Madison, Wis. – This summer, venture investors deployed more than $18 million to tech-based start ups across Wisconsin, a total that may bode well for improving on the state’s 2005 venture performance.
While it is difficult to draw firm conclusions from one quarter of investment activity, the number could indicate that technologically innovative companies have been successful in attracting a growing base of capital in 2006.
“With the growth of the number of funds that are based in the state and seeking opportunities in the state, I think it’s a very positive climate right now compared to where we were in the not-too-distant past,” said John Neis, co-founder and senior partner of Venture Investors, LLC.
According to a report prepared by David Ward, president and founder of consulting firm NorthStar Economics, Inc., venture capital invested in Wisconsin companies in 2005 amounted to $69 million in 12 venture deals. Despite last year’s increase over levels in the prior three years, Wisconsin’s venture capital ranking slipped from 26th in 2004 to 35th in 2005.
The summer investments represent a relatively even mix of out-of-state and Wisconsin-based ventures. Neis pointed out that that ratio could be in the process of changing as several new funds develop inside Wisconsin.
Venture Investors closed on a new fund in June and will be actively investing in new deals again. Meanwhile, the $500 million private equity firm Mason Wells is actively raising a new fund, and the Milwaukee-based Ziegler Companies recently closed on a biomedical-focused fund.
The Wisconsin Angel Network tracked the $18 million in investments from June through August of this year. WAN is an arm of the Wisconsin Technology Council, the science and technology advisor to Gov. Jim Doyle and the State Legislature.
Lorrie Keating Heinemann, secretary of the Wisconsin Department of Financial Institutions, credited the growth of VC funds in Wisconsin to increasing collaboration between leaders in WAN, private VCs, the Mid-America Healthcare Investors Network, the Consortium on Biobased Industry, Forward Wisconsin, and the Wisconsin Technology Council to link entrepreneurs with capital resources.
“As we talk more about the positive investment opportunities here in our state, I believe we will get more and more activity,” Heinemann said. “It’s all about collaborating and syndicating.”
Charlie Goff, manager of NEW Capital Fund, LP, an equity partnership operating from the northeast part of the state, said that angel networks and VCs like his are increasing their visibility and integrating scientific expertise into their boards to more accurately examine a wider range of business proposals.
“There has always been angel investing in our neck of the woods that is below the radar,” Goff said. “What’s different today is that these angel networks are making an effort to be a little more public.”
Still, financial analysts are reluctant to point to this summer as part of a larger trend.
“The nature of venture capital activity is extraordinarily lumpy – particularly when you look at the small number of firms in the state that are aggressively trying to do deals,” Neis explained.
Notable investments included the following:
• Virent Energy Systems, a Madison-based alternative fuel developer, received 7.5 million from Cargill Ventures, Venture Investors, Honda Strategic Ventures, and Advantage Capital Partners in early June.
• aOva Technologies, a Madison-based developer of natural egg protein products, received $3 million from Continuum Investment, a WAN investor-member, in mid June.
• Primorigen Biosciences, a Madison-based developer of cellular analysis laboratory tools, received 2.45 million investment by Louisiana Fund 1 and others in late August.
• Extract Systems, a Madison-based automated data entry service provider, received a $200,000 debt investment from MDC Venture Debt Fund, a WAN investor-member.
• Universal Separators, a Madison-based heavy industry oil recycling technology provider, received a $150,000 debt-investment from MDC Venture Debt Fund.
The $18 million figure does not include a $7.5 million investment announced earlier this month. The beneficiary will be Aquarius Technologies, a Port Washington company that has developed a new technology to elminate sludge produced in the waste water treatment process. The bulk of that money, $6.5 million, will be invested by L. Capital Partners, which is based in New York City, and the rest will be provided by private investors.