14 Nov Early-stage quality brings investment, Meier says
Milwaukee, Wis – The evidence comes in bits and pieces, but there is little doubt that Wisconsin businesses are attracting more venture capital from more sources, and that may have something to do with the improving quality of the state’s early-stage companies, according to software executive Greg Meier.
The most recent sample of evidence was produced in the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Financial. Among the nearly 800 venture capital deals worth a combined $6.2 billion reported in the third quarter of 2006, Wisconsin saw a mere six venture deals, but for a healthy total of $28.9 million.
Although still a far cry from California’s top performance of 335 transactions for $2.8 billion, the Wisconsin quarterly figure was nearly triple the $9.7 million in venture financing reported here during the same period of 2005. While the previous year was, admittedly, a disappointment in the venture capital department, Wisconsin could be headed for a $100 million year in 2006, which would represent progress by anyone’s definition.
With outside investors becoming increasingly interested in the state, and state tax credits giving angel investors more incentive to back start-up companies, technology executives are finding more financial answers. They are finding them, in part, because of steps they have taken to demonstrate that venture dollars are betting on quality management, Meier indicated.
“The quality of the early-stage technology company in Wisconsin has continued to trend upward, which means that we are attracting larger dollar amounts,” said Meier, COO of Broadlook Technologies and a former attorney with Michael Best & Friedrich. “Volume wise, we’re a smaller state, so we’re always going to have fewer deals than some of the bigger markets like California, but I think definitely what is significant to us is that trend upward in quality.”
Courting early stage
Despite the decline in overall venture numbers on a national basis, the third quarter saw increasing interest in seed and early-stage investments in several industries, including the telecommunications, media and entertainment, and industrial/energy sectors.
Meier was a founding member of Michael Best’s practice group that focuses on early-stage technology companies, and he also worked in the software space once before as a member of Accenture’s business process management. Wisconsin has experienced its ups and downs with venture funding, but Meier doesn’t view the third quarter spike as a momentary blip on the radar screen.
“Having worked with a lot of technology companies over the last many years here in Wisconsin, I personally have seen a trend upward in the quality of the management teams, the quality of ideas, a clear understanding that having a product that has market demand, getting out there and selling the product earlier in the cycle of the business, all those things have become pretty common among the new start ups,” Meier said.
The number of repeat entrepreneurs, what some would call serial entrepreneurs, is another sign of increasing early-stage vitality. Meier cited the likes of Donato Diorio, founder of Broadlook, Mark Gehring and Praveen Sinha, formerly of UltraVisual, and Geoff Bastow of Thin Air Software as example of entrepreneurs who have started multiple companies.
“We’re starting to actually see repeat entrepreneurs, a new generation of repeat entrepreneurs, people now starting their second and third companies,” Meier noted. “They either have gone through programs here in the state, or through the school of hard knocks they have learned what’s necessary to actually get a company on that high-growth path.”
Life science bias
Teresa Esser, managing director of Silicon Pastures, believes the emerging dominance of life science investing is a significant development, especially considering the preference of Wisconsin investors. For the first time in history, biotechnology topped software in terms dollars invested nationally during the third quarter, with $1.14 billion compared to $1.09 billion for software.
Esser said it is a “strange quirk” that Wisconsin is considered a risk-averse state, yet investors here make an exception for riskier life science investments. “Wisconsin loves to invest in life science,” she said. “They love to invest in it.
“If there is a [upward] trend in life science, I’m not surprised that we’re riding that trend.”
Esser credited the new $69 million fund established by Madison’s Venture Investors, which already includes a commitment to Virent Energy Systems, and Act 255 tax credits, which could receive even more funding in the next state budget.
Since everything is relative, another consideration is that 2005 was viewed as an unusually bad year for venture investment in Wisconsin, even as national venture investment continued to rally.
“Last year, people were saying, `Why on Earth is there so little being invested in Wisconsin? This is ridiculous,’” Esser said. “Now we’re getting back to normal.”
• Geoff Bastow: Web-centric entrepreneurs find models that attract investment
• Early-stage executives hear from investors
• Venture capital above $6B for third straight quarter
• 9 tips for making 90 seconds count in an investment pitch
• Matt Storms: Raising capital through placement agents