A record $300 million was invested in Wisconsin ventures last year, as maturing businesses pulled in larger funding rounds. But a continued decrease in the number of firms raising their first outside capital could signal trouble for the state’s pipeline of budding startups.
Those are some of the key takeaways from the latest Wisconsin Portfolio, an annual report produced by the Wisconsin Technology Council in partnership with the Wisconsin Economic Development Corp. The publication, which was released this month, tends to provide a more comprehensive analysis of yearly Badger State venture capital activity than some national reports, although it’s not infallible. The data come primarily from news articles and other published reports, SEC filings, and company surveys. But since most of the companies involved in venture deals are privately held, they aren’t required to disclose information.
The report generally mirrors what’s been happening nationwide: Investors are pumping more money into fewer companies. The Tech Council found 121 Wisconsin companies raised $301.2 million last year. The original total was $280.7 million. But after the report was published, Shine Medical Technologies and Goods Unite Us contacted the Tech Council with updated figures that bumped up their companies’ investment rounds last year by $20 million and $470,000, respectively, says Bram Daelemans, who directs the Tech Council’s Investor Networks and leads the Wisconsin Portfolio’s production. (See the list of top 2018 deals below.)
Last year saw the lowest number of Wisconsin companies pull in venture funding since 2014, but it was the most venture capital raised in the state in a single year, according to the report. The second-highest level of funding in the previous five years came in 2016, when 138 companies raised $276.2 million, compared with only $209.5 million raised by 128 companies the year before.
Although the total funding value hasn’t been consistently increasing each year, Daelemans noted the overall trajectory of Wisconsin’s venture capital investments is moving upward. He also highlighted a rise in the average and median funding round size last year. Forty-six Badger State businesses each raised at least $1 million from their backers in 2018, up from 35 companies the previous year.
“That’s good to see that more companies are getting bigger checks,” Daelemans says in an interview. “Because ultimately that’s what you need to continue to mature.”
But the report wasn’t all positives. Fourteen percent of Wisconsin businesses that raised funding last year were led or owned by women, down from 16.5 percent in 2017 and 19.7 percent in 2016. Those figures are higher than similar national statistics, but are moving in the wrong direction.
Another trend Daelemans says he’s watching is the growing percentage of companies raising follow-on investments and the decline in companies raising venture funding for the first time. The ratio has skewed more heavily toward follow-on deals in each of the past four years, going from 52 percent follow-on investments and 48 percent first-time fundraisers in 2015 to about 73 percent follow-on and 27 percent first-timers last year, according to deals tracked by the Wisconsin Portfolio.
“If this continues, our pipeline [of early-stage startups] is not going to stay filled,” Daelemans says.
At the same time, local startups seem to be having more success than usual in attracting investments from across state lines. Among the 2018 deals in which the investors were known, 49 percent included backers located in California, Boston, New York, or Chicago, the Wisconsin Portfolio noted. That’s up from 17 percent in 2016 and 20 percent in 2015; the report didn’t give a similar statistic for 2017.
“It seems like a lot more out-of-state investors are paying attention to what we’re doing,” Daelemans says. He attributes that, in part, to improved connections between Wisconsin investors and venture capitalists located outside the state’s borders.
Daelemans wants to see stronger bridges between the high-tech clusters in Wisconsin’s various regions, particularly between Madison and Milwaukee. Still, he has seen improvement in startup collaborations around the state. In the past, Wisconsin-based investors have had a reputation for competing with each other for deals and wanting to keep quiet about their prospective investments. But that might be changing.
These days, “I think a lot more people are open to syndicating and talking to other investors,” Daelemans says. “I think the relationship between various groups has improved. I think that in turn has helped the entire ecosystem.”
Here are the largest venture investments in Wisconsin last year, according to the Wisconsin Portfolio:
1. Shine Medical Technologies, Janesville, $44.8 million
2. Propeller Health, Madison, $20 million
3. Engineered Propulsion Systems, New Richmond, $16.8 million
4. Titan Spine, Mequon, $16.7 million
5. Midwestern BioAg, Madison, $15 million
6. HealthMyne, Madison, $15 million