By Tom Still
MADISON, Wis. – Led by declines in the values of Tesla and Alphabet, two of Wall Street’s “Magnificent Seven” tech companies, the July 24 tumble in the stock market was likely an example of financial gravity: What goes up eventually comes down.
The same law of physics applies to “little tech” in Wisconsin, a state with emerging companies that are doing their best to attract angel and venture capital dollars to grow and (perhaps) someday join the list of “Big Tech” titans on the New York Stock Exchange.
Following a banner year in 2021, when 140 young Wisconsin firms raised a total of nearly $869 million, state totals slipped in 2022 and 2023 to 107 companies in each year with $640 million (2022) and $490 million (2023) raised from angels and VCs. Those findings are captured in the latest “Wisconsin Portfolio,” researched and published since 2008 by the Wisconsin Technology Council.
That decline is the bad news. The somewhat comforting news is the pattern is nearly identical in most other states.
The post-COVID surge in early stage investing has subsided for several reasons, from high interest rates that constrained most capital markets to a drop in initial public offerings to a return what might be a “normal” investment climate.
That assessment was shared by three investors at a July 23 panel discussion focused on “Wisconsin Portfolio” results.
“It matches the national trends,” said David Arnstein, managing director of Ventures Investors Health Fund, in reviewing Wisconsin data. Deals and dollars from 2022 and 2023 looked a lot like totals from pre-COVID years in 2018 and 2019.
Noting that interest rates could fall, HealthX Ventures principal Shabaka Gibson said he sees the “promise of a little more growth to come,” but more likely in 2025 than this year. “As that liquidity starts to loosen up, I think there’s going to be more deals,” Gibson said.
Mary Hannes of the Golden Angels, one of Wisconsin’s largest angel networks, said its members “saw the same kind of pattern” in recent years and hope to see more deal “exits” to break the logjam. That term refers to when founders and investors in a start-up profitably sell their ownerships or stock in the company. Other highlights from the calendar year 2023 report:
- The top 10 deals by dollar size accounted for nearly three-quarters of the $490-million total, with VBA Software, SHINE Technologies, Bend Health and Type One Energy collectively accounting for nearly $285 million of the $490.2 million total. However, the “median” deal among the 107 deals was $750,000. That shows many young companies are a part of the mix when it comes to attracting angel and venture capital.
- There was a funding “dead spot” between $5 million and $9 million, with only four companies raising money that fell into that range. Fifty-seven companies raised less than $1 million; 36 companies secured funding between $1 million and $4 million; and 10 companies secured $10 million or more.
- Of the 107 deals tracked, 54 were in the Madison area, 37 were in southeast Wisconsin, six in northeast Wisconsin, four in the south-central Wisconsin, with the remainder in other parts of the state.
- Healthcare and information technology deals represented about two-thirds of the total number of investments and nearly two-thirds of all dollars invested. Energy deals were on the rise, as were investments in advanced manufacturing and agriculture.
- Funding rounds led by female founders and CEOs remained low at 18%; however, when looking at management teams, women are represented in two-thirds of the companies that raised money in 2023. National figures are much lower.
Even with the drop-off from 2021’s record high, about 300 different Wisconsin companies attracted more than $2 billion from angel and venture capital investors in the last three years. Not quite the “Magnificent Seven” yet, but some pretty good dreams are alive.
Still is president of the Wisconsin Technology Council. He can be reached at news@wisconsintechnologycouncil.com.
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