Wisconsin’s wealth of talent and experience in health care technology sets it apart from other parts of the country, but it still remains underserved and overlooked in terms of startup funding.
That’s according to a panel of out-of-state investors who spoke yesterday as part of the Wisconsin Technology Council’s two-day Early Stage Symposium.
Alex Shortle, a principal at Indiana-based Meridian Street Capital, said he was drawn to Madison and the northern Midwest in general because of tech giant Epic and other health tech companies.
“Good technologies recently with Datica, guys at Redox and a couple other companies that have spun off or that have left with good ideas… understanding the nuances of being a health care veteran and how to sell to the health systems,” he said.
Shortle says that knowledge “doesn’t exist in a lot of places.”
“Although there’s a lot of technologies out in San Francisco and out in LA and New York, they don’t always necessarily understand how the health care system in this country works,” he added. “Understanding that and having relationships within the system is very important.”
Jackie Dimonte, an associate at Hyde Park Ventures in Chicago, says many investors who are interested in Madison and Milwaukee “see that recycling of the ecosystem” as a valuable feature.
But strength in the health care sphere hasn’t brought nearly as much investment to Wisconsin as goes to California and the East Coast.
“When you think about Wisconsin as a whole, it kind of comes in really low to the bottom on amount of venture capital received, historically,” said Victor Gutwein, managing director at Chicago’s M5 Group. “Yet we see a big opportunity, so as an investor I’m looking for where are the overlooked opportunities.”
He characterizes that as a strength for the Midwest, as potential deals in California are “overpicked.”
“You’re not getting as great of valuations,” he said. “It’s a crowded space, and it’s an expensive space.”
Ron Watson, principal at Lewis & Clark Ventures in St. Louis, pointed out that 40 percent of venture capital funds are in California and 40 percent are on the East Coast, leaving only 20 percent to serve “this giant region in the middle of the country” which includes Madison, Chicago, Boston, Columbus, Cincinnati and Cleveland.
“So our thesis as a fund is there’s a massive amount of underserved opportunity here, and the reason why we’re here is to find those opportunities and get capital into those companies,” Watson said.
Tom Still, president of the Wisconsin Technology Council and moderator for yesterday’s panel, said there’s a “historic mismatch” in Wisconsin between available resources like support for research and development and “where the dollars tend to flow.”
“This is the place where there’s a current disconnect between opportunity and capital,” Gutwein added. “We’re maybe the first movers — eventually that can be corrected and we have to think of another competitive edge, but I think that’s still a ways out.”
Though Watson says deals exist in the Midwest that are as good as those on the coasts, he notes density is important.
“And that’s the great advantage that they have in Silicon Valley,” Watson said. “The states with more urban centers tend to get more investment. That doesn’t mean there’s not great companies in these more rural states — they’re probably just a little bit harder to find.”
For Wisconsin companies to catch the attention of the right people, Shortle said they need to offer more than solutions for narrow markets with limited upside.
“We’re looking for earth-shattering, revolutionary, totally changing the market ideas,” he said. “Maybe it’s just I am gullible and people in San Francisco are better at selling me, but I don’t hear that as often in the Midwest. They’re more realistic, but we don’t always want realism.”
–By Alex Moe