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WisBusiness: Early stage risk capital grew in 2006
6/7/2007

By WisBusiness Staff

Early-stage investments such as “angel capital” in Wisconsin grew by 54 percent in 2006 compared to 2005, a growth rate that dramatically exceeded the reported U.S. average for the year, according to the Wisconsin Technology Council.

The study, prepared by David J. Ward of NorthStar Economics, tracked a total of nearly $103 million in early-stage risk capital activity in the state. Angel network investing by individuals with so-called deep pockets was up 38 percent to $7.4 million, the report showed.

The study, dubbed “Risk Capital in Wisconsin: A Progress Report for 2006,” is an annual assessment of the state of risk capital in the state of Wisconsin. NorthStar's Ward worked with worked with the Wisconsin Angel Network (WAN) and the Tech Council to prepare the report.

Joe Kremer, WAN director, said he believes Wisconsin is doing well in raising early stage capital.

“We have a number of new angel networks and individuals that have become very active and Wisconsin-based venture funds have been able to raise more capital,” he said.

“Combine these growing areas with an innovative public sector, there’s no wonder we are continually being approached by other states and Canadian provinces who want to benchmark off our programs,” he said.

“But there’s still more work to be done, we need to keep up the momentum and help it expand to the later stage, venture capital market,” he concluded.

Tom Still, president of the Tech Council, concurred.

“Concerted efforts through public and private partnerships involving organizations and individuals have resulted in significant gains in the area of risk capital,” said Still.

But he, too, said more effort is needed.

“A great deal of work remains to be done, especially in attracting venture capital dollars, but the report shows early-stage investing in Wisconsin is generally on the right track,” he said.

Highlights from 2006 include:

 A total of $102.9 million in early-stage risk capital activity was tracked in Wisconsin, an increase of 54 percent over last year.

 Within that $102.9 million total, angel network investing was up 38 percent to $7.4 million.

 Also within the $102.9 million total, investing by individual angels, early-stage funds and informal angel groups increased by 56 percent to $95.5 million.

 In addition to the $102.9 million in early-stage investing, Wisconsin’s venture capital ranking among the 50 states moved up two places to 33rd, with total 2006 investments of $61 million.

The report is a follow-up to the Tech Council’s Vision 2020, a long-term outlook on the state’s economic development published in 2002. That report focused attention on Wisconsin’s need for more growth capital.

The report released Wednesday noted the following trends:

• Early-stage investing: Total early-stage investing tracked in Wisconsin rose to $102.9 million in 2006, an increase of 54 percent over 2005. The complete early-stage risk capital market includes angel networks, individual angels, informal angel groups and early-stage funds.

Improvements in reporting could account for some of the increase in individual angel investments, which was a new reporting category in 2005.

• Angel investing: Angel investing in Wisconsin rose dramatically in 2006. Data from several sources confirm that angel investing in the state rose much faster than the national average, estimated at 11 percent by the University of New Hampshire Center for Venture Research.

The number of Wisconsin group angel investing deals and dollars invested increased substantially in 2006 when compared to 2005. The dollar amount of network investing increased 38 percent to $7,427,170 while the number of deals rose 50 percent from 18 deals in 2005 to 27 deals in 2006.

• Venture capital investment: Wisconsin’s venture capital ranking climbed two spots from 35th in 2005 to 33rd in 2006, as compared to other states. Venture capital invested in Wisconsin companies in 2006 amounted to $61 million in 19 venture capital deals.

This was a decline of $8 million from 2005, most likely a result of two Wisconsin-based funds being in a fund-raising cycle versus making new investments. These new funds have since become active, which should increase available risk capital in Wisconsin in 2007 and beyond.

• Initial public offerings: Two Wisconsin companies began preparation for going public in the first half of 2006. Thus far one IPO has occurred as TomoTherapy raised $223 million in the second quarter of 2007.

• Small Business Innovation Research (SBIR) funding: 2005 is the most recent year in which both Phase 1 and 2 SBIR data by state is available. In 2005, Wisconsin firms won 54 awards and $17.7 million in funding. Wisconsin ranked 23rd among all states in SBIR awards in 2005. Wisconsin firms also won 13 STTR awards amounting to $4.7 million. This ranked the state 13th in STTR awards.

To see the entire report, go to http://www.wisconsinangelnetwork.com/uploads/ReportingMetrics/RiskCapital2006Report.pdf
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