The efforts to bolster Wisconsin’s venture capital ecosystem would get high marks if you were looking at a snapshot from a few years ago.
There was even a 12-month stretch ending in the third quarter of 2021 that saw the total investment in Wisconsin startups reach $713 million, according to PitchBook data. Data from the Wisconsin Technology Council puts the full-year 2021 peak even higher at nearly $869 million. In the mid-2010s, the total VC investment in the state for a year was around $200 million, or even less.
Regardless of the source, the trend is the same: A general ramp-up in VC dollars invested in Wisconsin over the course of the 2010s, reaching a peak in 2021.
However, that peak was partially the result of a low-interest rate environment that followed the COVID-19 pandemic. Recent years have seen more challenges as VC funding in Wisconsin plummeted in 2023 before rebounding this past year, according to the PitchBook data.
Total venture investment in Wisconsin by year
Investment in Wisconsin startups generally trended upward in the second half of the 2010s and peaked in 2021, according to data from both the Wisconsin Technology Council and PitchBook. The Tech Council seeks to have the most comprehensive look at activity in the state and on average includes 25 more deals per year than PitchBook does.
Wisconsin’s venture ecosystem has clearly made gains over the past decade, a period that roughly coincides with legislation enabling the Badger Fund of Funds and a greater emphasis on startups across the state. There are more investors, more money and bigger deals.
Still, Wisconsin has made little progress relative to other states. For the period from 2015 through 2019, the state’s average rank in terms of total venture investment was roughly 29th. From 2020 to 2024, the average was 31st. The rankings are worse for Wisconsin when investment is measured as a percentage of state gross domestic product.
On both measures, Wisconsin trails nearby states like Illinois, Indiana, Minnesota, Michigan and Ohio. Only Iowa ranks lower, but Iowa moved up in the rankings on both measures over the past decade.
“We’re, at this point, not truly keeping pace in most ways with what’s going on in the Midwest, and of course the coasts are always going to be running ahead,” said Tom Still, president of the Wisconsin Technology Council.
Changing Wisconsin’s venture ecosystem
The Badger Fund of Funds was created by legislation passed in 2013 that allocated $25 million in state money to the creation of a venture fund. The state selected Sun Mountain Kegonsa as the investment manager for the fund in early 2014.
The Badger Fund then had to raise the private portion of the funds and then began making investments in individual fund managers. As a result, the BFOF didn’t start making investments in companies until around 2018.
Badger Fund of Funds investments in southeastern Wisconsin
Gateway Capital
- Geno.Me, Milwaukee: Health tech for medical researcher coupling genomic and historic medical data
- Golgix, Milwaukee: AI software to limit unplanned downtime for manufacturers (also funded by Idea Fund of La Crosse II)
- Houstr, Racine: Platform for showcasing products onsite at short-term rentals
- Ictect, Burlington: AI automation solutions optimizing content workflows
- Sonoptima, Jackson: Continuous monitoring ultrasound device for pelvic radiation treatment (also funded by Winnow Fund)
- The Pink Bakery, Milwaukee: Wholesale manufacturer of allergen-free baking mixes
- The Way Out, Milwaukee: Anti-bias employment platform
- Tip a ScRxipt, Milwaukee: Crowd-sourced platform to help pay for out-of-pocket medication costs
Idea Fund of La Crosse I
- Backtrack Video, West Bend: Platform connecting buyers and sellers of videos from accidents and crime.
- Part Analytics, Brookfield: Actionable insights for cost reduction and supply chain risk
Winnebago Seed Fund
- Roddy Medical, Wauwatosa: Class I medical devices for patient safety and mobility
- Sift Healthcare, Milwaukee: Health care data analysis (also funded by Rock River Capital)
Rock River Capital Partners
- Distribution Depot, Brookfield: Supplier platform for specialized HVAC goods and services (also funded by Idea Fund of La Crosse II)
- RoofMarketplace: Online roof replacement marketplace
Winnow Fund
- Roddy Medical, Wauwatosa: Class I medical devices for patient safety and mobility
To date, the seven funds in the Badger Fund of Funds have invested $48.6 million into 47 companies, including almost $17 million from the BFOF. The funds exited seven investments at a loss and three with a gain. There are 251 Wisconsin employees with an average annual salary of $129,500 at the current portfolio companies.
Ken Johnson, managing director of the Badger Fund, was blunt when asked how those measurables compare to where he would have wanted the Badger Fund of Funds to be when it started.
“Remember you’re asking an investor who’s got $500,000 of his own money in this, we would definitely like to have better returns, I mean, what person wouldn’t,” he said.
But the potential benefit of the Badger Fund of Funds extends beyond its financial returns.
“The real contribution I hope the Badger Fund is making is putting together an ecosystem of venture fund managers that reflect our community,” Johnson said.
He pointed out that in the past, venture investors in the state were generally middle-age, successful white men. The Badger Fund of Funds has worked to develop new, younger fund managers from a range of different demographics.
“We’re starting to build the bandwidth of the venture capital community in Wisconsin to be not just the very first investors, but rounds two, three, four and really support out companies,” Johnson said.
