Madison’s Tech Future: 5 Ways It Could Succeed, 5 Ways It Could Fail

6/12/14Follow @XconomyWI

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Epic Systems, the electronic health records giant based in nearby Verona; fast-growing startups like Nordic Consulting and EatStreet; satellite offices for major tech companies including Google, Microsoft, HP, and Amazon (through its 2006 acquisition of Shopbop); and in the IT departments for corporations like American Family Insurance, Great Lakes Higher Education Corp., and WPS Insurance, says Betsy Lundgren, MadREP vice president of marketing.

Madison’s IT diversity is a key piece of its tech play, Brandon says, citing healthy concentrations of companies in data, computer programming, healthtech, and gaming.

“The diversity of all that is an asset to us in the long term because it allows us to weather the boom and bust that generally comes with tech,” Brandon explains. “But it also gives us sort of a blank canvas to be able to paint the brush strokes of what’s next” for Madison.

3. Epic: Epic Systems is a big reason why Madison’s economic engine is humming right now. The private company, which makes a variety of software for healthcare providers, is the eighth-largest healthcare IT company in the U.S., with $1.75 billion in revenue last year. It employs an estimated 6,800 people locally, many of them recent college grads from around the country. Optimists like Mark Bakken, CEO of Epic software consultant Nordic Consulting, have said Epic could be the anchor for Madison that Dell is in Austin and Microsoft is (or was) in Seattle.

And stakeholders believe Epic is making a big contribution, albeit indirectly, to Madison’s healthtech startup scene because several hundred employees reportedly quit each year, according to a February article in Isthmus, and some of them choose to stay in the area and start new companies. Recent examples of firms founded by Epic ex-pats include consulting firms BlueTree Network and Vonlay, which was recently acquired by Chicago-based Huron Consulting Group; Moxe Health; and the new healthtech incubator, 100health.

4. Lower costs: As Silicon Valley gets more crowded and housing costs in San Francisco continue to get more outrageous, cheaper places like Madison start to look more attractive for tech company outposts. From that standpoint, it wouldn’t be surprising to see more companies follow the lead of Google, Zendesk, et al., and set up shop here. Greg Robinson, a former Silicon Valley VC and head of the new $30 million Madison-based IT fund 4490 Ventures, is high on Wisconsin’s potential for building “capital-efficient” tech startups. In his view, the talent is just as good in Madison as Silicon Valley, but the real estate and employee salaries are a fraction of the cost.

5. Cool factor: Having an unquantifiable hip vibe is one of the intangibles a city needs to lure and retain young talent. Think “Keep Austin Weird.” Does Madison have it? Brandon thinks so. “It’s hard to identify it and even harder to create it, but whatever ‘it’ is, Madison has it,” he says.

Being a college town certainly helps. Also contributing to Madison’s cool factor are a vibrant craft beer scene, fun restaurants and bars in a walkable area downtown, a bicycling culture, and two lakes buttressing the city, to name a few.

Factor in the increased job opportunities in tech and new housing developments downtown, and college grads have more reasons to stay in Madison, says James Laudon, site director for Google’s Madison office, which opened in 2007. Laudon is a Wisconsin native who got his bachelor’s degree in electrical engineering at UW-Madison, and then got a doctorate at Stanford University and worked in Silicon Valley for a decade before returning to Madison.

“When I came [back] in 2003, all the articles were about how the city was losing all its bright people from the university because there was nothing for them in Madison,” Laudon says. “Now it’s the complete opposite.”

But the long-term prospects for Madison’s IT play certainly aren’t assured. Here are several things that could hamper its growth:

1. Lack of venture capital: It’s been said plenty of times, but we’ve got to say it again—Wisconsin has fostered a strong network of angel investors, but it still has a dearth of venture capital firms. Startups often need these institutional investors to close larger, Series A funding rounds. Wisconsin’s early-stage companies have had more success snagging dollars from out-of-state VCs the past couple of years, and there’s been a flurry of activity in the past month that indicates new investors have noticed what’s happening in the Badger State. But it obviously would be easier for Wisconsin entrepreneurs if they could find more funding closer to home. That would also alleviate any fears that the out-of-state investors might demand the startup relocate.

2. Exits: The Madison area has seen some sizable exits by its biotech startups, but its relatively young tech startup scene has yet to experience the same level of success, outside of a few notable wins like … Next Page »

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

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