Venture on the rise

Forget about the dot.com bust earlier this decade, because it appears private investors are again willing to take a chance on start-up businesses.

U.S. venture capitalists in 2007 poured $29.4 billion into 3,800 U.S.-based start-ups in the highest annual total investment in six years, according to a report released last month by PricewaterhouseCoopers, for the National Venture Capital Association. The total was an 11 percent total dollar increase from 2006.

The venture capital dollars invested in 2007 were nowhere near the $110 billion poured into fledgling companies during the Internet boom in 2000. However, the report shows investors are bullish on new start-ups especially in the fastest-growing sectors of life sciences and clean-tech energy.

Tracy Lefteroff, managing partner at Pricewaterhouse-Coopers, called 2007 "a good year to be an entrepreneur" because of "an encouraging mergers-and-acquisitions market and the most venture-backed (initial public offerings) seen in several years."

The trend also is seen in Wisconsin, said Charlie Goff, who manages the Appleton-based New Capital Fund, which launched in 2006 and today has 76 investors and a fund of about $10 million.

"Clearly in northeast Wisconsin, there is more activity," Goff said. "Prior to our organization, there wasn't a single group whose main task was to look for early-stage investment. It's our job to find the opportunities out there in our geography as well as on the state level."

Jerry Murphy, executive director of the New North Inc., an 18-county regional economic development organization for northeast Wisconsin, said the market has investors willing to put dollars into start-up businesses. The issue has been finding ventures that will create high-paying jobs in the long-term.

"How do we position northeast Wisconsin as a place to attract venture operations?" Murphy said. "Most intellectual property doesn't stray far from Madison, so it's a challenge for us to pull that away from the university."

Though like Goff, Murphy is encouraged the state is recognizing the importance of encouraging private investment.

"It's refreshing to see public police and tax incentives that encourage companies and individuals to make deals," Murphy said. "The idea that Wisconsin supports a risk element in new technology may help to strengthen our position."

State backing

Last month, Gov. Jim Doyle introduced his Accelerate Wisconsin initiative.

The program builds on Act 255, which is a collection of tax credits, grants, and loans to support start-up companies and attract angel and venture capital investment.

The National Venture Capital Association reported that between 2005 and 2006, angel investor activity increased 54 percent in Wisconsin. In 2003, venture capital investment in Wisconsin totaled $39 million but by 2006 that jumped to $73 million.

Doyle's new initiative calls for $5 million in grants and loans for technology development. It also enhances existing tax credits, including raising the current cap of $1 million in tax-creditable investment up to $4 million.

Doyle also proposes by 2015, angel and venture capital tax credits available to state businesses will reach $100 million, leveraging a minimum of $400 million in private investment.

What's hot

Life sciences medical devices and biotechnology set a record $9.1 billion for 862 deals in 2007, National Venture Capital Association reported. That was up from $7.6 billion and 786 deals the year before. Observers expect that sector to keep growing as research focuses on diseases and the aging U.S. and global population.

The New Capital Fund also is looking at medical investments. Though it also has invested in computer software companies and a video game developer, Frozen Codebase, in Green Bay.

The New Capital Fund recently acquired Ro-Fol Compressors in Appleton, a maker of compressors, that had been owned by GE Oil & Gas.

Goff believes interest in business investment has picked up because of recent successes. "More angel investors have gotten involved (in Wisconsin) because of the Act 255," he said. "There is a general awareness of what is available to start-ups today."

He said a recent success was Madison-based Jellyfish.com. The Web site was a comparative shopping search engine that recently was acquired by Microsoft for $50 million.

"When you can show investors a result like that, it gets attention," Goff said.

Lessons learned

Wary of failed start-ups from the dot.com bust, venture capitalists today make sure that young firms have profit-driven business plans, strong potential markets and savvy management, the National Venture Capital Association reports. Start-ups also must have solid "exit strategies" for when they're ready to sell stock or get acquired.

Venture firms, who funded 1,300 new business plans last year, "would not be putting money in this if they were not optimistic about what lies ahead," said John Taylor, NVCA research and financial executive.

Goff agrees and notes venture capital investors do expect a return on their dollars plus seek a profit.

He said a typical venture capital fund lasts 10 years. Though the idea is that if one fund shows successful results, past participants or investors, would help start up another fund and begin the process again.

He believes the New Capital Fund is on a good pace.

"At the end of a fund's cycle, you have to show a good rate of return," he said. "If you don't and want to launch another fund, the investors may not be there."

These states lead the nation in employment though jobs generated by venture capital backed companies at the end of 2006:

{}Rank/StateEmployment

1. California2,362,400

2. Texas1,118,600

3. Pennsylvania697,400

4. Massachusetts674,300

5. Georgia604,500

On the Web

New Capital Fund: {}www.newcapitalfund.com

New Venture Capital Association: {}www.nvca.org

Where's the money going?

According to New Venture Capital Association's 2007 report, Venture Impact The Economic Importance of Venture Capital Backed Companies to the U.S. Economy, these were the top industries nationally that lured private investment dollars:

Industry, Employment, Revenue

Computers and peripherals, 1,994,100, $533 billion

Industrial/energy, 1,251,900, $302 billion

Retailing/distribution, 1,111,000, $222 billion

Software, 886,600, $227 billion

Consumer products, 765,500, $56.3 billion

Larry Avila: 920-993-1000, ext. 292, or lavila@postcrescent.com USA Today contributed to this story.