By Tom Still
MADISON – The good news: Venture capital dollars invested in
Wisconsin through the first three-quarters of 2014 is already double all
venture investments last year, and the number of deals is approaching an
all-time annual high for the state.
The sobering news: Wisconsin still lags 23 other states in
deals reported during the third quarter of 2014, and falls behind 25 states in
total dollars invested during those three months.
That scenario summarizes the status of early stage
investments in Wisconsin, which appear to be gaining momentum across important
industry sectors – but which still trail many states, including some states
similar in size and workforce makeup.
The latest statistics come from the MoneyTree Report by
PriceWaterhouseCoopers and the National Venture Capital Association, which have
tracked venture industry deals by state, sector, stage and other metrics since
1995. Through September, 22 reported Wisconsin deals (more on the word
“reported” later) had generated about $67.1 million for state companies,
compared to $33.9 million during all 12 months of 2013.
Venture capital investments are investments in the “equity”
of a company – its anticipated return over time – versus “debt” investments
that are generally based on a company’s current assets and collateral. Along
with angel capital, venture capital is how many emerging, high-growth companies
finance their research, product development, marketing and sales until revenues
flow from customers.
In Wisconsin, the total of 22 deals thus far already ties
deal totals for 2007 and 2010, and is approaching the record of 27 deals set in
2000, the banner year nationally and in Wisconsin for venture capital
investments. The dollar totals are on track to more or less match 2012 and
2007, but will likely fall short of 2010, when two $40-million-plus deals drove
The reason for that optimism gets back to the word
“reported.” Not all venture deals immediately find their way on to the
MoneyTree Report radar screen. At least $20 million in Wisconsin deals fall
into that category, based on news reports and other tracking sources.
One of the most encouraging trends in Wisconsin’s venture
capital numbers is diversity. The state is increasingly not dependent on a
single sector when it comes to emerging companies.
In 204 so far, Wisconsin has reported $8.4 million in
industrial and energy deals versus $2.3 million for all of 2013. In
biotechnology, there were been $8.5 million in deals versus $850,000 in 2013.
The consumer products and services category climbed from $2.3 million in all of
2013 to $8.5 million in the first three quarters of 2014.
Encouraging news, right? Still, a few major states dominate
when it comes to venture capital investments. California alone has reported
more than 1,300 deals worth about $19.5 billion in 2014. That’s more than half
the national total in dollars. Massachusetts, New York and Texas, populous
states with identifiable tech sectors, also rank high on the list.
A number of states of similar size chart more venture deals
and dollars, however. Utah has reported about $775 million in deals so far in
2014, Minnesota about $250 million, Michigan about $167 million, Arizona more
than $200 million and Colorado more than $440 million.
The reasons for that vary, but some of the difference can be
attributed to conscious, long-term public strategies to improve the climate for
attracting investment dollars. Utah, Colorado, Minnesota, Arizona and Michigan
have invested consistently, both in time and money, to make their high-growth
sectors attractive to investors. Wisconsin has done the same in recent years,
but it’s still playing catchup.
Quarter-to-quarter reports are simply that – a snapshot in
time. Because venture capital is so market driven, the roller-coaster tends to
go down as much as it goes up. With the right public policies, strategies and
company profiles, Wisconsin’s ride still has plenty of opportunity to climb.