09 May Money Tree survey shows lull in Wisconsin venture capital deals
Wisconsin didn’t produce a single venture capital deal from January through March this year, according to the recently published Money Tree survey.
Venture capitalists in the state said that the lack of deals in a quarter is not necessarily representative of the state, though it is another reminder that capital is hard to come by.
For the past four years, Wisconsin’s investments have come erratically, sometimes adding up to around $20 million or $25 million, sometimes dropping into the low single digits. The 10 states with the most investments have been consistently in the tens of millions per quarter, making up more than 80 percent of the reported U.S. venture capital.
This year’s report that Wisconsin’s venture capital companies had done no deals showed a stark contrast to the coasts, where California saw 265 venture capital investments and Massachusetts 77.
“I think the significance of [Wisconsin’s zero rating] is twofold,” said Dan Broderick, managing director of VC firm Mason Wells in Milwaukee. “First, it is further demonstration that it’s difficult to raise equity financing in the state of Wisconsin, and the second thing is that there’s a lack of venture capital in the state of Wisconsin, and for that matter, Mid America. I don’t think it’ll always be zero, but it’s a continuation of a trend. It’s always been less than we need.”
The figures are reported voluntarily to and verified by a group including of PricewaterhouseCoopers and the National Venture Capital Association.
According to Broderick, since all venture capital companies in Wisconsin are members of the national association, every one reports its data for the survey. The quarter-one data reflects negatively on Wisconsin’s venture capital status, though optimism remains.
“The fact that it’s zero doesn’t necessarily play well,” said Dennis Winters, vice president and director of research at NorthStar Economics. “The whole market is still down; 2004 was better than 2003, and we expect that to continue.”
Winters warned that the statistics can be deceiving. Wisconsin may not have done any venture capital deals this quarter, but companies such as Mason Wells continue to infuse Midwest companies with follow-up investment, as they did with Mezzia Inc. this quarter.
“A lot of times, this data is kind of lumpy anyway,” Winters said. “Deals that don’t get done in one quarter get done in the next. So while there may be a dearth of deals in one quarter, there’s generally an abundance of them in the next. It’s kind of a volatile series of data.”
John Neis, co-founder and senior partner at Madison-based Venture Investors, agrees. Citing that one of the firm’s funded companies raised $13 million dollars in one round, Neis said that he generally reads the Money Tree quarterly surveys only to get an idea of the overarching trends of venture capital throughout the United States.
“We have four venture capital funds in the state,” Neis said. “We do a handful of deals per year. The deals can be significant in size, but we may close on a deal in the first quarter, and then we might close a deal in the third quarter. … If we had a critical mass of a dozen venture firms, you’d see some of that even out a little bit as the various firms overlapped and it wouldn’t seem as volatile as it does now.”
However the quarterly data may portray Wisconsin, the investors agreed that the ratings have little bearing on the venture capital community, saying that those who focus most closely on the Money Tree statistics are most likely to be policy makers and the press.
“We make investments in companies that have 10-year lives, so trying to break things down into a quarter-by-quarter basis is just too small of a segment to have a lot of meaning,” Neis said. “I don’t think the industry uses the data in a meaningful way other than to report on our overall activity. … Within the venture capital community, I don’t think it has much of a reflection one way or another because people are just basically looking for good deals. It doesn’t harm us there.”
The rating, according to Neis, has “zero bearing on whether companies are going to choose to locate here.”
“Early stage companies in particular are going to locate here because that’s where they are,” Broderick said. “It is what it is in the short term. What we need to do is convince venture capitalists that it’s the land of opportunity, and that there’s something to invest in.”