Wisconsin has a ways to go if it wishes to be seen as a hotbed for entrepreneurship nationally. The Badger State finished dead last in the Ewing Marion Kauffman Foundation’s state rankings for startup activity. While there are some positive data points, such as Gener8tor being ranked the 14th-best U.S. seed accelerator last year, funds located in investment hubs like Silicon Valley and Boston may ultimately be content to keep most Wisconsin startups at an arm’s length.
“The seed stage is highly network-driven,” said Peter Christman, a venture capitalist at Chicago Ventures. “Funds on the coasts rely on us to be the first set of filters in market. If they see a deal out of Chicago, they ask if Chicago Ventures or Pritzker [Group Venture Capital] is involved.”
Christman was one of five participants in a panel titled “Invest in the Midwest: VCs scouting Wisconsin for their next deal,” held last week as part of Early Stage Symposium, a two-day conference in Madison, WI.
Much of the programming was narrowly focused workshops on the nuts-and-bolts of starting a business, like creating pro forma financial statements and choosing between a C-Corporation and a Limited Liability Company structure. But some sessions, like the panel of venture capitalists, provided attendees with outside perspectives on Wisconsin’s innovation community and how it stacks up with other states and regions.
Panelists repeatedly mentioned two institutions they see as contributing positively to entrepreneurship. One is the University of Wisconsin-Madison, in particular its computer sciences department. The other is Epic Systems, the giant towering over a cluster of Madison-area healthtech companies, some of them founded by former Epic employees. Christman said he sees a “burgeoning, dynamic ecosystem around Epic.”
“The embedded flywheel and feedback loop of people coming out of Epic…and experienced operators to give them feedback is a unique combination,” he said.
Chicago Ventures has invested in three Madison early-stage companies, including Catalyze and Healthfinch, which are both healthtech startups. Christman said these deals show that his fund and others see potential in Wisconsin. Ablorde Ashigbi, an associate at Pritzker in Chicago, said he’s made several visits to the Madison area in the past two months.
Walker Fuller, an associate at River Cities Capital Funds, said his conversations with Midwestern entrepreneurs “are slightly more grounded than when I go to the Bay Area.” (River Cities is headquartered in Raleigh, NC, but Fuller is Cincinnati-based.) He said the gap between what a founder believes his company is worth and what it’s actually worth is narrower in smaller investment markets like Wisconsin, though he said that regardless of market size, “the last few years have been frothy form a valuation perspective.”
Asked to name another part of the country that sits near Wisconsin on the innovation totem pole, panelists mentioned Indiana, Michigan, and North Carolina’s Research Triangle as peer regions.
New fund seeks to invest, accelerate, and cash out quickly
Mike Splinter, who grew up and went to school in Wisconsin before embarking on a career that’s included years as an executive in Silicon Valley, is turning his attention back to his home state. He was one of the keynote speakers at the symposium, and took the opportunity to introduce a new fund he’s helping to lead.
Splinter, whose executive experience includes stints at semiconductor part maker Applied Sciences (NASDAQ: [[ticker:AMAT]]) and Intel (NASDAQ: [[ticker:INTC]]), is one of two general partners at Wisconsin Investment and Strategic Capital (WISC) Partners, a venture launched last year that’s still raising money for its first fund. David Guinther, the fund’s other general partner, says he expects that work to be completed in the next five months. Splinter said the group’s first fund would likely be between $10 million and $15 million, spread across 10 to 12 companies.
WISC Partners will target startups that have already received money from seed funds or angel investors and need help with bringing their products to the marketplace, Splinter says. He adds that his group, which also includes four associates with ties to the state, will work more closely with its portfolio companies than the average venture capital firm.
“We’re trying a differentiated, very hands-on approach,” Splinter says. “We thought that by bringing some of the expertise of Silicon Valley and connections to markets that we could help companies grow, not just with money like most VCs but with company-building and an operating capital model.”
Where possible, WISC Partners will be the lead investor in the startups it funds, Splinter says. Companies that receive money from the group should have a two- to four-year plan for an exit, he says, either in the form of an IPO or strategic sale.
Guinther, who also spent time working in the San Francisco Bay Area as an entrepreneur, executive, and consultant before he returned to Wisconsin in 2009, says a new fund like WISC Partners reflects shifts in the state’s entrepreneurial and investment landscapes.
“Five years ago, the state wouldn’t have been ready for what we’re doing today
