3 Startup Myths Debunked by Recent Eau Claire Tech News

8/11/14Follow @XconomyWI

Wisconsin economic development officials and startup advocates like to say that innovation happens in all parts of the state, not just in its two biggest cities, Milwaukee and Madison.

That mantra isn’t always evident, given the lower level of startup activity outside the state’s two hubs. But there certainly are pockets of innovation statewide.

I’ll admit, until recently, I hadn’t paid much attention to the Chippewa Valley region in west-central Wisconsin. I wasn’t aware, for example, that it has an historic strength in supercomputers that sprouted from the work of Chippewa Falls native Seymour Cray in the 1970s and 1980s. Seattle-based Cray Inc. and Milpitas, CA-based Silicon Graphics International both have ties to Seymour Cray’s original company and maintain operations in Chippewa Falls.

Three recent Xconomy stories that examined the Chippewa Valley region illustrate what’s happening around tech and investing in less-populous areas of the state. The stories focused primarily on Eau Claire, WI, a college town of about 67,000 people that is located 90 miles from Minneapolis, 180 miles from Madison, and 245 miles from Milwaukee. The first story was a Q&A with the manager of the Chippewa Valley Angel Investors Network (CVAIN), which recently scored a big payout from an early investment in a Minneapolis healthtech company. A couple of weeks later, I profiled Zach Halmstad, who founded an Apple enterprise software provider in Eau Claire, JAMF Software, that has raised $33 million in venture capital and has grown into a successful international operation. (The story also explored how Halmstad and Bon Iver’s Justin Vernon are investing in the future of their hometown.) And most recently, I reported that a stealthy device startup called Invisible Connect landed $2.5 million in seed funding from a Wisconsin investor.

Taken together, these three stories don’t indicate that the Chippewa Valley is poised to climb to the level of startup activity in Madison and Milwaukee (which still have work to do themselves), but they’re at least a reminder for Wisconsinites, Midwesterners, and readers nationwide to pay attention to what happens outside those two cities.

The stories also discredit several stereotypes about startup communities:

—Myth #1: Startups need to be located in major cities to get funded. JAMF and Invisible Connect were able to attract millions of dollars from investors, despite being located in a small city with a small tech community. To be fair, JAMF headquarters are now in Minneapolis, but the company has more staff in Eau Claire. That’s key for the local economy—and a state that has experienced its fair share of tech startups fleeing elsewhere. These two companies seem to indicate that good ideas and a strong management team trump location. (Of course, in Invisible Connect’s case we’ll have to trust the judgment of the investor for now, since the company doesn’t have any finished products.)

—Myth #2: Tech companies in small cities can’t attract talented employees. A decade ago, JAMF’s co-founders were told they had probably found the only four people in Eau Claire who had the skills necessary for an enterprise software company. JAMF execs are the ones laughing now because they’ve grown to 150 employees in Eau Claire. The vast majority of those employees were groomed in-house, rather than recruited from outside Wisconsin, Halmstad told Xconomy. The company has built up its staff by teaching astute locals the skills to handle technical jobs and by hiring interns from the region’s universities and technical colleges.

Meanwhile, Invisible Connect has hired 13 staff since June 1, including recruits from other parts of the country, founder and president Scott Strangstalien said.

—Myth #3: Investment capital only comes from big cities. Wisconsin entrepreneurs undoubtedly have more potential investors in cities like Chicago, Milwaukee, and Madison. But that doesn’t mean they can’t find capital in smaller areas of Wisconsin. Oshkosh-based Angels on the Water, New Capital Fund in Little Chute, Eagle River-based Northwoods Angels, and Eau Claire-based CVAIN are among the angel groups located outside the state’s two largest cities. Such groups don’t make large investments (CVAIN members typically invest $250,000 per deal, for example), but those early seed dollars are crucial to any startup.

And these angel groups located in smaller cities can achieve wins, too. Take CVAIN, which has had two companies get acquired and only one defunct business among the 11 companies in its $4 million portfolio, manager Pete Marsnik said.

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

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