Wisconsin Venture Debt Programs Need More Deals, Not More Capital

2/10/14

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they are comfortable with other conditions of a loan. Some programs attach warrants—an option to purchase a defined amount of stock at a defined price in the future—to the loans. Other programs require personal guarantees from principals. All conditions have to be carefully evaluated to decide if taking on venture debt is worthwhile.

Having touched on regional lending, let’s take a look at exactly what programs are available to Wisconsin’s entrepreneurs and how much these programs lent in 2013.

All Wisconsin entrepreneurs have access to loans from WEDC. Its Technology Development Loans program and its predecessors have provided 86 loans statewide totaling $17.5 million since 2005. The program made 20 loans in 2013 equaling $5 million.

The Milwaukee Economic Development Corp. (MEDC) launched a pilot venture debt program in 2013 for the seven-county region in southeast Wisconsin, which committed five loans for a total of $1.5 million.

MDC, which serves Dane County, committed $1.7 million across five businesses in 2013 through its venture debt program.

Two venture debt programs are available to entrepreneurs in west central Wisconsin. The Regional Business Fund’s (RBF) Technology Enterprise Fund has committed a total of $850,000 in its six years of operation, but did not make any loans in 2013. The Eau Claire Area Economic Development Corp.’s (ECAEDC) Near Equity Fund, newest on the state venture debt scene, has yet to make its first loan.

What will it take to expand venture debt in Wisconsin for 2014?

More visibility of the venture debt option within the tech community is clearly important. Most program managers that I talked to for this post identified more deal flow, not necessarily more capital, as the immediate opportunity for expanded lending. Several of the programs could not commit all the 2013 money they had available, for various reasons.

Lisa Johnson, vice president of entrepreneurship and innovation at WEDC, identified the importance of improving the quality of the deal flow as well as its quantity. She cited the value of both entrepreneurs and investors/lenders embracing practices that will improve the likelihood of success, such as data-driven market/product planning and lean startup methods that quickly generate customer feedback.

Activity in neighboring states may also help. RBF Fund Manager Beth Waldhart and ECAEDC Executive Director Brian Doudna both anticipate increased 2014 deal flow due to their area’s proximity to Minnesota’s thriving Twin Cities region.

Since deal flow will be the gating factor for increased 2014 venture debt activity, it is important to note where capital can make an immediate difference. MEDC needs to evolve its pilot program into a sustained effort to support the Milwaukee area in 2014. The Fox River Valley, spanning the state’s third (Green Bay) and fourth (Appleton) largest metropolitan areas, is a high-growth region and a logical candidate for a venture debt program.

Venture debt does not answer every capital need, but more visibility for and understanding of the state’s venture debt options can only result in greater utilization by Wisconsin’s early-stage businesses. Venture debt might just provide that extra boost entrepreneurs are looking for in 2014.

Matt Peterson's international career in technology-driven industries spans executive positions in publicly traded companies to founder at early-stage ones, serving media, medical, and industrial sectors. He mentors aspiring founders for the Madison Entrepreneurs Resource Learning and Innovation Network (MERLIN) and serves on the board of the Madison Committee on Foreign Relations. Matt writes about sustainability in information and communications technologies at vertatique.com and @GreenICT. Follow @

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  • Nor-Cal FDC

    Matt,

    Very interesting and innovative approach to providing more funding options to High Tech firms. You mentioned that while the capital is available – the challenge now is finding suitable High Tech companies. Is this because the Technology Development Programs are not well suited for pre-revenue firms? Or does there need to be more outreach and marketing to the tech community in Wisconsin?

    • Vertatique

      There is no single answer because the state’s five venture debt
      programs vary in practices such as lending to pre-revenue companies.

      Having said that, your observation about more outreach and marketing to the tech community is critical to improving the quantity and quality of deal flow for most programs. Much information entrepreneurs receive about funding typically follows the seed-angel-VC capital sequence. Debt, in all its forms, is covered less frequently and in less depth.

      Matt

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