On its recent third anniversary, BizStarts Milwaukee’s tally of the entrepreneurial life in Southeastern Wisconsin provided evidence that the Midwestern economy can be reinvented through startups.
The same can be said of Madison, an entrepreneurial hotbed, and the Cleveland region, where its JumpStarts organization has been priming the innovation pump since 2004.
The M7 region, centered on Milwaukee, long held a reputation for being risk adverse, but that is changing to risk welcome. The track record assembled by BizStarts since it was formed in September 2008 portrays the transformation:
• 33 high growth companies, known as gazelles, launched in the last three years, almost one a month. Only a few of these high-risk ventures have ceased operations.
• $68 million in angel and venture capital raised for those startups, including several second rounds. Banks generally don’t do initial rounds (nor should they), but some debt capital has been added from banks once a new company has an establiashed top line, bottom line and bankable assets.
• 300 jobs created at the 33 firms. That is direct employment, expressed in fulltime equivalent positions. The multiplier effect down the supply chain adds more indirect jobs. These totals will grow in a cumulative way as the young companies spread their wings and win new business and as more gazelles are launched.
• 55 entrepreneurs in the BizStarts pipeline at various stages of becoming investor ready.
BizStarts Milwaukee did not have a direct hand in all the startups. It views its role as catalytic. It promotes and cheers on every new venture in Southeastern Wisconsin. It strives to change the economic culture in the seven counties to an entrepreneurial culture.
In an anniversary speech, its president, Dan Steininger, said, “Southeast Wisconsin is rapidly becoming one of the best places in the country to start a new venture.
“We are launching a broad range of new companies, from advanced manufacturing to software to new media to biotechnology and medical devices. This is our strength – a diverse business base from which entrepreneurs spring.”
The pace of launching gazelles will accelerate as more early stage capital is brought to bear. There is progress on that front:
• The region is now home to two venture capital shops: Baird Venture Partners and Capital Midwest. Both are looking at later rounds in Wisconsin ventures.
• Serial lead investors have stepped up in the region to quarterback new deals. That includes Tom Shannon, who took Prodesse to a successful exit and has led a number of new ventures with his proceeds; Mike Harris, a serial entrepreneur who got his start with a huge exit from Jefferson Wells; Jeff Russinow, the region’s premier angel investor and a major investor in the hugely successful Buy Seasons; and Emanuel Mamalakis, who is leading the development of 94 Labs, an IT company incubator.
• BizStarts now has a network to more than 2000 people with entrepreneurial chops, including successful entrepreneurs like George Mosher, who has invested in dozens of local startups.
• An early stage fund is in the works.
• The first spinout from UW Milwaukee is up and running and raising a second round.
• BizStarts offers essential support to would-be entrepreneurs for business plan development, including more than 40 seasoned mentors who serve as guides through the startup gauntlet.
The region’s entrepreneurial strategy would be bolstered by the passage of a venture capital bill in Madison. A $1 billion multi-year fund was called for in the “Be Bold – Wisconsin Prosperity Strategy” developed in 2010. The fund concept was modeled after the bold, successful Third Frontier initiative in Ohio.
The creation of such an early stage fund of funds should be first and foremost in the current job creation session of the Wisconsin legislature, but may be getting bogged down by controversy in Republican ranks over how to raise the fund. The turmoil of recall politics isn’t helping. Of note, the general thrust of the venture bill has broad bipartisan support.
Gov. Scott Walker will have to show leadership on this issue, or it could be derailed.
Ohio has taken the lead in reinventing the economy of the Rust Belt, with its voters signing up for more than $2 billion in investment in innovation and technology advancement. The citizens there get what needs to be done.
From that fund, $76 million will be invested in entrepreneurial support in 2012 alone. Seasoned Wisconsin angel investors estimate that $50 million could be put to work here each year.
The public funds would match private investment dollars on a one-to-two or one-to-three basis.
For example, a $10 million private raise would be matched by $3 million to $5 million from a state fund. When the state money is returned after successful exits, probably with a profit, it could be put back into the state fund for further investment. The fund at the state level would then be “evergreen.”
Citizens here also get it the need for startups, the source of most new job creation. The ”Be Bold” strategy had broad input from almost all the leaders in economic development across the state.
The strategy is clear; the track record is promising; the cost to taxpayers will be minimal if the investments are even moderately successful; and there is wealth of entrepreneurial talent and intellectual property in the region and across the state.
At this point, it’s all about the will to change the nature of our economy and the leadership to make it happen. The old answers, the status quo answers, certainly aren’t offering much hope for renewed prosperity. Just ask the one in six Wisconsinites who is unemployed or under-employed.