Venture capital investment in Wisconsin, particularly in the Milwaukee area, has lagged in recent decades. However, efforts are under way to attract more venture capital to Milwaukee. Angel investing has increased significantly around the state since 2000. The University of Wisconsin-Milwaukee has plans to create a new engineering campus in Wauwatosa and has created its own research foundation to help transfer intellectual property to startup companies.
The State of Wisconsin is considering the creation of a Wisconsin Venture Capital Network, a state agency that would be dedicated to increasing venture investment here.
“It’s kind of like, ‘If you build it, they will come,'” said Steve Rippl, a venture capitalist and private equity consultant. “If you build an environment that fosters and nurtures these new business models, you’ll get venture capital. They look all over the world for these kinds of businesses, and there is far too much money out there chasing deals to ignore new businesses that can generate the kinds of returns they want.”
Angels take wing
Angel investing around the state has increased significantly in recent years. In 2007, Wisconsin had $160 million in angel investment, up from $102.9 million in 2006, according to a survey by the Wisconsin Angel Network and NorthStar Economics.
There are six angel investing networks working in metro Milwaukee, seven in the Madison area and seven networks in other parts of the state, said Tom Still, president of the Wisconsin Technology Council.
“The angel capital investments are pretty evenly spread around the state,” he said. “The venture capital has been clustered around Madison because of a few standout companies.”
Milwaukee’s increased angel investment community is being bolstered by several veteran members of its business community who want to see long-term change in their hometown, said David Lubar, president of Lubar & Co., a Milwaukee-based private investment firm.
“The angel investment is being driven by a few individuals who have said that they feel there’s not great access to early-stage capital,” he said. “They’ve formed groups, recruited investors who help evaluate business plans and put up the first round of capital. To start a business from scratch is one of the most difficult things.”
Successful Entrepreneur Investors LLC (SEI) is one of those groups, formed by Dan Steininger, G. Woodrow Adkins, senior managing partner at Facilitator Capital Fund, a Milwaukee-based private equity group, and John Torinus, chairman of West Bend-based Serigraph Inc.
SEI regularly holds group meetings during which entrepreneurs can present business plans to its members, potential angel investors.
“It’s clear that we need to encourage entrepreneurship,” Steininger said. “There are a lot of young people we’d love to stay here (in Milwaukee), but they don’t see that there are a lot of opportunities and they go other places.
“We’re (Wisconsin) 13th in the nation with patents, and most of them are in southeastern Wisconsin. Many of them are on the shelves of large companies. There are inventors and entrepreneurs here, but there is not enough access to capital,” Steininger said.
The rise in angel investing in Milwaukee will help the long-term success of startups here because of the involvement of many who have run their own successful businesses here, said Lorrie Keating Heineman, secretary of Wisconsin’s Department of Financial Institutions.
“The money’s there – it’s in Milwaukee,” she said. “And the successful people that have built businesses are there. It’s important to have a visible source of capital and Milwaukee’s starting to do it now. They’re (the companies) at the seed level now and once they get the seed level of financing they can build their businesses to attract the next level of investment.”
Milwaukee and the rest of Wisconsin need to bolster the momentum that angel investing has picked up in recent years to truly stimulate economic activity and eventual venture investing, according to Sue Marks, chief executive officer of Pinstripe Inc., a Brookfield-based human resources outsourcing firm.
“Angel investment activity is starting to have a cool, hip factor to it,” she said. “Activity is starting to take off. We need to take a long view now, and the only thing we (need to) do is keep sprinkling angel and venture capital around Milwaukee and Wisconsin. It starts with planting a few seeds and we’ve got to get them to bear fruit. And we can’t let the current economic uncertainty affect that.”
Southeastern Wisconsin needs a research-focused university based here to attract increased interested from venture capital investors, said Carlos Santiago, chancellor of UWM.
“What we’re asking for is for strategic investments at UWM that will focus on four different areas – health care, water, biomedical and advanced automation,” Santiago said. “If we can be very strategic and build the four areas with investments from the state we can begin integrating into existing companies in Milwaukee like Rockwell Automation, Johnson Controls and Astronautics (Corp. of America). That will get us an impetus. Venture capital will start to emerge and benefit southeastern Wisconsin and the state.”
UWM wants to build its new engineering campus on an 88-acre parcel of the Milwaukee County Grounds in Wauwatosa, Santiago said. The university is still negotiating with the Milwaukee County Board, he said, and hopes to have an agreement to purchase the land by the end of the year.
The university hopes to eventually move its entire engineering school to the campus, while having several private research and development companies locate there as well, Santiago said. After the land has been purchased, the new campus will take about five years to build.
The location in Wauwatosa will help UWM create partnerships with the Medical College of Wisconsin, Froedtert Memorial Lutheran Hospital, Children’s Hospital of Wisconsin and the Blood Center of Wisconsin, Santiago said, which could create additional spinoff possibilities.
“They have the clinical research that we don’t and we have the engineering and basic sciences they lack,” he said. “Putting them together will serve as a good catalyst that will help serve new startups and research.”
The proposed location of the new engineering school says much about UWM’s commitment toward helping create new companies, Keating Heineman said.
Brian Thompson, president of UWM’s Research Foundation, agreed.
“With the proximity to the Medical College, the opportunity is enormous,” he said. “They’ve had great success (in transferring intellectual property to the private market). They’ve done what we want to do over the last 15 years.”
UWM’s plan will increase both angel and venture capital investing, Lubar said.
“UWM is building a research strategy that combines the research that comes out of UWM with angel capital,” he said. “And the angels here will invest in Madison companies as well.
“As the investors develop some experiences and some returns they will be able to provide more capital and more value added to the companies they invest in. As they develop relationships with angels in other communities they can bring them to Milwaukee to show them possibilities here. It becomes a large networking exercise, which in the long run should bode well for Milwaukee,” Lubar said.
UWM created its own research foundation about two and one-half years ago, Santiago said, so that it could grow with the university’s burgeoning research programs.
UWM’s Research Foundation also is encouraging UWM’s professors to create startup companies based on innovations or technologies discovered on campus, Thompson said.
“We’re holding a lot of one-on-one sessions, talking about starting companies, how to bring in investors and CEOs,” he said. “We’re trying to do more outreach in the community, giving (potential investors) a first look at technology before we’re asking for an investment.”
Keating Heineman is now drafting plans to create a state venture capital network based on the model of the Wisconsin Angel Network, a public-private partnership operated by the Wisconsin Technology Council, dedicated to encouraging early-stage investment in the state.
“Our strategy that we’re working on now is to create a sister organization to the Wisconsin Angel Network, with the cooperation of UWM,” Keating Heineman said.
“We’re creating a venture network to have one person focused on moving the needle, measurably increasing venture capital investment in the state.”
If created, the new network will help dramatically increase the amount of venture investment in the state, Santiago said.
“We’d love to see it in Milwaukee and would love to see it housed in a facility next to us,” he said. “We will do everything we can to support it and help it be successful at the end of the day.”
Increasing venture capital investment in Milwaukee and around Wisconsin will take time, but the seeds are now being planted, Thompson said.
“Milwaukee needs to show the venture capital community more deals,” he said. “The angel investors and the universities will help with that. I think the money is out there for good deals. More volume will get here; market forces will bring them (venture capitalists) here.”