When Boston-based Summit Partners acquired a majority stake in Minneapolis-based healthtech firm Ability Network in April for $550 million, the deal got no press in nearby Wisconsin. That wasn’t a surprise: Ability Network has no major presence in the Badger State.
But the deal, which was among the largest healthtech transactions nationwide in the first half of 2014, brought a big payoff for a group of Wisconsin investors. One of Ability’s early investors was the Chippewa Valley Angel Investors Network (CVAIN), based in Eau Claire, WI, 93 miles east of Minneapolis. When Summit Partners bought out most of Ability’s shareholders, CVAIN’s return was 11 times the size of the three investments it made in Ability since 2006, says Pete Marsnik, the group’s manager. He declined to specify the exact figure, but considering he says the group invests an average of about $250,000 per deal, with the group’s largest single investment in a company being around $650,000, the Ability windfall was likely well past $1 million—and potentially a lot more.
It was the second exit for CVAIN’s roughly $4 million portfolio, which includes investments in 11 companies, Marsnik says. The first exit was BioSystem Development, a Madison, WI, biotech firm purchased in 2011 by Santa Clara, CA-based Agilent Technologies—netting CVAIN double its investment. Only one CVAIN portfolio company has called it quits, Marsnik says.
The successful exits are a reminder that not all of Wisconsin’s startup investing activity takes place in and around Madison and Milwaukee—and that the angel groups located in less populous areas outside of southern Wisconsin can achieve wins, too.
“This is what angels root for with high-risk investing: Staying with a company as it grows and raises additional rounds, and eventually leading to significant returns,” says Dan Blake, director of the Wisconsin Angel Network in Madison. “These are the deals that can make others with the means perk up and explore what it means to invest in impactful entrepreneurs.”
CVAIN is one of the most successful of these lower-profile Wisconsin angel groups. Founded in 2003, CVAIN doesn’t operate like a fund. Instead, its 20 members, scattered across western Wisconsin, decide individually which deals they want to jump on. The group invests mainly in local Chippewa Valley companies, as well as making deals in the Twin Cities and Madison areas. It’s industry-agnostic, with investments in software, aircraft diesel engines, energy-efficient log splitters, and medical devices, among others, Marsnik says.
Xconomy recently chatted with Marsnik (pictured left) about CVAIN’s investments, his outlook for startups in more remote parts of Wisconsin, and the impact of new venture funds in Milwaukee and Madison on investors around the state. The following is an edited transcript.
Xconomy: How important is an example of a successful exit, like yours with Ability Network, for investors in areas of Wisconsin outside of Madison and Milwaukee?
Pete Marsnik: I think it’s very important. It’s a good example of what…angel investment…is all about. It’s the high risk, high reward potential. If you have 10 investments, one or two might hit it big [and] two or three are going to go out of business. The balance is going to be struggling, probably creating jobs and contributing to the economy, but the investor is going to be getting a return somewhere down the line. This is what patient money is. It’s the big hitter that covers everything else.
With that said, every time the group makes an investment in a company, it always looks like it’s going to go out of the park. There are just so many things to happen that you can’t predict or you can’t foresee. I’ve yet to see an investor say, “this company looks like it’s not going to make it, it’s going to be a dog—and here’s my $10,000 portion of the investment.” They all look like a good investment that’s going to hit it out of the park when you swing at it. That’s the reason that most of the angel investment goes after the high-growth ventures or the ones that can really have a double-digit multiple.
X: How would you describe the startup scene in west-central Wisconsin?
PM: We have quite a bit of activity going on in a lot of areas. There seems to be, in the last several years, quite a bit in software and information technology. [JAMF Software founder] Zach [Halmstad] is a real fun story. He bootstrapped his company. They finally
