Wisconsin 2013 VC Activity Drops, Shifts to Software from Biotech

Wisconsin venture capital activity in 2013 appeared to be a mixed bag, as deal flow was up year-over-year, but the amount invested shrank by more than half, according to the quarterly MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association.

Wisconsin saw $35.9 million invested in 19 deals last year, compared with $95.3 million in 14 deals in 2012. The report, released Friday, uses Thomson Reuters data compiled from a survey of VC firms nationwide.

Last year’s investment total marked the lowest for Wisconsin since 1996. Even 2009—the worst of the great recession—saw slightly more investments, with $36.1 million in 15 deals that year, according to MoneyTree data.

But the 2013 numbers shouldn’t necessarily be cause for alarm, industry observers said.

“Numbers year to year in Wisconsin’s early-stage environment tend to fluctuate and can be lumpy based on large raise amounts by certain companies,” said Dan Blake, executive director of the Wisconsin Angel Network, an arm of the Wisconsin Technology Council in Madison that tracks angel and VC investments in the state. Basically, the totals are so small that just one or two deals can skew them significantly.

Blake pointed out that 2012 saw Cellular Dynamics International, CalStar Products, and Connecture each raise about $20 million—making up about two-thirds of that year’s total VC investments in Wisconsin, per MoneyTree data.

In 2010, Virent raised $46.4 million, a significant chunk of the $134.9 million MoneyTree said was raised in Wisconsin that year.

No Wisconsin company raised more than $10 million in 2013, according to MoneyTree. The top three Wisconsin investments last year were:

• StudyBlue, a Madison-based online and mobile study platform that raised $9.3 million from Great Oaks Venture Capital, a New York-based VC, and other investors.

Propeller Health, a Madison-based digital tracker for asthma and chronic obstructive pulmonary disease, which raised nearly $7 million from The Social+Capital Partnership of Palo Alto, CA, and other investors.

• Montage Talent, a Delafield, WI-based provider of video interviewing products and enterprise software, which raised $4 million from Baird Capital Partners; Madison-based Calumet Venture Fund; Gary Comer Inc. of Waukesha, WI; the State of Wisconsin Investment Board; and others.

The trend toward fewer dollars invested but more deals in 2013 is in part a reflection of the makeup of the deals, which were heavily weighted toward software and tech companies that typically have lower startup costs, said Andy Shrago, co-manager of Wisconsin Investment Partners in Madison, an angel investment group that was part of two deals on MoneyTree’s 2013 list. Twelve of the 18 companies last year were software-related.

That tracks with the national trend last year, with software and Internet-related companies scooping up $18.1 billion, or almost 62 percent of the $29.4 billion total VC investments.

Meanwhile, only two of the Wisconsin deals last year were in life sciences, a traditional Badger State strength that has seen less deal flow in recent years, Shrago said.

“There’s a very strong shift away from biotech and life sciences,” Shrago said. “[VCs] have just really turned their noses up at a lot of that stuff.”

He attributed the disinterest in life sciences deals to perceived regulatory risks, startup costs, and the long time horizon for a return on the investment.

Blake is optimistic about 2014 investment activity in Wisconsin because of the appearance of several new venture funds in the state. Those include 4490 Ventures, a $30 million fund focused on information technology that was announced last year; a state-backed $25 million VC “fund of funds” approved last year; BrightStar Wisconsin Foundation, which recently received Internal Revenue Service approval to operate as a nonprofit that will invest in startups; and the closing of a fifth fund totaling $80 million by Madison-based VC Venture Investors.

“There’s a lot of new fund activity that’s going to come online in 2014 that will likely lead to an uptick in some state investments,” Blake said. “We’re hopeful for a better 2014 in relation to this metric.”

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