Wisconsin Early-stage Capital Interventions Lead to Gains in 2006

Like many states, Wisconsin has struggled to attract consistent attention from the national venture capital industry. Capital can be especially difficult to obtain in the state, since entrepreneurs with limited resources are often unable to participate in the expensive and complicated process of presenting their cases to venture capital firms based on the coasts. To address this market failure, Wisconsin has established several programs to encourage the formation of local venture and angel capital groups and incentives for in-state equity investment.



A recent report from NorthStar Economics, in cooperation with the Wisconsin Technology Council and the Wisconsin Angel Network, suggests that these equity programs are working well. In 2006, early-stage risk capital activity reached $102.9 million, a 54 percent increase over the previous year. This early-stage activity includes investments by angel networks, individual angels, informal angel groups and early-stage fund investments. To put that in perspective, the Center for Venture Research at the University of New Hampshire reports that angel investing in the U.S. increased only 11 percent last year.



The life science/biotech industry posted the most gains for Wisconsin early-stage investments, growing from $23.9 million in 2005 to $35.7 million in 2006. The number of deals, however, fell from 17 to 13, meaning the average size of an early-stage biotech deal nearly doubled. Energy also experienced an early-stage investment boom, receiving $14.7 million and displacing information technology as the second most popular industry for investment in the state.



Tom Still, president of the Wisconsin Technology Council, told the Milwaukee Journal Sentinel that he credits much of the state's progress in attracting angel capital to measures introduced in the past few years that target early-stage investment. In 2004, Gov. Jim Doyle created a number of programs under the Grow Wisconsin Initiative (see the April 26, 2004 issue of the Digest). Current programs include early-stage angel investment and venture capital tax credits, technology assistance grants to help businesses pay for third party services used to acquire private investment, and technology venture fund loans to help businesses search for angel or seed investment. The angel tax credit, which provides $3 million annually in credits, has allowed Wisconsin to collect more detailed information about angel investment within the state.



Additionally, the Wisconsin Angel Network, created in January 2005, has provided investors and entrepreneurs with information and networking opportunities to increase the volume and quantity of investment over the past two years. The network is a public-private initiative operated by the Wisconsin Technology Council, which also offers a number of other programs to improve the state's venture market.



Though Wisconsin actually rose two spots in the national rankings, venture capital investment overall in the state was down $8 million in 2006. The state now ranks 33rd in the country, despite the setback. In the Sentinel article above, Still attributed the small decline to a fund-raising year for several of the states’ larger venture firms. Last year, however, also saw the formation of several new venture funds in the state, which Still feels bodes well for future growth in the industry. Healthy growth within the early-stage market also should provide more high-quality opportunities for later-stage investment down the line, Still concluded.



Read Risk Capital in Wisconsin: A Progress Report for 2006 at: http://www.wisconsinangelnetwork.com/uploads/ReportingMetrics/RiskCapital2006Report.pdf