Toasting Wisconsin's angel and VC imagination

11 Mar Toasting Wisconsin's angel and VC imagination

Chicago, Ill. – After being in the trenches in trying to help companies get formed, get going, and get financed, and more recently finding the right space for them to get set up and grow, I have the distinct impression that there are now more new Midwestern companies getting started than I previously have seen over the last 10 years. However, I see a number of these early-stage companies struggling to get funded.
What does it take to get new young bioscience companies going? Is there any exact formula that if you follow – presto: you have a successful company?
In California and Boston, it is often the case when a well-known entrepreneurial scientist from a major research-based university has his/her next great idea, that several venture capitalists will clamor to throw money at them to help get it started. And they are committing not just $1 million or $2 million in start-up money, but often more than $10 million plus.
Now here in the Midwest, we all know that it is different, and that we are hard-pressed to raise that first $1 million. Talk about sheer agony! Yet two Illinois companies raised more than $40 million in their first round of financing, and other Midwest companies have followed suit in the last two years. (Granted, both Illinois companies are following the “specialty pharma” model, which shortcuts drug discovery and development to quickly get to the marketplace).
There are a couple of Midwest entrepreneurial scientists that do command this kind of East Coast/West Coast panache, including Chad Mirkin at Northwestern University, but not many (yet!) So what do the rest of the start-up companies do? Is there a successful formula?
Well, the key ingredients seem to be:
• Good cutting-edge technology from a major research-based university (with significant National Institutes of Health, National Science Foundation, Department of Defense, and Department of Energy) funding.
• An entrepreneurial professor who not only understands the technology, but also “sees” the commercial application to significant diseases where there is still an unmet patient need.
• University tech-transfer organizations that realize that they need to help company formation to commercialize this technology rather than create obstacles, and put together deals quickly.
• A seed-stage VC that is willing to not only nurture the company, put in the first money, help syndicate the deal with other regional Midwest VC’s, and find an initial part-time CEO.
Wisconsin model
But is this enough? Wisconsin, which has long followed the above model, doesn’t think so, and a few years ago created the Act 255 angel tax credit legislation which spurred the formation of angel groups and investment AND company formation.
Now Wisconsin is taking a bigger risk and further ratcheting up its stake in new company formation for the state: Gov. Jim Doyle has a new plan to further boost investment in Wisconsin start-ups. This plan, called Accelerate Wisconsin, is an extension of Act 255. The original plan not only focused on angel investors but also venture capital funds.
Under the new proposed plan, angel investors would receive up to $4 million in tax credits, up from $1 million previously. Additionally, the state had previously allocated up to about $35 million in tax credits for certified venture funds, and about $30 million for angel investors. Under the changes, the former level would go up to $100 million, while the angel investor level would be increased to $87 million.
Wow, talk about putting your money where your mouth is on new company formation! This plan would clearly put Wisconsin at the forefront of innovation in early-stage financing, the most difficult part of raising money for a new company.
This plan has not been voted into legislation yet by Wisconsin’s Senate, but if it does come into play, it clearly puts Wisconsin in the leadership role in the Midwest (and in many other parts of the country) of resolving a chronic problem: raising that first-round of money!
Wisconsin ranks 19th in the nation for total federal research dollars, $589 million last year, versus Illinois’ 8th position with about $1.16 billion in federal research dollars. But Wisconsin is further leveraging its federal research dollars with angel investor dollars in an imaginative and creative way.
The Illinois Biotechnology Industry Organization has created the Propel program, which creates a group of experienced biotech-savvy, mentors for young companies and matches them up. This effort has been well-received by young companies and quite helpful and motivating, but these companies are still challenged by raising seed money!
Watch out Illinois and the other Midwest states! This is the kind of creative thinking needed to create new companies and new jobs at a time when traditional manufacturing companies have been scaling back. Bioscience companies, on average, have salary levels 2-3 times as high as these traditional manufacturing companies.
See you soon!
Previous articles by Michael Rosen
• Michael Rosen: A tale of two biotech cities: Chicago and Baltimore
• Get set because here come two Olympics, athletics and biotech
• Michael Rosen: 2007: M&As and IPOs continue in the Midwest life science sector
• Michael Rosen: U.S. can learn from growth of biofuels in Latin America
• Michael Rosen: 2007: The best and worst of times for Big Pharma