High Impact Entrepreneurship in Wisconsin: The Smoke and the Fire

By Paul A. Jones

When it comes to life sciences research, Wisconsin is one of the leading players in the nation, with UW-Madison a top 5 recipient of NIH funding, the Marshfield Clinic an important national player, and UW-Milwaukee an up-and-comer. With companies like Promega and Cellular Dynamics, the state has had a few noteworthy biotech entrepreneurship stories (ok, not on the Amgen or Genentech scale, but still…).  So it is perhaps not surprising that a lot of folks look at life sciences as the big story in terms of growing the high impact and venture capital sector in Wisconsin. Not surprising, but wrong. The real entrepreneurial fire in Wisconsin, at least in terms of the fire that is most likely to make Wisconsin a regular stop on the national venture capital map sooner rather than later, is in the IT sector, and particularly what, for lack of a better term, I will refer to as the “web-centric” IT sector, encompassing software startups in web-based businesses, mobile applications, etc. whether in B-to-B or B-to-C environments.

Now, let me say up front that I like the biotech sector. My first venture backed deal, way back when, was a biopharmaceutical spin-out from Duke University Medical Center. My venture fund, over ten years ago, was dedicated to early stage life sciences investing (though a cynic might suggest that the experience acted as a cure). Both of those deals were in North Carolina. The first, in 1990, when North Carolina’s venture capital bona fides rested mostly on a local fund with $6 million in capital, and the second when you could count the number of funds in the state with $50 million under management on the fingers of one hand. (Something you can do in Wisconsin today, with a couple of digits to spare.)

Having fallen for the biotech venture capital story in a venture capital-poor location before, I think folks looking for life sciences to drive the Wisconsin venture capital story over the next few years should proceed cautiously – and consider a much more attractive near term story: the web-centric sector.

First, the shadows hanging over the life sciences story as it relates to Wisconsin and venture capital. In general, building life sciences companies takes more time, more money, and more grey hair than building web-centric companies. Even a straightforward medical device play is almost certainly going to take a couple of years and a couple of million or more (usually a lot more) dollars to get to the point where it can be introduced to the market. A team that includes folks who know their way around a very complicated regulatory process, expensive distribution channels and exceptionally risk-averse customers. Take each of those variables up an order of magnitude if you are talking about a therapeutics company.

Now ask yourself, how many venture capital investors in Wisconsin have $100 million of capital (not much money, really, when you look at the funds that do a lot of biotech deals) devoted to early stage biotech deals? None. How many folks in Wisconsin have C-level experience managing big companies in the life sciences space and experience growing them from the research stage through FDA approval (and how many UW-Madison life sciences professors are going to hand over the reins of their spin-outs to those folks)? Well, let’s just say not many.

The bottom line is that while a great research base, which we have in Wisconsin, is necessary for growing a significant and self-sustaining high impact life sciences sector, it is far from sufficient. You also need a lot of very patient money with a lot of industry experience and a lot of folks with more than their fair share of grey hair. And those are things in short supply here.

Now consider what resources you need to build a web-centric business. Well, as often as not, you can build and actually sell the proverbial “minimal viable product” with somewhere between $0 and $500k, in somewhere between 3 and 12 months. And you don’t need anyone with grey hair to do that, or most likely, to take the company all the way home to the exit. And if perchance you need more capital, your needs are likely to fall in the less than $5 million sweet spot for Wisconsin’s modest collection of angel and venture capital investors. The fact is, you can probably take ten web-centric startups from conception to exit on less capital and in a small fraction of the time it takes to nurture one biopharmaceutical startup from conception to exit. Given how many startups ultimately succeed, any smart risk capital investor is going to take the portfolio of ten deals over the “all or nothing” bet on the biopharma deal.

Don’t get me wrong. I believe venture-backed biotech will be a major part of a vibrant, self-sustaining high impact entrepreneurship economy in Wisconsin. But web-centric entrepreneurs and investors will get there first.


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