aren’t. In fact, no more than one in ten business startups in the United States lands angel financing—and less than one in ten of that subset wind up in a venture capital fund’s portfolio.
One of the biggest myths of all is that Wisconsin investors don’t co-invest or “syndicate” with others beyond our borders. The Wisconsin Technology Council and its Wisconsin Angel Network annually chart the state’s angel and venture deals. In 2012 and 2013, 160 such deals involved startups that raised a few thousand dollars to companies that attracted tens of millions of dollars. Nearly seventy of those 160 deals involved at least one investor from outside Wisconsin, and sometimes outside the country.
There are only a handful of venture capital funds in Wisconsin, but all of them co-invest with others beyond Badger state lines. Calumet Venture Fund has five portfolio companies with three out-of-state investors—Hummer Winblad and Zetta Venture Partners in California’s Silicon Valley, and Baird Capital in Chicago. Kegonsa Capital recently partnered with Sun Mountain Capital, a fund-of-funds based in New Mexico, to win a state contract to manage $25 million to be matched by private venture dollars. When the Wisconsin Alumni Research Foundation and the State of Wisconsin Investment Board financed the $30 million 4490 Fund, the first step was hiring a manager with Silicon Valley experience to help shop homegrown deals on the coasts.
Funds such as New York-based Great Oaks Venture Capital have regular feet on the ground—and four investments—in Wisconsin. Ohio-based Drive Capital is close to investing here, joining Chrysalis Ventures, Arboretum Ventures, Great Point Partners, Open Prairie Ventures, HLM Venture Partners, Summit Partners and more. Oh, yes, a little group called Google Capital recently invested $40 million in Renaissance Learning, a Wisconsin Rapids firm that quickly sold for $1.1 billion.
Venture Investors LLC, the state’s largest venture capital fund, has co-invested with more than eighty VCs over the course of its five funds. The list includes twelve California funds (five at least twice), eleven East Coast funds (four at least twice), four Texas funds, five international funds, eight corporate funds and many Midwest funds. “Since there are so few firms in the state, we have no choice but to syndicate with firms outside the state,” says managing director John Neis.
Does the early stage sector wish Wisconsin had more venture capital? Yes. But let’s not pretend those investors who are here can’t find dance partners elsewhere.
Tom Still is the president of the Wisconsin Technology Council.