WED AM News: Early-stage 2023 investment activity expected to exceed $482M; Investor says entrepreneurs must be tenacious in competitive environment

February 28, 2024

— Early-stage investment activity in Wisconsin last year is expected to exceed $482 million once the final count is complete, according to an expert with the Wisconsin Technology Council.

Speaking yesterday during a Tech Council event in Madison, Investor Networks Director Joe Kremer shared preliminary investment deal figures for 2023. In line with the national trend, in-state investment activity last year was lower than in the two previous years, but is likely to surpass the total for 2020 as the final deals are tallied, he said.

The Tech Council’s current estimate for last year is about $482 million, including 85 deals. But the Wisconsin Economic Development Corp. in the coming months will be reporting more deals from last year that qualified for tax credits through the agency’s Qualified New Business Venture program, Kremer noted.

“This number is going to come up,” he said. “We’re probably going to get close but I don’t think we’re going to cross $500 million. But this number will definitely come up above 2020, where right now they’re kind of neck-and-neck.”

Wisconsin’s early-stage investment total for 2020 totaled nearly $484 million as the Tech Council identified 114 deals. But the dollar figure for 2021 skyrocketed to just under $869 million through 140 deals, according to the group’s latest Wisconsin Portfolio. By the following year, the total had dropped to $640 million while the number of deals fell to 107.

Kremer also expects the total number of 2023 deals to reach 100 once the full picture for the year comes into view, he said yesterday.

The spike in 2021 followed by a slide downward was mirrored in the national investment landscape, Kremer noted.

“A lot of the driver out of 2023 obviously is risk-free interest rates, if you really want to geek out on the finances around that,” he said. “Literally, it’s sort of like a sucking sound out of the early-stage market, because if you can get 7% for free with no risk, a lot of people are going to be doing that. So it was a national phenomenon, it wasn’t just Wisconsin.”

— Venture Investors Managing Director John Neis says high-quality startups are still raising money even in the more challenging environment — they just need to be tenacious.

“When everybody is flush with cash, you may be able to call on a handful of VCs and before you know it, you have a term sheet,” he said during yesterday’s Tech Council luncheon. “At a time like this, you don’t get calls back … you need to find that perfect balance point between being persistent and annoying.”

Neis and other Wisconsin-based investors shared advice for entrepreneurs seeking investment dollars, with gener8tor Partner Maggie Brickerman noting venture capital firms are being more selective than ever before.

“They’re being as choosy as you might be if you’re buying a house, and there’s just a lot of competition,” she said.

She also emphasized the importance of landing a trustworthy lead investor for a funding round, as other firms often follow suit.

“When they have a quality lead investor, that round is gone, it is oversubscribed,” she said. “People are fighting to get in, because you get that little inkling of quality and everybody is gravitating toward that.”

Meanwhile, Madison-based HealthX Ventures Principal Laura Hilty said investors are expecting more out of founders earlier in the startup process.

“Proving product-market fit was really Series A, now it’s really required for seed-stage investing, hence why pre-seed is a little bit harder to invest in … unless you have, you know, really deep understanding of the market and the customers already in the founding team,” she said.

At the same time, VC firms are applying more scrutiny to the “depth of content” that forms the basis of startup companies, she added.

HealthX Ventures, which is focused primarily on health care technology, is hiring more former business operators who understand how such companies are run, Hilty explained.

“Because just having, again on the early stage, having one or two customers as an example, if you don’t know the landscape, they might be one-offs,” she said.

— The state Office of Sustainability and Clean Energy has been chosen to advance in a federal rural clean energy program funded with $1 billion from the Bipartisan Infrastructure Law.

Gov. Tony Evers yesterday announced the OSCE was chosen by the U.S. Department of Energy to move to the award negotiation stage in the Energy Improvement in Rural or Remote Areas program.

Wisconsin was one of 17 awardees in this round, which marks a step toward landing federal dollars for the office’s Resilience and Prosperity in Rural Northern Wisconsin effort, according to the guv’s office.

This program would include 24 sites across Red Cliff Band tribal lands and Bayfield County, according to a DOE release. It’s aimed at boosting regional energy reliability through 23 microgrid systems. The OSCE will deploy solar power, battery storage, smart controls for these technologies and electric vehicle charging stations, while prioritizing local workforce development.

The region where the project would take place, located along the shores of Lake Superior in northern Wisconsin, faces higher risk for climate change impacts due to its proximity to the large body of water.

Evers says being chosen to advance in the selection process shows the effort is on the right track.

“We have a great team of experts collaborating on this effort, and I’m excited that we’re working together to bring clean energy access to parts of our state that need it most,” he said in the release.

— Evers said he will veto a GOP bill seeking to combat PFAS contamination, instead urging Republicans to approve a version of their proposal that excludes provisions he argues would benefit polluters.

But Republicans were quick to criticize the plan, arguing their bill would provide needed protections for innocent victims of pollution.

The Dem guv in a letter to Joint Finance Committee co-chairs yesterday said SB 312 “lets polluters off the hook for cleaning up their contamination and asks Wisconsinites to foot the bill.”

The guv filed a formal request for JFC to use the $125 million set aside in the state budget to tackle PFAS based on a modified version of SB 312. He billed the proposal as a compromise and argued it is “functionally identical” to the legislation.

Evers’ request comes as environmental groups have urged him to veto SB 312.

“Wisconsinites should not have to wait any longer than they already have. Partisan politics should not stand in the way of addressing PFAS contamination in communities across our state,” Evers wrote.

JFC Co-chairs Howard Marklein, R-Spring Green, and Mark Born, R-Beaver Dam, in a statement to WisPolitics noted Republicans had set aside the funding with the intent to use SB 312 as a framework to implement it.

“Governor Evers should sign it instead of holding up these funds to give the DNR authority to penalize innocent landowners,” they said.

See more at WisPolitics.

— Mark Jefferson, who announced last week he was leaving his post as executive director for the state GOP, is going to work for the Tavern League of Wisconsin starting next week.

Jefferson will become the group’s executive director, filling a vacant post. He told WisPolitics he won’t initially lobby while in the new job.

Jefferson had spent the last five years as executive director of the state GOP, his second stint in the job. He now joins one of the more high-profile trade associations in the state representing some 10,000 licensed retailers.

A state GOP spokesperson said the party hopes to fill Jefferson’s job by early April.

See the release.

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