Venture capital is a roller coaster, and Wisconsin is along for the ride

The good news: Venture capital investments in Wisconsin through the first three-quarters of 2014 are already double all venture investments last year, and the number of deals is approaching an all-time annual high for the state.

The sobering news: Wisconsin still lags 23 other states in deals reported during the third quarter of 2014 and falls behind 25 states in total dollars invested during those three months.

That scenario summarizes the status of early-stage investments in Wisconsin, which appear to be gaining momentum across important industry sectors — but which still trail many states, including some states similar in size and workforce makeup.

The latest statistics come from the MoneyTree Report by PriceWaterhouseCoopers and the National Venture Capital Association, which have tracked venture industry deals by state, sector, stage, and other metrics since 1995. Through September, 22 reported Wisconsin deals (more on the word “reported” later) had generated about $67.1 million for state companies, compared to $33.9 million during all 12 months of 2013.

Venture capital investments are investments in the “equity” of a company — its anticipated return over time — versus “debt” investments that are generally based on a company’s current assets and collateral. Along with angel capital, venture capital is how many emerging, high-growth companies finance their research, product development, marketing, and sales until revenues flow from customers.

In Wisconsin, the total of 22 deals thus far already ties deal totals for 2007 and 2010, and is approaching the record of 27 deals set in 2000, the banner year nationally and in Wisconsin for venture capital investments. The dollar totals are on track to more or less match 2012 and 2007 but will likely fall short of 2010, when two $40-million-plus deals drove Wisconsin’s totals.

The reason for that optimism gets back to the word “reported.” Not all venture deals immediately find their way on to the MoneyTree Report radar screen. At least $20 million in Wisconsin deals fall into that category, based on news reports and other tracking sources.

One of the most encouraging trends in Wisconsin’s venture capital numbers is diversity. The state is increasingly not dependent on a single sector when it comes to emerging companies.

(Continued)

In 2014 so far, Wisconsin has reported $8.4 million in industrial and energy deals versus $2.3 million for all of 2013. In biotechnology, there have been $8.5 million in deals versus $850,000 in 2013. The consumer products and services category climbed from $2.3 million in all of 2013 to $8.5 million in the first three quarters of 2014.

Encouraging news, right? Still, a few major states dominate when it comes to venture capital investments. California alone has reported more than 1,300 deals worth about $19.5 billion in 2014. That’s more than half the national total in dollars. Massachusetts, New York, and Texas, populous states with identifiable tech sectors, also rank high on the list.

A number of states of similar size chart more venture deals and dollars, however. Utah has reported about $775 million in deals so far in 2014, Minnesota about $250 million, Michigan about $167 million, Arizona more than $200 million, and Colorado more than $440 million.

The reasons for that vary, but some of the difference can be attributed to conscious, long-term public strategies to improve the climate for attracting investment dollars. Utah, Colorado, Minnesota, Arizona, and Michigan have invested consistently, both in time and money, to make their high-growth sectors attractive to investors. Wisconsin has done the same in recent years, but it’s still playing catchup.

Quarter-to-quarter reports are simply that — a snapshot in time. Because venture capital is so market-driven, the roller coaster tends to go down as much as it goes up. With the right public policies, strategies, and company profiles, Wisconsin’s ride still has plenty of opportunity to climb.

Click here to sign up for the free IB ezine — your twice-weekly resource for local business news, analysis, voices, and the names you need to know. If you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.