Stop worrying about the fuel and help build the plane. Numbers show venture firms are passing on Wisconsin startups.

Last week I shared some thoughts on Twitter of why I thought a Fund of Funds was the wrong approach to spend the proposed $100 million in state funding for startups. I then scribed the start of an idea of how to divert some of that investment directly into founders. 

However, the outpouring of support for the plan as proposed by Governor Evers from those that more or less run the startup ecosystem in the state started me thinking that maybe I was missing something. To me, we have never had the deal flow in the state as other states. We don’t do enough to help get potential founders off the sideline or enough to help companies get from zero to something. 

Comments like those from former journalist Tom Still who has headed up the Wisconsin Technology Council, the bipartisan science and technology policy advisory board to the governor and the Legislature, for the past 18 years disagreed with my call for deal flow on Twitter. 

The raw numbers comparing total deals and amounts with other states apparently doesn’t seem to be enough to sway anyone. So I spent an hour on Crunchbase and Google to look at the data. I showcased the number of deals instead of the amount of funding raised because the number of deals had Wisconsin at a higher percentage. Please note, I went by where they’re HQ’d today, not where they were at the time of investment. 

Here is what I found. 

Wisconsin startups account for:

2.5% of deals by “midwest focused” funds not headquartered in Wisconsin

24.3% of the deals by Wisconsin based VC firms not restricted to only invest in Wisconsin

28.9% of the spots in recent Wisconsin based sessions of gener8tor accelerator program

Midwest Funds

There are obviously a lot of venture capital firms out there, and anyone can invest anywhere. Wisconsin companies have gotten funding from firms all over the country including the coasts. 

What I decided to focus on were the funds that promote a midwest focus and those that to my knowledge have participated at startup functions in the state, such as those run by the Wisconsin Technology Council. I chose them because I doubt there is any deal flow in Wisconsin that doesn’t cross their desk. 

Arthur Ventures (MN): 2/32 (Ionic, VBA)

Drive Capital (OH): 1/45 (Comply365)

Dundee VC (NE/MN): 1/38 (Rentable)

Flyover Capital (KS): 1/18 (Rentable)

Great North Labs (MN): 1/13 (Allergy Amulet)

Hyde Park Ventures (IL): 0/46 

M25 (IL): 2/101 (Ensodata, Scanalytics)

Sandalphon Capital: 0/24

Wakestream Ventures: 1/41 (Scanalytics)

Total: 9/358, 2.51%

Wisconsin VC

Let me be perfectly clear - just like their out-of-state counterparts, these venture capital firms have a duty to get the best return possible. They are not charities. There is no requirement for them to invest in the state and some of them have industry specific criteria that needs to be met. 

With that being said, like the out-of-state ones I identified, I would imagine any startup within their focus in the state is crossing their desk. For what it’s worth, I’m sure they’d love to fund more startups HQ’d in Wisconsin.

4490 Ventures: 6/11

American Family Ventures: 4/31

Bascom Ventures: 3/49

Cap Midwest Funds: 6/24

HealthX Ventures: 4/14

NW Mutual Cream City Fund: 8/9

NW Mutual Future Fund: 0/18

Titletown Tech: 4/7

Venture Investors: 9/18

Total: 44/181, 24.3%

Note: For obvious reasons, I didn’t include funds that were state only focused, I wasn’t sure how to deal with the Northwestern Mutual situation so I included their Cream City Fund. Without it the 24.3% falls to 20.9%

gener8tor

As with Wisconsin based VCs gener8tor is running a business and their duty is to get the best returns possible for their investors. After a few years, the data shows they felt that out-of-state companies gave them a better shot of this. 

In-state 2016-2020: 13/45 28.9%

In-state 2012-2015: 21/39 53%

I call them out separately from Wisconsin based VCs because when they bring companies in from out-of-state (a couple have stayed which is to be commended) they are doing more than just choosing to invest in one startup over another. 

They are taking a lot of the oxygen out of the room for other Wisconsin startups. In addition to their choice to fund the out-of-state company, a lot of local angels and local early stage investors decide to do the same. Not to mention hype, press and even meetings. It is almost like a double whammy. 

But… $100 million!

So if you’re not seeing the point that there already is money and it's not going to Wisconsin startups and you're saying, this is the whole point of the $100 million!  We are going to invest in Wisconsin companies! 

Here is what is wrong with that logic. The way it is proposed you have to raise $1 for your venture fund for every $1 you get from the state. 

The types of people and entities that fund venture funds want to get a return on their money as well. Many of them are probably invested in a lot of the funds mentioned in this article already. 

There might not be a lot of FOMO for a fund that is restricted to one state, especially if that state is Wisconsin based on current money not going to the same startups and lack of exits.

What if someone does raise the match and wants to have an aggressive strategy to help companies get off the ground, like the one I laid out (or the even more ambitious one proposed by Mark Bakken or like the non-profit success of Arch Grants)?

Well, since these are the riskiest investments and the purpose of this fund would be to make venture returns (10x) for their investors, the terms would have to be onerous. Again, not really helping founders. 

Larger Rounds

The last brief point will be about the comment in Mr. Still's tweet about it not being just about seed rounds, but larger rounds.

The proposal said investments would be up to $25 million per company. 

If you are at a stage of your company where you are in conversations about, say, anything over $10 million, and your only option to raise that kind of money is a fund that is forced to only invest in companies based in Wisconsin, what does that say about the opportunity?  If you aren’t getting offers from the numerous firms that play at that level of venture, are you really worth it? 

And this isn’t the, “get better terms for mature startups” bill, the intention is to increase business velocity in the state. A company that big shouldn’t need state help. 

The Bottom Line

Despite not having a horse in the race, I hope someone more important than me can start to see the need for a more progressive use of funds that helps business creation and early venture growth. No one is advocating for the potential that is sitting on the sidelines. 

Author's note: I think the numbers that appear above are fairly accurate, but they also may have missed one either way. If there is any significant misses please comment below.