He highlighted that all of the Badger Fund managers were under 35 when they started and the oldest is just now reaching 40.
“If we’re going to move up into the top 10 (of states for VC investment), what I’m counting on is our people team, our human capital team, is going to jump by these people that are still sticking with the old people,” Johnson said.
Still noted that there has been a general uptick in the number of investors in the state. When the Tech Council was getting started in the early 2000s, “you could cast a net pretty far and wide and not catch any investors,” he said. “There were very few on the landscape.”
Today, the Tech Council has a map on its website highlighting more than 50 angel and venture investors in the state.
Deal size has also changed in Wisconsin. In 2015, the average deal was $1.65 million, according to the Tech Council’s data. PitchBook had the average at around $2.1 million. This past year, the average was $4.1 million in the Tech Council data and $4.2 million according to PitchBook.
The increase is not just the result of one or two relatively large deals. In 2015, just 37% of deals in Wisconsin were over $1 million. In 2024, that figure was 53%.
Percentage of venture deals in Wisconsin by size
[caption id="attachment_615009" align="alignnone" width="1280"]
Source: Wisconsin Technology Council[/caption]
Still acknowledged the rising cost of doing business over a decade would push the amount of money a firm needs to raise higher as well, potentially shifting the percentages.
“I think it also shows deals that were at some of the lower dollar levels early on have matured, that some of those companies are reaching the spot where they’ve got enough critical mass that they merit getting those somewhat larger deals,” he said.
There is also additional money available to be invested. The State of Wisconsin used $50 million from the U.S. Treasury’s State Small Business Credit Initiative, paired with matching private funds, to launch the $100 million Wisconsin Investment Fund.
Firms receiving money from the state include Madison-based HealthX Ventures, receiving $15 million in state money; Madison- and Milwaukee-based NVNG Investment Advisors, $6 million; Madison-based Venture Investors Health Fund, $12 million; the Idea Fund of La Crosse, $5 million; and Illinois-based Serra Ventures, $6 million.
Wisconsin Investment Fund investments
Listed by investing fund with company, headquarters, investment total and company product
HealthX Ventures
- Amulet Inc., Madison ($750,000) | Products addressing food allergies
- Cardamom Health Inc., Madison ($1 million) | Health system data and analytics
- Optical X Inc., Madison ($375,000) | Imaging for early disease detection
- Ready Rebound Inc., Milwaukee ($550,000) | First responder health and wellness
NVNG Investment Advisors
- AIQ Solutions, Madison ($375,000) | Improving complex disease outcomes
- MedServe, Milwaukee ($375,000) | Smart narcotic cabinet system
- C-Motive Technologies Inc., Middleton ($375,000) | Higher efficiency renewable generators
- Intrnls Inc., Wales ($145,000) | Additive manufacturing
Venture Investors (also part of Badger Fund of Funds)
- Rivermark Medical, Milwaukee ($3 million) | Device addressing enlarged prostate symptoms
- Sanacor Inc., Milwaukee ($500,000) | Treatment for chronic heart inflammation
- Ten Bay Bio Inc., Milwaukee ($500,000) | Antibody therapies
Idea Fund of La Crosse (also part of Badger Fund of Funds)
- Eneration Inc., La Crosse ($49,500) | Cutting hospital energy costs and emissions
All of the firms except Serra have made initial investments totaling almost $8 million in 12 startups.
The Badger Fund of Funds also received an additional $25 million from the state. Gov. Tony Evers also vetoed specific language to remove a requirement that BFOF repay money to the state, freeing the fund to reinvest money instead of paying it back to the state.
The Badger Fund is also in the process of adding another fund to its portfolio, investing $2.4 million with Beloit-based Mastercraft Ventures.
Lack of startups and entrepreneurs?
A lack of investors for early-stage deals was one of the challenges the Badger Fund of Funds sought to solve. Johnson said the issue is increasingly shifting to the other side of the equation.
“Right now, we have money to invest. We’re looking for entrepreneurs that have the type of opportunity that we can grow a successful company,” Johnson said, contending that investable opportunities are down 75% since the peak of activity around 2021.
“The shortage now is more on finding entrepreneurs with a business plan that justifies an investment of $3 (million) to $8 million. Remember, if we put in three to eight, we want to get back 50 to 80,” Johnson said. “There’s a certain type of person that really believes passionately that they can do it. I think, right now, the shortage is more in that area.”
He added that raising money is the skillset most needed in Wisconsin’s entrepreneurial ecosystem.
“When a Badger Fund invests, if they were to invest in you … the first thing, we wouldn’t talk about your product and we wouldn’t talk about your customer, what would we talk to you about? Every 18 months you’ve got to raise capital, better start establishing relationships, better talk to some venture funds,” Johnson said.
“The skillset that if you were to ask me is the weakest in our ecosystem is the entrepreneur that knows how to build investor relationships to raise capital,” he added. “If you want to have a $100 million company, you’re going to have to raise $15 million to $20 million. It’s a big number.”
