STUDY: STARTUPS ATTRACT LESS CAPITAL

BYLINE: JUDY NEWMAN jdnewman@madison.com 608-252-6156

Investors have lots of money they want to put to use in growing companies but it's apparently going to established businesses, not to entrepreneurs coming up with new ideas, a study finds.

The survey, by the Milwaukee-based Foley & Lardner law firm, with offices in Madison, shows that more than three-fourths of the investors questioned have raised money in the past two years, and nearly as many expect to raise another fund in the next year or two.

But at the same time, nearly 50 percent of the leaders of startup companies say it's harder to attract money from investors than it used to be. Sixty-two percent said they think startup companies should be prepared to survive on less capital than they did a decade ago.

The poll received responses from 155 leaders of young companies, consultants and potential investors, in the United States and around the world.

In Wisconsin, though, the opposite may be true, said Tom Still, president of the Wisconsin Technology Council.

"I think we've seen an upswing in private investments in Wisconsin, particularly on the angel and early stage side," Still said. "The state still lags, though, in attracting later-stage investments."

Another report shows that, for the first nine months of 2006, venture-capital firms invested $49.7 million in Wisconsin companies, twice as much as the $24.6 million invested during the same period in 2005. The MoneyTree report by PricewaterhouseCoopers and the National Venture Capital Association is based on data from Thomson Financial.

"I think Wisconsin is attracting more early stage investment right now, some of it coming from inside the state," Still said.

Investments from angels, or wealthy individuals, also are increasing, he said, with estimates of more than $50 million from those sources in 2005, and projections that 2006 figures will top that.

"Angel investors are always the principal, initial source of funding for small startups," said Bob Barnard, vice president and treasurer of Stratatech, a Madison company developing tissue products for healing wounds.

In the past couple of years, angel investors have banded together to form groups, which have put together larger financing rounds for young companies, Barnard said. At the same time, a couple of venture-capital firms in Wisconsin focus specifically on funding early stage companies, such as Venture Investors of Madison.

"In combination, I believe this is all good news for locally based startup companies," Barnard said.