• WisBusiness

Venture capitalists say Midwest ripe for tech boom
6/4/2014

Chris Olsen, an Ohio native and venture capitalist who worked for several firms in California, says he and his partners are bullish on the Midwest.

“We believe there will be more technology companies built in the Midwest in the next 10 years than there have been here in the past 50,” said Olsen, a confident 35-year-old who co-founded Drive Capital in Columbus, Ohio less than a year ago and has already invested in two Wisconsin startups.

Olsen, a former partner at the high-flying Sequoia Capital in Silicon Valley, said he returned to the region because it has untapped potential and talented entrepreneurs. He spoke Tuesday to a packed room at the Wisconsin Entrepreneurs Conference as part of a panel on the state’s investment landscape. The gathering continues today at the Alliant Energy Center.

“Things have changed from when I was a kid,” he said. “People no longer want to work at corporations like Proctor & Gamble. They want to create startups because that’s now where the best minds want to go. They are aspirational positions.

“That mentality shift led us to believe we could focus on this geography as an investment firm, the same way that Sequoia focuses on Silicon Valley and other firms in other corners of the world have been able to focus on their regions to drive spectacular investor returns.”

He said the Midwest has the brainpower and work ethic -- citing Madison’s Epic Systems and Teradata in Dayton, Ohio as examples -- to compete and outperform similar firms on the east and west coasts. Teradata -- a data warehousing and business intelligence firm -- is hiring 1,200 engineers a year, he said.

When the playing field is level and startups from Ohio to Kansas outfits are properly funded, he said “Midwest companies win every time, every time. It’s amazing to think about that, but ExactTarget (a digital marketing software firm) in Indianapolis is another great example.

“How come they are worth $2.3 billion when the nearest competitor is only worth $400 million?” asked Olsen, who said Drive Capital is eager to invest in attractive Badger State technology firms.

Greg Robinson, another Silicon Valley veteran, is general partner of 4490 Ventures, a $30 million venture capital fund created by the State of Wisconsin Investment Board and the Wisconsin Alumni Research Foundation that is focused on seed and early stage investments mainly in Wisconsin information technology companies.

In California, Robinson worked with capital-efficient companies. But over the past decade, he said, they have become harder to find in the Golden State.

Robinson, who has only been on the job for about 90 days, said he is looking forward to investing in nascent Wisconsin companies. “Typically earlier rather than later, series A and the first institutional dollars are the sweet spot for us,” he said.

He said he was attracted to Madison because of all the innovation coming out of the university. “Wisconsin is a great exporter of PhDs and federally funded projects, but people here would like to keep them home,” he said.

Jim Schultz, founder of Illinois-based Open Prairie Ventures, said his firm has two funds under management that are dedicated to medical devices and a new fund that is focusing on agricultural technology.

He said, however, that he’s been frustrated by seeing companies Open Prairie helped nurture become successful on a small scale and then be required to move to the coasts by VCs that backed them in their “C round” of financing.

“That caused us to pivot back to our legacy experience and the greatest opportunities in this region,” he said. “If you want to build an IT company, be in Silicon Valley. If you are building an ag tech company, the greatest place in the world now is the Midwest. Anything affecting on-farm production is where we are focused.”

Yumin Choi, a partner at HLM Venture Partners in Boston and the only non-Midwesterner on the panel, said he also sees opportunities in the Midwest. But he noted wryly noted that getting to Madison from the East Coast can be difficult; he mentioned being delayed for hours in Detroit.

All the panelists said they expect big things to come from former employees of Epic who are starting their own companies. But they said these would-be entrepreneurs are being held back by Wisconsin law that permits Epic’s one-year noncompete provisions in employment contracts.

California’s Supreme Court ruled in 2008 that those provisions are illegal, according to California law. Olsen said Epic employees he has spoken with need a “witness protection” program because they fear that even mentioning that they are thinking of leaving Epic to start an IT firm could get them fired.

The panelists agreed on most areas of backing new companies, but Olsen said he would prefer to fund first-time entrepreneurs rather than people who have already started companies. Schultz argued, however, that he normally only supports nascent firms run by entrepreneurs who have experience in creating a company.

-- By Brian E. Clark
For WisBusiness.com

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