Grady Buchanan, managing director of NVNG, said the firm has seen solid deal flow as it has moved into directly investing in Wisconsin startups with its involvement in the Wisconsin Investment Fund. NVNG’s main focus has been working with corporate partners in the state to raise funds that it then deploys with fund managers around the country. As part of receiving investment from NVNG, those fund managers agree to at least look at Wisconsin companies.
“We have a pipeline that there’s a couple of them in there that we would write checks to and that’s great,” Buchanan said. “I’ve been pleasantly surprised with the deal flow on directs here in Wisconsin. Deal flow, the terms and all the valuations for all our companies at least seem very accurate.”
But he also had a word of caution for entrepreneurs in the state.
“It’s more for the startup founders here with good ideas to start thinking downstream and start thinking about positioning themselves properly for the future state of funding,” Buchanan said.
He said in recent years larger national venture capital firms with billions of dollars to invest have pushed valuations higher at earlier stages.
Imagine a Wisconsin startup in a hot technology space begins to get some traction. The company goes to raise its next round and a national firm invests $10 million, a big figure for this startup, but also pushes the company’s valuation to a higher level than warranted.
As Buchanan described it, the national firm likely does not care about the $10 million investment. If needed, they will write it off.
“What they really care about is being able to lead the $100 million, $200 million round, getting real ownership into this company, so they’re buying the option later on,” he said.
Buchanan said Wisconsin does have a lot of early-stage activity and funds only focused on early-stage deals. It is time for the state’s ecosystem to start connecting to the networks focused on later stages, he said.
“It’s also (time to) be very cautious of some of these good companies in Wisconsin, make sure that these bigger behemoth funds don’t start to preempt just because they’re buying optionality,” he said.
At the same time, there’s also potential to attract out-of-state investors to Wisconsin.
“By and large, those investors will find that the deals here are well-valued,” Still said of encouraging firms from outside Wisconsin to take a look at the state. “They might be able to find things here that would be much more expensive in California or Massachusetts.”
Potential improvements, QNBV
While the Wisconsin Investment Fund put additional capital into the state’s ecosystem, Still said there is additional opportunity for lawmakers to launch fund of funds that are similar in scale to those in Michigan and Ohio. In those cases, hundreds of millions in initial investment have been leveraged to generate billions of investment for companies in the state.
“We continue to lag behind most of our neighbors. In some ways, that’s not surprising because some of our neighbors are pretty big,” Still said. “At the same time, they’ve been more aggressive in some of their strategies in terms of putting out dollars.”
Another potential opportunity for improvement would be changes to the Qualified New Business Venture tax credit program, Still said.
The program offers investors a tax credit worth 25% of their equity investment in early-stage Wisconsin-based companies with at least half of their employees in the state. Over the past decade, around 40 companies per year receive the certification.
One possibility would be increasing the credit percentage for the lead investor in a deal.
“The first money in, almost really the riskiest money, we could see that going from 25%, which is current, to 35%,” Still said.
He added another potential change would be to eliminate language requiring a certain percentage of employees being in Wisconsin, citing the rise of remote work since the law was first passed.
“As long as it’s based here, that’s the main thing we want,” Still said. “We want the company based here, paying taxes here, growing here.”
What will AI mean?
Even as Wisconsin’s venture ecosystem has grown over the past decade, the industry as a whole has continued to grow. Now, the emergence of artificial intelligence offers a potential inflection point that could reshape the way businesses are built.
Using generative AI to write code, for instance, could mean a startup could accomplish far more at an earlier stage with fewer engineers. More broadly, AI has the potential to disrupt nearly every industry.
What would these impacts – from changes to the number of people needed for specific work to wholesale, structural shifts in business – mean for the Wisconsin economy and its startup and venture ecosystem?
“In many ways, Wisconsin is a state that should benefit from the spread of artificial intelligence through different economic sectors,” Still said. “Historically, we’re a great manufacturing state. I think that AI has the potential to reshape manufacturing in some important ways. It remains to be seen whether that means fewer jobs or not, but I think it’s going to help improve the quality and the quantity of the kinds of products we produce here.”
He pointed to agriculture and health care as other industries in which Wisconsin has a strong presence and there is potential for significant impact from artificial intelligence.
But Still also noted that investors tend to invest in what they know, suggesting Wisconsin’s investor community is weighted “a little bit” toward health care. That might mean the AI applications in health care are more likely to receive investment.
“I think other investors will probably have to get more familiar with AI in order to feel comfortable with their investments in that sector,” he said.
Buchanan agreed Wisconsin is well-positioned for artificial intelligence.
“We’re not this software hub that all looks the same,” he said.
The potential for smaller companies to be more powerful could create more opportunities for different businesses.
“I don’t know how to code anything … but if human language is the coding language, you and I could do some pretty cool things with two people,” Buchanan said.
“Now, for our larger corporates and organizations here locally, I think they need to be open-minded and think about what AI native talent looks like and how it can integrate within their businesses instead of ignoring it,” he added.
Johnson said his focus is more on the people and less any specific technology.
“I’m very much a people person,” he said. “If you’ve got the right person, the right driven person, you’ve got the right venture management, they will find the product.”
