22 Jan Wisconsin fares slightly better in venture capital chase
Madison, Wis. – Wisconsin companies raised more venture capital in more deals in 2006, but the improvement was only marginal in both categories, according to report from Ernst & Young, LLP and Dow Jones VentureOne.
Companies in Wisconsin reported 12 venture deals in 2006, including a $12 .5 million round by NimbleGen Systems, a Madison-based maker of genomic research tools, for a total of $58.47 million. The total, up from the $55.69 million reported in 2005, represents less than one percent of the $25.75 billion in venture capital that was raised nationally.
Nine of the 12 Wisconsin deals went to companies in Madison, the hub of the state’s biotechnology industry.
The report was encouraging, but not overwhelming, to one of the state’s technology leaders. “We’ve made incremental improvements, but I think we need to be growing even faster,” said Tom Still, president of the Wisconsin Technology Council. “I’d like to see Wisconsin begin to grow faster than the national average.”
John Neis, co-founder and senior partner of Venture Investors, cautioned against placing too much stock in year-to-year comparisons. The NimbleGen deal, he noted, came on the last day of the 2006 calendar year. Had it been made two days later, he noted, the 2006 annual numbers would look quite different.
Neis said a number of metrics should be used to evaluate venture capital in Wisconsin, including deal counts, the pace of national investing, local success stories, and the amount of funds under management. He said new funds created in the state, including his company’s new $69 million fund announced last year, will take time to make an impact.
“The growth in capital under management here should create expectations for growth in activity in the years ahead,” he said. “I think the best indicator is whether there is more money in line.”
Long term, the state believes that stimulating angel investments through programs like Act 255 eventually will put more companies in a position to attract larger venture deals. The program, which provides tax credits to those who invest in qualified early-stage companies, is credited with expanding the number of angel networks in the state.
Technology leaders hope the state will increase its commitment in what promises to be a tight 2007-09 budget. The Wisconsin Technology Council has recommended broadening the amount of credits and deepening the pool of credits available under Act 255.
Nationally, the number of deals reached 2,454 for the year, slightly ahead of the 2005 deal count of 2422, and the total investment of $25.75 billion represents an eight percent increase.
Among the states, California led the way with 1,082 deals, and collected $12.3 billion in investments, about half the nationwide deal flow.
The industries that attracted the most interest included the Web-heavy information services industry, medical devices and equipment, and the alternative energy industry.
Stephen Harmston, director of global research for VentureOne, said the U.S. venture capital industry has entered a new cycle with investors focusing on companies that affect healthcare, communications, and the environment.
For the second consecutive year, investors are concentrating more than a third of their activity on early-stage financings, as seed- and first-round deals comprised 36 percent of the deal flow. Roughly the same percentage went to later-stage deals.
There also seems to be more patience on the part of investors. Joseph Muscat, Americas director of the Ernst & Young Venture Capital Advisory Group, said investors are recognizing the need to support their companies for as long as six years before they execute an exit strategy.
By industry, healthcare companies showed the most significant increases. Healthcare deals totaled 628, a five percent increase, and capital investment was up 12 percent to $8.25 billion. Within the industry, the medical devices and equipment segment had 239 deals with $2.63 billion invested, which is 20 more deals than in 2005.
The median round size in 2006 was $7 million, the highest annual median since 2000 and up from $6.5 million in 2005.
Meanwhile, the information technology industry saw overall deal count decline by 21 from the previous year. Capital invested in IT overall increased two percent to $13.76 billion, and thanks in part to investor interest in Web 2.0 companies, it was the most money deployed in technology companies in the past five years.
The largest deal of 2006 was in the technology sphere – the $150 million second round for Amp’d Mobile, a mobile entertainment services provider based in Los Angeles.
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