Angels’ wings lift economic prospects

The wings of angels are providing a much needed lift as economic developers and politicians in Wisconsin seek better answers for the job creation doldrums that have persisted in the aftermath of the Great Recession.

Angel investors accelerated their check writing in Wisconsin in 2011. They funded 63 deals with $61 million, almost a million dollars per deal, up from 54 deals and $50 million in 2010.

The concept of a statewide angel investor network surfaced in the economic summits of a decade ago, and now there are 27 groups, some more active than others. Their proliferation was stimulated by a bipartisan political effort to pass Act 255, which gives 25% tax credits to backers of risky startups.

Tim Keane calls the angel growth “meteoric. He should know. He has been a pioneer angel group leader in the state with his Golden Angles at Marquette. When he started that group in 2003, angels accounted for only a couple of million dollars a year in the state. He is also a leader of the Wisconsin Angel Network, which compiles the metrics on early stage deals.

BizStarts Milwaukee tracks the deals in Southeastern Wisconsin, and the M7 region’s 34 deals in the last three years have pulled in more than $90 million in early stage rounds. That is a bright spot for economic development in the seven counties.

Venture capital in later rounds has been less dynamic. It totaled $92 million in the state in 2011, down from $131 million in 2010. As the growing ranks of startups mature and merit expansion money, there will be more opportunities to pull in VC money from inside and outside the state.

A striking part of the picture in angel investing is the emergence of “super angels.” These are serial investors who often take the lead in putting startup deals together. If they put themselves and their own funds in deals, other investors follow these established money makers.

These are people like Mike Harris, who specializes in staffing companies; Tom Shannon and Jeff Harris, who took Prodesse to an exit north of $70 million and are now leading a startup out of the Medical College of Wisonsin; Buzz Peddicord, who took HomMed to exit in 2004 and is spear-heading his second venture, a spin-out from the Medical College of Wisconsin ; and Jeff Rusinow, who took BuySeasons and ModernMed to exit. The state could use a couple dozen of these sophisticated business people.

They don’t have to do this stuff. Super angels could all hit the beach, but they love the action. They don’t see themselves as doing patriotic work. They see themselves as dynamic innovators who go where most business people would fear to tread.

But I contend they are doing patriotic work, because other economic development strategies are sputtering. Recruiting, real estate development, federal stimulus dollars may have helped, but not enough to change the game. Young companies reinvent the economy and job growth dynamics.

The latest economic development push has been to resolve the mismatch of jobs and skills. Wisconsin employers have openings for about one-tenth of the 500,000 people in the state who are unemployed or under-employed. Multiple organizations have rushed to pump up training programs, and those efforts make eminent good sense. Businesses need to match those efforts by re-energizing their training programs, some of which went dormant in the recession.

But, even if that mismatch problem were completely solved, what about the other 90% of job seekers? I say let’s bet on the entrepreneurs and their angel backers. They produce a triple bottom line:

• Wealth creation through exports to global markets and by cashing out their investors when they exit.
• Cumulative job creation as the new companies multiply and grow.
• Their innovations, which bring new products and services to the world.

More than 30 states have created some kind of supplementary fund at the state level to provide matching dollars to the angel and venture investors. The private investors have to lead the way, but taxpayer dollars can accelerate the process, just as the Act 255 tax credits of 25% have done in Wisconsin. Several states that have plagiarized that approach.

Wisconsin could use a fund of funds at the state level. Charlie Goff, who helped lead a successful $26 million fund raise in the Fox River Valley, called NEW Capital Fund II, will be able to give life and growth to 15 to 20 startups. With a state match of $1 for every $2 of private money, he could do one-third more.

Assuming the legislation is structured right, Wisconsin taxpayers should get all their match money back, plus a return, and plus the news jobs and taxes generated from the new enterprises.
This is an unfinished piece of business in Wisconsin for whoever ends up as governor and whoever controls the legislature after this spring’s June recall elections. Our angels need still stronger wings.

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