3 Takeaways From Wisconsin’s Recent Burst of VC Deals

6/10/14Follow @XconomyWI

Wisconsin entrepreneurs often lament the state’s relative lack of venture capital, but lately they’ve had plenty to smile about.

In the past two weeks, there have been five major funding announcements by Badger State startups: $8.5 million for Green Bay-based Aver Informatics, $6 million for Delafield-based Montage Talent, $3.4 million for Madison-based FluGen, $3 million for Madison-based PerBlue, and $1.5 million for Madison-based Fishidy.

Madison-based Wellbe has also raised $425,000 for a possible $1.25 million funding round, according to an SEC filing.

These deals wouldn’t turn heads in startup hotbeds like Silicon Valley, but they’re significant in Wisconsin. (Last year there was only one reported Wisconsin VC deal that exceeded $10 million.)

The recent flurry of VC activity coincided with the release of this year’s Wisconsin Portfolio, an annual publication from the Wisconsin Technology Council and its Wisconsin Angel Network, which tracks all of the deals statewide. Wisconsin saw 16 percent more deals in 2013 than 2012, but the total dollars invested dropped 21 percent to $128.3 million.

Halfway through this year, it’s too early to predict how 2014 will stack up, said Dan Blake, Wisconsin Angel Network director.

“It’s kind of hard to know for sure if the dollar amount is going to go up,” Blake said. “One large deal can really skew the totals one way or another.”

But he thinks there will again be an increase in the number of investment deals, partly because new Wisconsin funds have recently popped up, including 4490 Ventures, BrightStar Wisconsin Foundation, and a state-backed “fund of funds.”

In the meantime, here are three takeaways from the recent funding rounds:

—Big deals: Aver Informatics’ $8.5 million Series A round and Montage Talent’s $6 million Series C round could rank among the largest deals this year when the dust settles. Last year, the top deal (by a landslide) was $38 million raised by Madison-based Nordic Consulting, with the next four largest deals ranging from $4 million to $9.3 million.

The recent deals should help the startups grow quickly, Blake said. “It’s good whenever companies that are trying to grow to a certain level are able to raise the money to execute on that vision,” Blake said.

—First-timers: The recent deals were mostly led by out-of-state investors, which isn’t surprising because Wisconsin lacks the venture capital firms that are typically necessary to close larger follow-on rounds.

But it was encouraging to see outside firms making their first lead investments in Wisconsin companies, Blake said, including Chicago-based Lightbank in the PerBlue deal, Chicago-based Hyde Park Angels in Fishidy, and Farmington Hills, MI-based private equity firm Beringea in Montage. Columbus, OH-based Drive Capital, a new $250 million fund, has invested in two Wisconsin companies, including Aver Informatics, Blake said.

“I think we’re starting to see new players in the Midwest ecosystem that are finding good deals in Wisconsin, which is great,” Blake said.

Syndicated deals between Wisconsin investors and national or regional VCs have been “happening for years,” Blake said, “but everyone is in agreement that there’s been an increase in the level of activity over the past couple years in Wisconsin.”

—Staying put and growing: I’ve heard stories of Wisconsin entrepreneurs who turned down potential coastal investors because they demanded the company relocate. It’s unclear if fewer out-of-state investors are requiring that Wisconsin startups move closer to the VC firm’s offices as part of the deal, but that plainly wasn’t the case with these recent funding rounds.

In fact, a few of the startups indicated they plan to grow their operations in Wisconsin, which is huge for the local startup ecosystem and the local economy. “It’s good to have companies attracting this type of financing and growing their companies in-state, as opposed to attracting financing and moving the companies closer to where that financing is originating,” Blake said.

Jeff Engel is the editor of Xconomy Wisconsin. Email: jengel@xconomy.com Follow @XconomyWI

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