Great Lakes angel investors are putting their money where the deals are

01 May Great Lakes angel investors are putting their money where the deals are

Andy Shrago, the co-manager of Wisconsin Investment Partners, wasn’t too surprised by the news that angel investors in the five Great Lakes states that include Wisconsin led the nation in 2014 in terms of total dollars invested.

“I know some people on the outside might say, ‘Gee whiz, who knew there were that many deals there?” said Shrago, whose 90-plus-member network has invested in more than 50 companies since 2000. “But some of here were following it all along, so we knew.”

Wisconsin Investment Partners, or WIP, invested $4.4 million in 2014, which is why the latest Halo report by the national Angel Resource Institute showed the Madison-based network among the 12 most active angel groups in the United States in 2014. It was an elite group that included Tech Coast Angels, New York Angels, the Houston Angel Network and Desert Angels.

In fact, WIP was the only angel group outside the East or West coasts and Texas to crack the list, which was based on number of deals completed that year. Wisconsin Investment Partners closed on 24 deals in 2014, including 18 follow-on rounds with existing portfolio companies and six new investments.

In 2014, angel groups in Wisconsin, Illinois, Michigan, Indiana and Ohio invested more dollars than anywhere else in the country, or 17.2 percent of the $1.65 billion total. The Great Lakes edged out California (17.0 percent), marking the first time any region other than California led in angel dollars invested since records have been kept.

Next on the list was New York at 14.3 percent, New England at 14.2 percent, the Southeast at 8.8 percent and Texas at 6.2 percent of dollars invested. The eight Great Plains states, for example, represented just 3.8 percent of angel dollars invested.

With 870 reported deals nationally in 2014, the breakdown on deals per region was similar. California led with 19.8 percent of deals, followed by the Great Lakes at 13 percent and New England, New York, Texas and the Southeast not far behind.

Angel investing has remained steadily vigorous in the United States even as venture capital, an upstream form of private equity investing, has ebbed and flowed. Venture capital investment rounds tend to follow angel rounds, and are typically much larger. Venture capital investments come from funds, but angel investments can come from individuals, families, small funds or networks.

Wisconsin Investment Partners is a network, one of the first created in Wisconsin and one of the largest. Individual members must join WIP to take part in discussions of possible investments, but they can largely pick and choose in which deals to invest. In late 2004, there were only a handful of angel networks in Wisconsin and fewer venture funds. Today, there are more than two-dozen early stage investor groups of various descriptions.

What has fueled the growth in early stage investing in Wisconsin? Several factors have played an important role:

n The creation of Wisconsin’s angel and venture investor tax credits, which took effect in 2005, has made it possible for qualified young companies to attract private investment dollars than qualify for state tax credits. Every $4 invested in an early stage company can result in a $1 tax credit, under certain conditions. The law was expanded in 2009 and 2013, and changes proposed in the 2015-17 state budget could spur more investment.

n The birth of the Wisconsin Angel Network in 2004 has helped angels in Wisconsin find co-investment prospects, exchange best practices and generally communicate better among themselves while connecting with startup companies through vetted events and other platforms. The WAN is a project of the Wisconsin Technology Council, with support from the Wisconsin Economic Development Corp.

Most important, however, is deal flow. Without strong companies in the pipeline to reduce the risk, investors have no credible place to put their money. That’s why angels such as Shrago are bullish on Wisconsin.

“There are tremendous opportunities here. It’s been under the radar for a number of years, but now it’s beginning to surface,” he said. Shrago cited health care information technology as one emerging sector in Wisconsin and, in particular, the Madison area.

His view matches what the Halo report tracked in its 2014 report on national investing trends, with health care, Internet and mobile-telecom deals representing about 68 percent of the total.

It’s a classic chicken-and-egg relationship: Without strong young companies, there are few active investors, and without active investors, young companies can’t grow. Fortunately for Wisconsin these days, the state is producing more of both.

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