While Wisconsin has done well of late in nurturing angel capital investments, it still lags in another vital component of its innovation economy – building and attracting venture capital.


That was the conclusion of a panel of investors who spoke last week at the Wisconsin Early Stage Symposium in Madison, where 500 people – including 75 investors of all descriptions – gathered over two days to hear about trends in the high-growth economy.


From Ohio to New Mexico, and from Kansas to Pennsylvania, states have embraced different approaches to attracting venture capital. Venture capital is money invested in early stage companies in return for a share of the company itself – called equity. Venture capital is often the next investment step beyond angel capital, which also qualifies as private equity, but which often comes in the form of investments from individuals or networks. Venture capital firms are regulated funds typically backed by much larger institutional investors.


While most venture capital is clustered in California, Massachusetts and a few other coastal states, Wisconsin historically ranks no better than middle of the 50-state pack in attracting that class of investment dollars. That, according to investors who have tracked what’s happening in other states, needs to change.


Toni Sikes, an entrepreneur-turned-investor, told the conference that Wisconsin has all of the ingredients needed to become a Midwest version of the Silicon Valley – research, entrepreneurs and angel investors – but it lacks enough venture capital. In fact, Sikes noted, Wisconsin attracts less than 1 percent of all venture capital invested in the United States.


Sikes said that often means angel investors, who make the initial investments in early stage companies, are “left holding the bag for companies that can’t get past the first stage.” She and other partners are trying to change that through the launch of Calumet Venture Fund, which is based in Wisconsin and will focus on deals in the Upper Midwest.


Robert Okabe, a veteran angel investor from Chicago who is now a partner in the RPX Group, likened the need for venture capital as a “relay race” with higher stakes at each turn. “Angels run the first lap and then look to pass the baton” to venture capitalists, Okabe said.


Okabe noted that a number of states are trying to create a faster track through funds that help move the most promising deals closer to an “exit,” which usually means acquisition by a larger company or merger with a company of similar size. Typically, those state strategies involve some sort of public support for a fund that attracts much more private capital – and eventually pays back the public investment.


Three models for such funds have emerged. States can create a fund that invests in established venture capital funds, encourage state-led investments in high-growth businesses, or encourage public pension funds to invest in state-based businesses.


One idea that has gained traction is tapping into $200 million in unused bonding authority belonging to the Wisconsin Housing and Economic Development Authority. That money would be used essentially as bait to attract other private investors, a strategy that has worked in states such as Ohio.


The Ohio program, twice approved by voters in that state, was set up in a way that prevents political raids on the fund. Professional fund managers work to identify the best investment targets within identified industry sectors. It’s an approach that has enhanced Ohio’s supply of homegrown and outside venture capital – and created thousands of jobs.


“Nobody loves venture capitalists,” joked Tom Hefty, a retired Wisconsin executive and angel investor, “but they do love jobs and economic development.”


Brian Birk of Sun Mountain Capital in New Mexico said many states learned their lessons when start-up companies moved away in search of venture capital. That happened in New Mexico when a little company called Microsoft pulled up stakes in Albuquerque and moved to Redmond, Wash.


New Mexico started a program to restart its “job growth engine” through a $250-million investment that has since attracted $1.7 billion in private equity, creating 4,000 jobs in the process. New Mexico has less than half the population of Wisconsin but three times the number of venture capital firms or funds.


Reports from the Wisconsin Technology Council, Competitive Wisconsin and the Wisconsin Economic Summit have all pointed to venture capital creation as a top priority. So has Gov.-elect Scott Walker, who addressed the Early Stage Symposium, calling for a fund that creates a “public-private partnership.”


Wisconsin’s innovation economy boasts many assets, from ideas to people to seed capital. All that’s missing now are the next rounds of capital to turn little companies into bigger ones.


Still is president of the Wisconsin Technology Council, which hosted the Wisconsin Early Stage Symposium in Madison.