Rise in QNBV startup investments shows ‘real strength’ in ecosystem

An increasing amount of investment in QNBV-certified startups shows “real strength for the ecosystem,” according to the WEDC’s Aaron Hagar.

Just ask Ashley Prange, founder of Au Naturale, a Green Bay-based producer of organic cosmetics products that has been QNBV certified this year and the last. This 5-year-old company closed its first round just last summer, and Prange says the certification has been helpful in conversations with VCs.

She said potential investors were especially interested in her company because the 25 percent tax credit made the option to invest more attractive and less risky.

“It allowed for more meaningful conversations with investors,” she said.

Based on WEDC’s annual report on QNBV companies, startups in the state’s Qualified New Business Venture program got 60 percent more total funding last year than in 2015.

This certification was established in 2005 by state Legislature, and is granted by the Wisconsin Economic Development Corp. Investors in qualifying companies can get tax credits for up to 25 percent of the total investment.

In 2016, the 211 QNBV-certified startups saw over $281 million in funding — up from $177 million for 180 certified companies in 2015.

A little more than $70 million came from angel and early-stage investments, while the majority of funding came from other sources, like equity or debt financing that don’t qualify for the tax credit. It could come from a larger venture capital fund from out of state, a strategic partner that’s not accessing the credit, or elsewhere.

“Out-of-state VC funds can access the credits, but depending on that investor’s outlook and way they’re set up and established, they may not be aware of the credit, or not see the value in the credit, depending on how they’re structured,” Hagar, WEDC’s vice president of innovation and entrepreneurship, told WisBusiness.com.

In years past, the funding total has been boosted by a handful of larger deals for over $30 million each. In 2016, much of the increase came from a larger number of smaller deals, ranging from around $10 million to around $20 million, Hagar said. He added that this shift is a positive for the state.

“It points to more companies being able to get to the capital they need,” he said.

The report shows early stage investments were slightly up over 2015, while angel investments were slightly down. The “other financing” area rose from from around $94 million to around $182 million. And grant funding nearly tripled, rising from around $9 million to over $27 million.

“Overall, the upward trend is encouraging,” Hagar said. “We see growth throughout the whole program… More enrolled, more finding funding. That’s all very encouraging news.”

WEDC issued $17.9 million in tax credits in 2016 for $71.7 million in qualified investment, and 96 percent of that money went into four industries: IT, biotech, manufacturing and health tech.

Information technology got the most, capturing 53 percent of the qualified investment dollars, while 20 percent was invested in manufacturing operations. Biotech received 15 percent, and health tech got 8 percent.

–By Alex Moe