Startups Still Abandon Wisconsin, But Growing Cluster Keeping More Here

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Over the years, the reasons most often cited by founders for uprooting their companies from Wisconsin include a dearth of nearby investment dollars, more abundant talent elsewhere, and a desire to be close to a more developed industry cluster or startup ecosystem.

Startup founders, eyeing a buyout to get a return for their investors, might also move to the coasts because there’s more merger and acquisition activity, particularly involving software startups, Kirgues says.

“A big issue is that the Midwest doesn’t have a lot of companies that acquire startups. It’s holding up liquidity here,” Kirgues says. “We’re surprised that there’s not more corporate acquisitions in the Midwest by Fortune 500s located here that are looking to gain capable talent and products in mobile or the Internet of things.”

It’s unclear exactly why SurveyMonkey’s Finley chose Portland over Madison, and he and the company’s public relations team didn’t respond to requests for comment. But money was the issue for Silver Spring Networks, which was named after the Butler, WI, street—Silver Spring Drive—where it was born.

When the company tried to raise money in 2003, it couldn’t find any interested investors in the Midwest, co-founder Eric Dresselhuys told the San Jose Mercury News in 2011. The startup ended up being funded by a Denver angel investor and Foundation Capital in Menlo Park, CA. As a condition of Foundation Capital’s investment, Silver Spring had to move to Silicon Valley.

Spill, started by Heidi Allstop in 2009 while she was a University of Wisconsin-Madison junior, was drawn to Boston in 2011 when it got accepted into the Techstars accelerator program there. The company started as a social network aimed primarily at college students seeking an anonymous forum for speaking openly about their personal problems and emotional struggles. Allstop, a former crisis counselor, initially decided to keep the company in Boston because of its dense concentration of college campuses. In 2012, she moved it to California because Spill was shifting toward being a social network for the masses, not just students, and there are more industry mentors, peer companies, and resources for social networks in Silicon Valley, she says.

“Moving back to Madison would’ve been awesome, but it just didn’t make sense for our business,” Allstop says.

Roughly a third of Spill’s $650,000 in equity funding came from Wisconsin investors, Allstop says, but she has struggled to raise money from Midwest investors who aren’t as willing to place risky bets and who often pursue startups that are generating revenue and have concrete financial projections.

“For a social network, it’s impossible to show that kind of stuff, which makes fundraising challenging,” Allstop says. “They can get the idea and know the space is hot. But since it’s not their forte, it’s harder to find angels who will write a check.”

San Francisco has its own set of challenges, not least of which are the outrageous cost of living and the spiking prices for office space.

“If I were to start another company, I would love it to be in Madison,” Allstop says. “I’m really jealous that I’m not there for this exciting time of growth for the entrepreneurial community.”

Observers say talent is no longer a barrier for Wisconsin startups, thanks to … Next Page »

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

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