Where Do WI And Milwaukee, Last In Startup Activity, Go From Here?

Call it a “three-peat,” a losing streak, or what you will. Just don’t call it a surprise.

On Thursday, the Ewing Marion Kauffman Foundation released its latest ranking of startup activity by state. For the third consecutive year, Wisconsin finished in last place.

Many of the reactions from members of the state’s early-stage business and investment communities echo what was said in August, when the 2016 Kauffman Index of Startup Activity was released. Startup-focused individuals and groups are calling for policy changes, such as amending legislation governing corporate noncompete agreements to be more worker-friendly. Meanwhile, groups such as the Wisconsin Technology Council and the Wisconsin Economic Development Corp. (WEDC), the state’s job-creation agency, are pointing out what they see as shortcomings in the methodology Kauffman uses to compile its rankings.

“The Kauffman report on startup activity focuses on three data points and is not a comprehensive analysis on entrepreneurship,” WEDC says in a statement e-mailed to Xconomy. (For details on what those data points are, see our report on last year’s Kauffman rankings.) WEDC’s statement suggests that the state of entrepreneurship in Wisconsin looks considerably less grim when factoring in metrics such as wages, employment, and long-term startup success.

In a column published by the Milwaukee Journal Sentinel last month, Wisconsin Technology Council president Tom Still points to another report, from the technology association CompTIA, showing Wisconsin had more than 100,000 tech workers for the first time in 2016.

In addition to states, Kauffman rates levels of startup activity in the country’s 40 most populous metropolitan areas. Milwaukee, Wisconsin’s largest city and the only one that appears in the ranking of metro areas, is tied with Pittsburgh for last place.

There’s been no shortage of media coverage of the debate about how to improve Wisconsin’s early-stage business climate, and the extent to which it is in need of improvement (see coverage from the Journal Sentinel, Milwaukee Business Journal, Capital Times, and WisBusiness.com).

Let’s instead take a closer look at Milwaukee and Pittsburgh. The latter city’s place in the Kauffman ranking would seem to suggest that a city can be viewed as an emerging technology hub despite being rated as a less-than-ideal place for startups.

Pittsburgh is home to Carnegie Mellon University, which has highly regarded engineering and computer science departments, among others.

In 2015, reports surfaced that Uber, the San Francisco company best known for its ride-hailing mobile app, was building a robotics research lab in Pittsburgh focused on self-driving vehicles. Uber later hired away 40 researchers who worked at Carnegie Mellon’s National Robotics Engineering Center.

Alphabet (NASDAQ: GOOGL) has a satellite office in Pittsburgh, where it reportedly employed about 600 people as of last fall.

Pittsburgh also has a strong healthcare sector, says Clara Sieg, a partner at the Washington, D.C.-based venture capital group Revolution. Sieg is based in San Francisco but grew up in Pittsburgh, and says she still keeps an occasional eye on happenings in her hometown.

She points to UPMC Enterprises, a venture firm that’s part of the University of Pittsburgh Medical Center. Its portfolio includes Pittsburgh-based ALung Technologies, which makes a device for treating patients with acute respiratory failure. Another company UPMC Enterprises has invested in is dbMotion. The healthcare software developer, whose U.S. headquarters are in Pittsburgh, was sold to Chicago-based Allscripts (NASDAQ: MDRX) in 2013 for $235 million.

“There is a little bit of an ecosystem around healthtech and healthcare-related stuff in Pittsburgh now because you have UPMC, which is a huge, world-renowned healthcare center,” she says.

The Milwaukee area is likewise home to a number of respected hospital systems. Some of them have had employees start their own companies.

One of the newest spinouts is RPRD Diagnostics, which was founded by Ulrich Broeckel, a professor and researcher at the Medical College of Wisconsin. The startup is seeking to help analyze patients’ genetic profiles to determine how safe and effective certain drugs are likely to be for them.

Another, TAI Diagnostics, is seeking to commercialize a non-invasive test to monitor the health of heart transplant recipients. One of the company’s co-founders, Michael Mitchell, is a cardiothoracic surgeon at Children’s Hospital of Wisconsin. In 2015, TAI Diagnostics raised an $8.3 million Series A funding round.

There are also large companies that employ scores of engineers and computer programmers at their Milwaukee-area offices. They include Johnson Controls (NYSE: JCI), Northwestern Mutual, and Rockwell Automation (NYSE: ROK). Rockwell has signaled its intention to help manufacturers navigate the Internet of Things trend, and earlier this year the company signed on to back a public-private initiative aimed at developing innovative manufacturing techniques that could be used to mend and replace cells, tissues, and organs.

Clearly, Milwaukee has a number of anchor institutions that could help the city be seen as more of an emerging tech hub. Though, as Pittsburgh shows, that wouldn’t preclude it from simultaneously being rated poorly in startup activity, at least by the metrics Kauffman uses.

So what could help Milwaukee beef up its tech scene? It never hurts to have a school of Carnegie Mellon’s caliber in town, of course. Several colleges and universities in the Milwaukee area have programs that prepare students for careers in high-tech fields, such as the Milwaukee School of Engineering and Marquette University. While neither is currently regarded as a magnet for tech talent the way Carnegie Mellon is, Marquette last year made the forward-looking move of adding a data science major to its curriculum. Perhaps attracting top students is a first step toward improving a city’s tech ecosystem.

Sieg, the venture capitalist, says that some founders of high-growth startups decide to launch their companies in places where they’ve lived before, which can offer comfort and familiarity.

“A lot of it is a personal decision, frankly—where their roots are and where their best networks are,” she says.

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