Q&A: Don Layden Talks VC Trends, Exits, Foxconn’s ‘Long Tail’ & More

Don Layden has lived and worked in greater Milwaukee long enough to feel like he’s got a pretty good grasp of the area’s strengths, weaknesses, and defining qualities.

Layden graduated from Marquette University Law School in 1982, then worked his way up to partner at the law firm Quarles & Brady. He later served in executive roles at several Milwaukee-area companies, including Fiserv (NASDAQ: FISV), Marshall & Ilsley bank, and Metavante Technologies. Layden helped oversee the latter business’s transition into becoming part of Fidelity National Information Services (NYSE: FIS), which acquired Metavane in 2009.

Currently, he’s an operating partner at Baird Venture Partners, where his duties include helping to evaluate potential investments in early-stage technology companies. Layden, an Xconomist, has personally invested in several Wisconsin-based tech startups, including EatStreet, Datica, Fishidy, and the now-defunct Solomo Technologies.

Layden spoke with Xconomy by phone this week. We discussed patterns he’s observed in Wisconsin’s early-stage business climate, why he thinks Foxconn’s presence in the state will be a game-changer, how a lack of institutional investors is limiting the size and quantity of fundings for local startups, and other topics. Our interview has been condensed and edited for clarity.

Xconomy: How would you assess the level of venture activity and the number of exits in Wisconsin in recent years compared to, say, five or 10 years ago?

Don Layden: I think there have been fewer exits of Wisconsin companies, at least in the technology-enabled service space, where I spend most of my time.

Some companies continue to do well and they’re building their businesses. You look at an EatStreet or Abodo—they continue to raise money. They continue to see strong growth month-over-month.

But I think that there’s been less activity on the realization side. We’re seeing holding periods lengthen. Five years is probably on the short end of the holding curve, for an angel investment or seed investment.

The activity you’re seeing in the marketplace largely continues to be seed funding. There are not significant institutional investors. Or, to the extent that there are institutional investors, they’re ones writing smaller checks—really early stage [investments].

X: The period after a startup has raised seed funding but before it’s raised a Series A round is sometimes referred to as the “valley of death,” right?

DL: Correct. It is the valley of death. That’s really where the gap is.

The companies that have been more successful have been able to go out and raise Series A and Series B rounds. But the maturity of the companies getting Series A and B funding has been problematic. I think there’s also less Series A money in the marketplace.

It’s a question of, “Is the money not there, or are the companies not maturing to a point where they’re attractive to a Series A funder?” Sometimes the complaint is that the money’s not there. My experience is that there’s money for good companies.

X: It seems like there’s a mix of positive and negative indicators when it comes to Wisconsin’s early stage business climate. Gener8tor has been pretty successful and is growing, and corporations like Northwestern Mutual have recently committed to do more to support startups. At the same time, Wisconsin’s VC totals were down in 2017, and the state has finished last in a ranking of startup activity by the Ewing Marion Kauffman Foundation three years running.

DL: There are some very good things going on. Gener8tor would be one of the things I would absolutely point to as being a great thing in the marketplace.

Some of the stuff that CSA Partners and [the] BrightStar [Wisconsin Foundation] have been doing has been really positive, from a funding perspective.

What I think is in shorter supply is … there are fewer people who are knowledgeable, either as board members or advisors to early stage companies. That kind of advice is really important. In other markets, the ecosystem has been built out better to accommodate those sorts of things.

X: What are your thoughts on the enormous Foxconn display-manufacturing facility that’s now under construction? Is Foxconn’s presence likely to be a boon for entrepreneurship in southeastern Wisconsin, as some have suggested?

DL: I think it’s going to be outstanding for the economy, generally. I think it will be very good for the supply chain in technology and technology-enabled service businesses.

Whether that also translates to startups—I think that still remains to be seen. It will create a much bigger, more robust talent pool of tech-savvy folks who will contribute to the ecosystem.

X: So you think there’s a good chance Foxconn will buy local when it comes to purchasing the supplies and machinery needed to operate its plant?

DL: They seem to be committed to that, and that seems to be the case already, with the contractors [they’ve named].

The other thing that happens, I think, is that supply chain will also follow them. Companies will come here and build near Foxconn. There will be a concentration of businesses that will grow up around the needs of Foxconn.

We’ve seen this at other periods of time with other industries. You have a strong financial services [sector] in the Milwaukee area—companies like Fiserv and Metavante and Deluxe Data Systems. Businesses that service financial services companies end up growing here.

They don’t always stay forever, but even when they’re not headquartered here … take the old Metavante. There still are several thousand employees of FIS in Wisconsin, even though the company is now headquartered in Jacksonville, FL. Those are technology-related jobs, for the most part.

I think that’s part of what we’re going to see with a player like Foxconn when they come into the marketplace. My guess is that Corning (NYSE: GLW) and others will probably build glass factories. I think there will be all kinds of ancillary development that will take place.

X: But you think we’ll have to wait a while to see whether the ripple effects of the Foxconn project extend to startups?

DL: I think the impact on the venture side will happen; it’s likely to have a longer tail. The more immediate impact will be things closer to the supply chain, probably with more mature companies.

But there’s no doubt that money and talent will be attracted to the startup world, as well. The most important thing for a startup company is to have somebody that buys their stuff. And so you have Foxconn that has to buy a lot of stuff. When you’ve got an infrastructure, an ecosystem where people do buy locally and have access to local leaders, that is really positive.

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