Show Me the Capital
Starting a business? Looking to expand an existing company? Want to make a smart investment? Here’s some stuff you gotta know.
Let’s talk money. Specifically, the money a fledgling business needs to bring its products or services to market. Most entrepreneurs start with bootstrapping—using one’s own money and that of friends and family. The duration of that stage can vary wildly, depending on how deep the entrepreneur’s pockets are and how much capital is needed. After bootstrapping, a start-up usually seeks investors, such as angel investors and venture capitalists. Some businesses pursue both angels and VCs; some go for one over the other. An angel investor will invest his or her own money in exchange for a return, a pretty simple investment deal. Venture capital investments are from a professional firm that maintains ties to start-ups it funds by giving advice, making introductions or filling a board member seat. In Wisconsin, access to angel and VC dollars can be a mixed bag. Some say there’s a lot of capital locally, while others lament that there’s very little. Others still say capital isn’t even the issue when starting a new business—the challeneges are recruiting and retaining talent.
2012 Venture Capital & Angel Investment in Wisconsin
DATA: Wisconsin Technology Council’s 2013 Wisconsin Portfolio
|Madison's rank among the top metros for venture capital activity per 100,000 people||Total venture capital investments made in the U.S. in Q2 2013|
|DATA: Martin Prosperity Institute||DATA: Thomson Reuters|
PHOTO COURTESY OF STEVE LYONS
Remember that $25 million Governor Walker included in his budget for early-stage capital for start-ups? He left it up to the Legislature to figure out how that money should be managed and distributed. With bipartisan support, the Legislature passed a venture capital bill in April 2013 outlining just how that money will be invested. Start-ups in industries like advanced manufacturing, agriculture, information technology, engineered products and medical devices and imaging (not biotech) located in Wisconsin will be eligible. “With the limited amount of money—$25 [million] is a very strong start but it’s a beginning—we really wanted to focus on two things: What would be the shortest runway [where companies] could take off and create jobs, and which companies would be quickest to market?” says Steve Lyons, president of Wisconsin Growth Capital Coalition, a trade organization that helped pass the early-stage capital bill. Before Wisconsin companies can touch any of this money, a fund to fund manager needs to be hired. We most likely won’t see any investments until after January 1, 2014. And the impact on the state’s economy? “It will be gradual to begin with, but it will have an impact,” says Lyons.
Mark McGuire and Emmanuel Buah, co-founders of a Madison-based, about-to-launch tech company, let us in on some fundraising secrets
Industry: Information technology
Type: Mobile-social networking
Money Raised: $750,000 in seed funding
Who have been your investors?
Great Oaks Venture Capital [out of New York]. They’ve been a fantastic addition to the Madison market. They’re looking at Madison as this sort of hidden gem or untapped gem. Also Venture Investors and a few angel investors.
How did the Madison-based Venture Investors come into play?
Venture Investors is starting to look outside of just biotech and health-tech. [Mark] has never had them as an investor before with his other start-ups.
Is it easier to secure funding if you’ve had success before?
Because [Mark] has had some success [with Jellyfish.com and Alice.com], it’s easier once you’ve returned on earlier investments.
Has the local investment community kept up with the rising number of start-ups here?
We’ve started to see the funding picking up to match the increase in start-ups. From what it was like ten years ago, it’s night and day.
What about a Wisconsin company looking for capital from the East or West coast?
It can be hard if you’re in the early stages and don’t have a track record. We’ve heard investors from the coasts say, ‘We don’t take this early stage unless you’re in our backyard.’
What’s a trend you’re seeing in investment?
At a macro level, people are reinvesting and putting more risk in investing.
What’s your advice to entrepreneurs looking for capital?
Get a networking service provider who knows how it works. We had a lot of success with Paul Wrycha of Foley & Lardner.
Grace Edquist is associate/web editor of Madison Magazine.