Fewer Wisconsin startups raised investment capital in 2017, and total funding decreased, according to a new report from the Wisconsin Technology Council.
WTC found at least 127 early-stage companies in the state raised investment capital last year, down 8 percent from 2016 and down 71 percent from 2012. The companies raised a total of $231 million in 2017, down from $276 million in 2016, but still the second-highest annual total ever in Wisconsin, the WTC said.
The WTC calculates annual statewide startup funding totals based on public reports, filings and surveys. The organization said the decrease in number of deals and dollars raised matches national trends. There are a number of factors that could have caused the decline, the report says, including: A return to normalcy following a record 2016 year for Wisconsin startup investment; fewer out-of-state investors financing Wisconsin startups in 2017; and investors shifting attention to later-stage companies.
But Tom Still, president of WTC, expects out-of-state investment to pick up again.
“The interest on the part of out-of-state investors just generally remains high in terms of them shopping for deals in Wisconsin,” he said. “It’s pretty well-documented that investors on either coast are trying to find ways to invest in companies in the heartland because they see more appropriate company valuations, good talent, lower business cost overall. As we move ahead, I expect that we will continue to see out-of-state investors taking a hard look here.”
The size of investment rounds decreasing is cause for “mild concern,” the report says.
“This may just be a temporary case of investor fatigue. The increased activity these past five years may be catching up to investors. A lot of companies have secured a lot of capital. While many of them may be successful and growing, not many of them have had the successful exits Wisconsin needs to get new and existing investors excited and active,” the report says.
In 2017, Janesville-based SHINE Medical Technologies led the way with $24.7 million in funding, followed by Wausau-based UAS Laboratories with $21.2 million raised, Milwaukee-based Promentis Pharmaceuticals at $17.6 million, Madison-based Fetch Rewards with $10.4 million and Madison-based Redox at $10 million.
Promentis completed a $26 million series C funding round in March 2017 and began clinical trials for its drug to treat trichotillomania in November 2017.
The health care and information technology sectors garnered the greatest number of deals and the most investor dollars in 2017.
In the first portion of 2018, WTC has tracked 32 Wisconsin deals totaling about $51 million, which is behind the pace of 2017 at this point.
“We, as a state, weren’t alone in seeing some less investment in this asset class because in some cases, money was following other opportunities,” Still said. “The good news about the report is that it is still the second highest since anybody’s been keeping records, and it reinforced that we have a really diverse technology sector. The deals were in a number of different categories, which I think speaks to the fact that Wisconsin has quite a range in terms of the kinds of companies and technologies that are created here.”
