Wisconsin building toward the major leagues of venture capital

Madison, Wis. - Just as the Milwaukee Brewers have used their minor-league system to produce a contending Major League team, Wisconsin is attempting to join the major leagues of venture investing by building its angel capital infrastructure.

That building process reached another milestone with the news that Wisconsin has surpassed the $100 million level in annual angel capital investments, according to a new report compiled by NorthStar Economics, the Wisconsin Technology Council, and the state Department of Financial Institutions.

The report, titled “Risk Capital in Wisconsin: A Progress Report for 2006,” says a total of $102.9 million in early-stage risk capital activity was tracked in Wisconsin last year, an increase of 54 percent over 2005. The market includes angel networks, individual angel investors, informal angel groups, and early-stage funds.

That figure bodes well for the state's attempts to attract higher amounts of later-stage venture investments, according to Joe Kremer, director of the Wisconsin Angel Network. In recent years, the state has made some incremental process in attracting venture investments, but backtracked in 2006 as venture financing declined from $69 to $61 million, according to the report.

In developing future prospects for venture capital, Kremer referenced the baseball analogy first used by Tom Still, president of the Wisconsin Technology Council. “I think Tom has a great analogy that in order to have the major leagues, you need to have the minor leagues to feed it,” Kremer said. “We're creating a farm system that will eventually feed the major leagues.”

Minor league infrastructure

The state is building that “minor league” infrastructure with the help of angel investment tax credits made available under Act 255. The program is designed to stimulate investment in small technology businesses with high growth potential by providing state tax credits to those who invest in companies that are qualified by the Wisconsin Department of Commerce.

Program funding for the 2007-09 biennium is on the forthcoming agenda of the Legislature's Joint Committee on Finance. Gov. Jim Doyle is seeking to increase the $3 million annual allocation in angel and early-stage investment by $2.5 million, increase from $1 million to $2 million the cap on angel investment in any one company, and allow unawarded tax credits to be awarded in subsequent years.

Joint Finance already has failed to fund a proposed Venture Center, but David Ward, president and founder of NorthStar Economics, noted that Act 255 was enacted in 2003 with bipartisan support.

“I think there still is bipartisan support for this,” he said. “I think it helps to have these [angel capital] numbers, but I also think it helps to have companies growing and creating jobs in this state.”

Ward said TomoTherapy, which was spun out of research at the University of Wisconsin-Madison and recently raised $213 million in an initial public offering of stock, is a perfect example of how investments in early-stage companies can pay dividends down the road.

More 255 returns

Act 255 is given some of the credit for an increase in angel networks in Wisconsin. The state now has 15 active angel networks, which is about 13 more than it had in 2000. Combined, the state's angel networks invested $7.5 million of the total angel capital invested in 2006, and Ward estimates that individual angels accounted for $80 million plus.

That ratio of individual-to-network angel investing roughly corresponds to the 12 to 1 and 13 to 1 ratios Ward has seen in various studies on national investment patterns.

“I think we're making progress,” Ward said. “We're not growing a 30-day crop here. It's going to take five to 10 years to really ramp this up.”

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• Wisconsin fares slightly better in venture capital chase

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