Wisconsin startup ecosystem growing, with room for improvement

Joe Scanlin of Pewaukee-based Scanalytics. Credit: Lila Aryan

A lot has happened in Wisconsin’s early-stage space in the first half of the year. There were wins, and there were losses. So all things considered, has it taken a step forward or backward?

Two Milwaukee startups – Scanalytics Inc. and Lumanu Inc. – moved their headquarters out of Milwaukee earlier this year.

Scanalytics, which uses floor sensors and Internet of Things technology to analyze consumer behavior, in May landed a major contract with massive Chicago convention center McCormick Place – and moved its base to the Windy City as a result.

While it is moving its headquarters, Scanalytics is continuing to grow in Milwaukee, moving from a 3,500-square-foot office to a 10,000-square-foot facility. Most of its Milwaukee employees will remain, and chief executive officer Joe Scanlin plans to hire another eight to 10 employees in both Milwaukee and Chicago over the next few months as the company gears up for several major contracts.

“Adding jobs to the local economy is why I think startups are important and if they continue to do that, that’s great,” said Matt Cordio, founder and president of Startup Milwaukee, about Scanalytics’ move. “It’s pretty exciting, too, to see them close such a big deal and hopefully it leads to more big deals like that, because that’s going to mean more jobs for the region.”

Influencer marketing company Lumanu was founded in San Francisco in June 2016, but founders Tony Tran and Paul Johnson chose to stay in Milwaukee upon completion of the gener8tor program in fall 2016. Their decision to base the company in Milwaukee was a big win for the city’s burgeoning tech community at the time. But in March, Lumanu changed its headquarters back to California.

Cordio downplayed the impact of the Lumanu move on the Milwaukee startup community, pointing out that there were only one or two employees working here for most of the time it was based in the city, and the founders never fully relocated here.

As of July 1, $120.8 million of venture capital had been invested in 31 deals this year in Wisconsin, according to the Pitchbook-National Venture Capital Association Venture Monitor report. That’s a bit off the pace of Wisconsin’s $287.5 million of VC invested in 83 deals for all of 2019.

But several startups have raised or are raising large investor funding rounds so far this year, a positive indicator for the ecosystem.

Madison health data exchange startup Redox in April raised a $33 million Series C round led by Boston’s Battery Ventures.

“Many of (the Redox employees) were some of the founding members of 100state, which is a coworking space, and all essentially met at a coworking space and now have raised, I believe, over $40 million,” said Scott Resnick, entrepreneur-in-residence at StartingBlock Madison Inc.

Janesville-based SHINE Medical Technologies Inc. and Monona-based sister company Phoenix LLC have continued to accelerate their growth. SHINE is ramping up to manufacture radioisotopes for nuclear medicine, and has raised more than half of a $30 million Series C round. Phoenix, which designs and manufactures neutron generators, is working to raise $15 million from investors.

Wauwatosa-based TAI Diagnostics, is also working to raise a large investor round – a $15 million to $20 million Series B. TAI provides non-invasive diagnostic tests to monitor the health of transplanted organs.

But Resnick said most of the first financing rounds in the Milwaukee region are still very low given the area’s population size.

And several major exits took place in the first half of the year.

In January, San Diego-based ResMed completed its $225 million acquisition of Madison-based Propeller Health (Reciprocal Labs Corp.), which makes sensors that attach to inhalers to track usage among those with asthma and COPD.

“That one’s having a positive impact on the ecosystem,” Resnick said. “They not only exited for a notable amount … they kept the company in Madison, the company’s growing in Madison.”

Highly, a Madison and San Francisco tech startup that offers an online text highlighting tool, was “acquihired” by social media giant Twitter for an undisclosed price in April.

Also in April, Milwaukee-based insurance agency automation software developer TechCanary, which had reached No. 393 on the 2018 Inc. 5000 list, was acquired by University Park, Illinois-based Applied Systems for an undisclosed amount.

“Anytime a founder is able to have a liquidity event and have capital to be able to reinvest in the ecosystem, it’s great,” Cordio said.

In May, Delafield-based hiring software developer Montage Talent Inc. merged with Cleveland, Ohio-based Shaker International in a deal of undisclosed size that allowed Montage to pay back $24 million of investor funding. The combined company will maintain dual headquarters in Delafield and Cleveland.

“I think it’s great that they’re going to still be here,” Cordio said. “Obviously anyone that’s building and growing a company in the region is good, especially when they’re able to deliver a return to their investors.”

In June, Irish global medical technology leader Medtronic plc completed its acquisition of Mequon-based Titan Spine LLC, which develops titanium implants that have disrupted the spinal fusion industry.

“So far I think there’s momentum,” Cordio said. “I think it’d be great to see some additional Badger Fund of Funds funds get closed in the second half of this year. But it’s been great to see the ones that are live investing.”

Resnick said the Milwaukee startup ecosystem has taken a step forward over the past year.

“It was not going to overnight turn into Austin or overnight be the next Silicon Valley, but there are community players that are passionate and involved, and I’m seeing the activity increase versus decrease,” Resnick said.

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