Wisconsin Venture Debt Programs Need More Deals, Not More Capital


Venture debt represents a growing source of funds for early-stage technology companies, one that is encouraging banks and public entities to become more involved in startup funding. Wisconsin is no exception to this trend. The state’s venture debt programs committed $8.2 million in loans in 2013, representing a substantial upside to what was a down year in Wisconsin for traditional venture capital investment. More and better deal flow, not necessarily bigger loan pools, will be key to expanded venture debt lending in 2014.

I sit on the advisory committee for the Madison Development Corp. (MDC) Venture Debt Fund, helping vet tech companies that are potential borrowers. While I have a personal and professional interest in seeing these types of programs grow and thrive in the state, I think it’s important to lay the facts out for Wisconsin entrepreneurs unaware of the venture debt option or uncertain if it holds the key to taking their companies to the next level.

“Venture debt” may sound like an oxymoron. The banking community has generally not regarded early-stage technology businesses as good credit risks. Venture debt programs work to mitigate risk to lenders through a number of techniques, including mixed pools of public and private money, specialized due diligence of technology businesses, participation with venture capital in funding rounds, and/or a preference for businesses generating revenue. Building the confidence of local banks in early-stage lending is particularly important in a state like Wisconsin that lacks specialized venture debt firms.

Chris Prestigiacomo, a portfolio manager at the State of Wisconsin Investment Board, has been involved in launching the new $30 million early-stage information technology fund, 4490 Ventures. Prestigiacomo also sits with me on the advisory board for the MDC venture debt program, so he has a perspective spanning both capital sources. “We are beginning to see venture debt become more a part of the capital structure with early-stage companies that are selling product into the marketplace. The key words here are ‘selling products into the marketplace,’” Prestigiacomo said. “While debt can be a good source of capital for companies entering a growth period, investors/managers must use some caution and feel confident the company can meet its projections to service the requirements (current cash pay) of the loan.”

Madison-based startup Murfie provides an example of how venture debt can be incorporated into larger capital structures. The company blended $1 million of investor money with $750,000 of combined venture debt from the MDC and Wisconsin Economic Development Corp. (WEDC) programs in a 2012 funding round. Murfie CEO Matt Younkle noted that his investors like the structure “because their investment is essentially multiplied with no additional dilution.”

Venture debt as part of a larger capital structure has become the norm for much of Wisconsin’s venture debt activity. This gives venture debt a significant role in leveraging current and future investment, as illustrated by statistics offered by MDC president Frank Staniszewski. The MDC program has directly loaned $10.4 million over the program’s six years. Those loans were part of funding packages that leveraged an additional $35 million in other financing at the time of the loan closings. Borrowers went on to obtain later funding rounds totaling more than $56 million, bringing the total of direct and leveraged funding to $100 million dollars in Dane County technology businesses.

This does not mean that venture debt is a good fit with every early-stage business. Entrepreneurs need to look carefully at each program’s offerings and approval process.

The first thing to remember is that these are loans that have to be repaid with interest. Venture debt programs typically offer an initial term of six months to 24 months with no payments or interest-only payments before transitioning to 36 months of principal and interest, but at some point, these loans will represent a claim on cash flow. Some companies conclude that the service obligations of a loan represent a good trade-off against selling more equity. Others look at venture debt as a backstop against a less-than-fully-subscribed round and decline the loan if all the equity falls into place.

Next, companies should research the qualifiers used by a particular program to screen applicants. Some programs may require the business to be located in a specific region of the state. Some may require a credible plan for a certain level of job creation. Some require, as noted above, that a company has entered its revenue stage.

Finally, entrepreneurs need to decide if they are comfortable with other conditions of a loan. Some programs attach warrants—an option to purchase a defined amount of stock at a defined price in the future—to the loans. Other programs require personal guarantees from principals. All conditions have to be carefully evaluated to decide if taking on venture debt is worthwhile.

Having touched on regional lending, let’s take a look at exactly what programs are available to Wisconsin’s entrepreneurs and how much these programs lent in 2013.

All Wisconsin entrepreneurs have access to loans from WEDC. Its Technology Development Loans program and its predecessors have provided 86 loans statewide totaling $17.5 million since 2005. The program made 20 loans in 2013 equaling $5 million.

The Milwaukee Economic Development Corp. (MEDC) launched a pilot venture debt program in 2013 for the seven-county region in southeast Wisconsin, which committed five loans for a total of $1.5 million.

MDC, which serves Dane County, committed $1.7 million across five businesses in 2013 through its venture debt program.

Two venture debt programs are available to entrepreneurs in west central Wisconsin. The Regional Business Fund’s (RBF) Technology Enterprise Fund has committed a total of $850,000 in its six years of operation, but did not make any loans in 2013. The Eau Claire Area Economic Development Corp.’s (ECAEDC) Near Equity Fund, newest on the state venture debt scene, has yet to make its first loan.

What will it take to expand venture debt in Wisconsin for 2014?

More visibility of the venture debt option within the tech community is clearly important. Most program managers that I talked to for this post identified more deal flow, not necessarily more capital, as the immediate opportunity for expanded lending. Several of the programs could not commit all the 2013 money they had available, for various reasons.

Lisa Johnson, vice president of entrepreneurship and innovation at WEDC, identified the importance of improving the quality of the deal flow as well as its quantity. She cited the value of both entrepreneurs and investors/lenders embracing practices that will improve the likelihood of success, such as data-driven market/product planning and lean startup methods that quickly generate customer feedback.

Activity in neighboring states may also help. RBF Fund Manager Beth Waldhart and ECAEDC Executive Director Brian Doudna both anticipate increased 2014 deal flow due to their area’s proximity to Minnesota’s thriving Twin Cities region.

Since deal flow will be the gating factor for increased 2014 venture debt activity, it is important to note where capital can make an immediate difference. MEDC needs to evolve its pilot program into a sustained effort to support the Milwaukee area in 2014. The Fox River Valley, spanning the state’s third (Green Bay) and fourth (Appleton) largest metropolitan areas, is a high-growth region and a logical candidate for a venture debt program.

Venture debt does not answer every capital need, but more visibility for and understanding of the state’s venture debt options can only result in greater utilization by Wisconsin’s early-stage businesses. Venture debt might just provide that extra boost entrepreneurs are looking for in 2014.

Matt Peterson's international career in technology-driven industries spans executive positions in publicly traded companies to founder at early-stage ones, serving media, medical, and industrial sectors. He mentors aspiring founders for the Madison Entrepreneurs Resource Learning and Innovation Network (MERLIN) and serves on the board of the Madison Committee on Foreign Relations. Matt writes about sustainability in information and communications technologies at vertatique.com and @GreenICT. Follow @

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3 responses to “Wisconsin Venture Debt Programs Need More Deals, Not More Capital”

  1. Nor-Cal FDC says:


    Very interesting and innovative approach to providing more funding options to High Tech firms. You mentioned that while the capital is available – the challenge now is finding suitable High Tech companies. Is this because the Technology Development Programs are not well suited for pre-revenue firms? Or does there need to be more outreach and marketing to the tech community in Wisconsin?

    • Vertatique says:

      There is no single answer because the state’s five venture debt
      programs vary in practices such as lending to pre-revenue companies.

      Having said that, your observation about more outreach and marketing to the tech community is critical to improving the quantity and quality of deal flow for most programs. Much information entrepreneurs receive about funding typically follows the seed-angel-VC capital sequence. Debt, in all its forms, is covered less frequently and in less depth.


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