Midwest investment stays steady with increased funding and deals, report says

The PwC/CB Insights MoneyTree™ Report for the fourth quarter of 2016 shows the Midwest stayed steady with total funding increasing by 1 percent over last quarter, and number of deals increasing by 4 percent.

Wisconsin contributed to this growth through six deals amounting to $69.2 million –more than the first three quarters of 2016 combined.

The majority of state investment comes from the Internet and mobile/telecommunications sectors outlined in the report, with health care and agriculture sectors together contributing slightly less.

But for the United States in general, deals continue to drop, hitting a 5-year low for the fourth quarter. The number of investments is down 14 percent, and total funding for the quarter is down 17 percent. For all of 2016, $58.6 billion was invested, 20 percent less than in 2015.

Nationwide, the top five sectors for 2016 are tech-related: Internet, mobile/telecommunication, health care, software (non-Internet and mobile) and computer hardware/service.

The Internet sector accounts for 39 percent of U.S. deal dollars for the fourth quarter, down from 46 percent in the third. Even with this drop, this sector still drew more money than any other sector.

This trend can be traced to “low cost of entry,” according to Tom Ciccolella, U.S. venture capital leader at PwC.

“More people are interested in the Internet sector now than ever,” said Ciccolella. “There’s a fast-to-sell, fast-to-succeed mentality. That is attractive to entrepreneurs, but also to investors. It’s easier to cut a check when there’s more proof of concept.”

The MoneyTree™ Report also emphasizes artificial intelligence, or AI, as a major growth area. Nationally, $705 million was raised in the fourth quarter through 71 deals–quarterly increases of 16 percent and 22 percent, respectively.

“The ability for it to work seems to be coming to fruition now more than ever,” said Ciccolella. “I think everyone needs an AI strategy for how that will help propel your business forward. Entrepreneurs and investors are interested in this space.”

The trend towards investment in technology held true at the state level as well, as almost 40 percent of quarterly investment went into the mobile/telecommunications sector.

The report uses data from a new provider, CB Insights. Data was collected from press releases, SEC filings and other forms of announcements.

Numbers for 2015 from the Wisconsin Technology Council’s 2016 Wisconsin Portfolio show over $80 million more in investment than does the MoneyTree™ Report, a difference Ciccolella chalks up to “timing of cash movement” and differences in reporting methodology.

According to Bram Daelemans, director of the Wisconsin Angels Network, differences in reported investment are a result of his “more thorough” process of aggregating numbers.

“The data in the portfolio is something that I gather, so I think I have a better idea of what’s going on in the state,” said Daelemans, adding that the 2017 Wisconsin Portfolio will be coming out sometime in the second quarter of this year.

Differences aside, Ciccolella called the methodology used for the MoneyTree™ Report “pretty consistent,” and “directionally correct from the aggregate level.”

See an earlier story on third quarter numbers from PwC: http://wisbusiness.com/index.iml?Article=380062

–By Alex Moe