Take a look at the amount of venture money Minnesota and Wisconsin has raised through September and you would assume the states are pretty evenly matched.
For the first nine months this year, Minnesota companies attracted $118.2 million while Wisconsin firms netted $102.97 million, according to the MoneyTree report by PricewaterhouseCoopers and National Venture Capital Association, based on data by Thomson Reuters.
But numbers are a tricky thing. First of all, the lion’s share of Wisconsin money came from just two deals: Virent Energy Systems and Cellular Dynamics raised a combined $87 million. In fact, Wisconsin witnessed only 20 venture deals this year compared to Minnesota’s 32.
That means Minnesota must be more innovative and dynamic than its neighbor, right?
Wrong. People often refer to the MoneyTree report as a definitive measure of a state’s innovation economy. However, the MoneyTree report only reports venture capital, not angel money.
It’s an important distinction because angel funds normally go to infant startups; venture dollars flows toward older firms, which most likely already went through multiple rounds of financing.
So while venture capital can effectively measure the quality of a company, angel deals better reflect a state’s ability to create companies. And here’s where Wisconsin far outshines Minnesota.
Through September, Wisconsin angels have invested about $22 million, about the same amount as all of 2009, according to the Wisconsin Angel Network.
Last year, angels invested $22.1 million in 56 deals, compared to $5.4 million in 18 deals in 2005, according to the Wisconsin Portfolio Report. That’s a four fold jump in dollars and a three fold increase in deals in just four years.
Minnesota doesn’t track its angel deals and probably for good reason: up until now, there hasn’t been many deals to track. That may change though with the recent debut of Minnesota’s five year, $60 million angel investment tax credit.
Growing angel capital is especially crucial today given the dwindling pool of venture money heading into Wisconsin and Minnesota.
Wisconsin attracted about $22.2 million in venture capital dollars last year (what’s with Wisconsin and the number 22?), a stunning 70 percent drop from 2008.
Minnesota isn’t faring well either. The state’s total venture haul for nine months this year is about 36 percent lower compared to the same point in 2009.
That tells me venture capitalists are a lot more selective about where invest their money these days. That’s why we need angels now more than ever: they can develop startups to a point where the companies can better compete for those precious, hard to find venture dollars.
States that focus only on venture capital and not angel money are not looking at the entire picture. One reason it took Minnesota so long to pass the angel tax credit because lawmakers took one look at the state’s total venture dollars, compared it to Wisconsin, and concluded everything was hunky dory.
Though Wisconsin’s venture drop is alarming, at least the state is seeing healthy gains in angel money.
Minnesota is only beginning to address its angel problem. Unfortunately, its falling share of venture capital is something that’s not easily fixed with a tax credit.