More venture capital or disruptive ideas? What does Milwaukee and Wisconsin’s startup ecosystem need to get to the next level?
Perhaps it is a chicken-or-the-egg scenario, but does the state need more venture capital, or more disruptive ideas to jump start a budding ecosystem?
Badger Fund of Funds partner Ken Johnson says Wisconsin would find more value in additional human capital more so than venture capital. For Johnson, this means entrepreneurs building more unique products that not only address an untouched market but also sell high so investors make a larger return of their investment.
Johnson said as more of these products are created, venture funds in Wisconsin will build a track record for achieving a high return, which will attract out of state investors to invest in Wisconsin.
“If we on a small level aren’t making a lot for investors, there’s no way other people are going to come in,” Johnson said. “Certainly, from my point, I don’t think capital is an issue here and I think in some ways, Wisconsin has more than we need.”
While Johnson sees a lot of startups with an interesting concept, that have a social bent or are good for the economy, many of them do not offer a high return for investors, which is the reason why Wisconsin ranks so low compared to other states in the startup space, he said.
Johnson, who’s is also founder and managing director of Kegonsa Capital Partners, was one of five local and regional leaders in the startup space that sat on a panel at Marquette University on Tuesday evening. The event, called “On The Issues: Creating A Healthy Innovation Economy,” is part of Startup Milwaukee Week, a week-long series that highlights startup companies and initiatives in southeastern Wisconsin.
For many years, Milwaukee and Wisconsin have been ranked near the bottom in business creation and growth compared to the rest of the country, according to the annual Kauffman Index of Startup Activity.
Despite the state’s rankings, several wins and losses in the early-stage space in 2019 indicate that Wisconsin’s startup ecosystem is growing, but with plenty of room for improvement.
Like Johnson, Milwaukee Institute executive director Kathleen Gallagher said many local companies will try to mimic successful business models like UberEats, instead of generating a disruptive idea of their own.
“A lot of times the question around here is, ‘Let’s look around and see who did it and do it ourselves,’ instead of, ‘Let’s do something that no one else did,’” Gallagher said.
Gallagher, who’s also a founder of 5 Lakes, said many startups who complain about a lack of venture capital often have a higher valuation than they should because they valued their company too high early on.
Matt Cordio, co-founder and president of Skills Pipeline and Startup Milwaukee, mentioned Milwaukee-based startup Xena Workwear and Milwaukee-based Bright Cellars as two local companies that were able to obtain venture capital. However, Cordio, who’s also a 5 Lakes founder, believes Milwaukee companies with great products still have trouble accessing capital from local investors.
“The entrepreneurs who are building novel products, I think are able to attract that capital,” Cordio said. “But I think we would benefit by having more angel investors and more professionally trained venture capitalists in the Milwaukee region, and certainly I think the Badger Fund of Funds is working on that,”
Aaron Gillum, vice president of 50 South Capital, which manages the fund of funds programs in Illinois and Indiana, also highlighted the value in human capital in the startup ecosystem.
Gillum pointed to Indianapolis-based ExactTarget, a marketing software company acquired by Salesforce for $2.5 billion. When the company exited, Gillum said, all of the senior staff became angel investors the next day and two of them started their own separate venture funds.
“Everyone who worked there can now say they have worked for a billion-dollar scaled up unicorn and have seen the recipe for how to replicate that,” Gillum said.
Indianapolis now has at least two dozen companies with “ExactTarget DNA,” which Gillum says will trickle down to other companies and make them successful.
“You need that kind of DNA in your entrepreneurs and you need that kind of DNA in your investors to know what to look for and how to push the founders,” Gillum said. “So that they’re not just thinking about building a $10 million or $20 million company. They’re constantly thinking about how to make it bigger.”
