By
Tom Still
MADISON
– Andy Shrago, the co-manager of Wisconsin Investment Partners, wasn’t too
surprised by the news that angel investors in the five Great Lakes states that
include Wisconsin led the nation in 2014 in terms of total dollars invested.
“I
know some people on the outside might say, ‘Gee whiz, who knew there were that
many deals there?” said Shrago, whose 90-plus-member network has invested in
more than 50 companies since 2000. “But some of us here were following it all
along, so we knew.”
Wisconsin
Investment Partners, or WIP, invested $4.4 million in 2014, which is why the
latest Halo report by the national Angel Resource Institute showed the
Madison-based network among the 12 most active angel groups in the United
States in 2014. It was an elite group that included Tech Coast Angels, New York
Angels, the Houston Angel Network and Desert Angels.
In
fact, WIP was the only angel group outside the East or West coasts and Texas to
crack the list, which was based on number of deals completed that year.
Wisconsin Investment Partners closed on 24 deals in 2014, including 18
follow-on rounds with existing portfolio companies and six new investments.
In
2014, angel groups in Wisconsin, Illinois, Michigan, Indiana and Ohio invested
more dollars than anywhere else in the country, or 17.2 percent of the $1.65
billion total. The Great Lakes edged out California (17.0 percent), marking the
first time any region other than California led in angel dollars invested since
records have been kept.
Next
on the list was New York at 14.3 percent, New England at 14.2 percent, the
Southeast at 8.8 percent and Texas at 6.2 percent of dollars invested. The
eight Great Plains states, for example, represented just 3.8 percent of angel
dollars invested.
With
870 reported deals nationally in 2014, the breakdown on deals per region was
similar. California led with 19.8 percent of deals, followed by the Great Lakes
at 13 percent and New England, New York, Texas and the Southeast not far
behind.
Angel
investing has remained steadily vigorous in the United States even as venture
capital, an upstream form of private equity investing, has ebbed and flowed.
Venture capital investment rounds tend to follow angel rounds, and are
typically much larger. Venture capital investments come from funds, but angel
investments can come from individuals, families, small funds or networks.
Wisconsin
Investment Partners is a network, one of the first created in Wisconsin and one
of the largest. Individual members must join WIP to take part in discussions of
possible investments, but they can largely pick and choose in which deals to
invest. In late 2004, there were only a handful of angel networks in Wisconsin
and fewer venture funds. Today, there are more than two-dozen early stage
investor groups of various descriptions.
What
has fueled the growth in early stage investing in Wisconsin? Several factors
have played an important role:
– The creation of
Wisconsin’s angel and venture investor tax credits, which took effect in 2005,
has made it possible for qualified young companies to attract private
investment dollars than qualify for state tax credits. Every $4 invested in an
early stage company can result in a $1 tax credit, under certain conditions.
The law was expanded in 2009 and 2013, and changes proposed in the 2015-17
state budget could spur more investment.
– The birth of the
Wisconsin Angel Network in 2004 has helped angels in Wisconsin find
co-investment prospects, exchange best practices and generally communicate
better among themselves while connecting with startup companies through vetted
events and other platforms. The WAN is a project of the Wisconsin Technology
Council, with support from the Wisconsin Economic Development Corp.
Most
important, however, is deal flow. Without strong companies in the pipeline to
reduce the risk, investors have no credible place to put their money. That’s
why angels such as Shrago are bullish on Wisconsin.
“There
are tremendous opportunities here. It’s been under the radar for a number of
years, but now it’s beginning to surface,” he said. Shrago cited health care
information technology as one emerging sector in Wisconsin and, in particular,
the Madison area.
His
view matches what the Halo report tracked in its 2014 report on national
investing trends, with health care, Internet and mobile-telecom deals
representing about 68 percent of the total.
It’s
a classic chicken-and-egg relationship: Without strong young companies, there
are few active investors, and without active investors, young companies can’t
grow. Fortunately for Wisconsin these days, the state is producing more of
both.
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