Milwaukee ranks poorly for venture capital activity

Compared to Midwestern peers, city ‘dramatically underperforms’

A new analysis of 42 Midwestern cities indicates Milwaukee “dramatically underperforms” when it comes to its expected venture capital activity. Madison, on the other hand, over-performed its expected activity level.

Terry Gou, chairman of Foxconn Technology Group, announces the $100 million Wisconn Valley Venture Capital Fund in August.

An early analysis from Omaha, Nebraska-based management consulting firm Chapman and Co. LLC’s upcoming Silicon Prairie Annual Report demonstrates that while Milwaukee had about $48 million in venture capital activity in 2017 (according to Pitchbook data), it should have had about $142.6 million in venture capital deals.

Falling about $94.6 million short on its expected performance gave Milwaukee the distinction of ranking among six Midwestern cities that “dramatically underperformed” their expected values, along with Oklahoma City ($112.1 million short), Kansas City ($97.3 million short), Tulsa ($31.2 million short), Wichita ($21.8 million short) and Omaha ($17.5 million short).

Tom Chapman, chair of the startup data committee for Startup Champions Network and founder of Chapman and Co., who put together the analysis, said the comparison provides a benchmark for how a city should perform based on the performance of peers at the same metro area size or smaller. Milwaukee was compared to Kansas City, Minneapolis, St. Louis and Oklahoma City.

“I think the challenge that we have in the Midwest is we will often point to a city like Kansas City and say, ‘Hey, they’re doing a good job…rather than thinking about it as, ‘Where should they be?’” he said.

The cities that performed well, such as Lincoln and Chicago, have found the right combination of building blocks to grow their startup community infrastructure and, in turn, up their venture capital activity, he said. That includes mobilizing the corporate community, and putting in place systems to invest small amounts in startups, then helping them grow to the point of needing larger funding rounds.

“(Milwaukee’s underperformance is) a signal of an undernurtured, underdeveloped ecosystem,” Chapman said. “If Baird, which runs their venture capital out of Chicago, suddenly moved their office to Milwaukee, they wouldn’t have the deal flow to write $2 million, $5 million, $10 million checks.”

To be fair, Milwaukee has fairly high venture capital expectations among Midwestern cities, Chapman said.

“It looks like underperformance, but underperformance also means higher expectations,” he said.

Madison, on the other hand, over-performed its expected activity level by approximately $55 million, according to the report. Chapman’s analysis indicates college towns tend to be magnets for venture capital dollars, with Champaign, Illinois; Lincoln, Nebraska; Columbia, Missouri; and Iowa City, Iowa also over-performing.

“Interestingly, these communities have significant dollars tied to venture investing, but in many instances, the start-up companies are not, in fact, university spin-outs. Thus, the correlation may have more to do with other factors regarding these towns such as transience of population, alumni networks in richer venture capital environments, access to significant, well-trained human capital, etc.,” his analysis indicates.

Chapman plans to release the full Silicon Prairie Annual Report later this month.

A new analysis of 42 Midwestern cities indicates Milwaukee “dramatically underperforms” when it comes to its expected venture capital activity. Madison, on the other hand, over-performed its expected activity level.

Terry Gou, chairman of Foxconn Technology Group, announces the $100 million Wisconn Valley Venture Capital Fund in August.

An early analysis from Omaha, Nebraska-based management consulting firm Chapman and Co. LLC’s upcoming Silicon Prairie Annual Report demonstrates that while Milwaukee had about $48 million in venture capital activity in 2017 (according to Pitchbook data), it should have had about $142.6 million in venture capital deals.

Falling about $94.6 million short on its expected performance gave Milwaukee the distinction of ranking among six Midwestern cities that “dramatically underperformed” their expected values, along with Oklahoma City ($112.1 million short), Kansas City ($97.3 million short), Tulsa ($31.2 million short), Wichita ($21.8 million short) and Omaha ($17.5 million short).

Tom Chapman, chair of the startup data committee for Startup Champions Network and founder of Chapman and Co., who put together the analysis, said the comparison provides a benchmark for how a city should perform based on the performance of peers at the same metro area size or smaller. Milwaukee was compared to Kansas City, Minneapolis, St. Louis and Oklahoma City.

“I think the challenge that we have in the Midwest is we will often point to a city like Kansas City and say, ‘Hey, they’re doing a good job…rather than thinking about it as, ‘Where should they be?’” he said.

The cities that performed well, such as Lincoln and Chicago, have found the right combination of building blocks to grow their startup community infrastructure and, in turn, up their venture capital activity, he said. That includes mobilizing the corporate community, and putting in place systems to invest small amounts in startups, then helping them grow to the point of needing larger funding rounds.

“(Milwaukee’s underperformance is) a signal of an undernurtured, underdeveloped ecosystem,” Chapman said. “If Baird, which runs their venture capital out of Chicago, suddenly moved their office to Milwaukee, they wouldn’t have the deal flow to write $2 million, $5 million, $10 million checks.”

To be fair, Milwaukee has fairly high venture capital expectations among Midwestern cities, Chapman said.

“It looks like underperformance, but underperformance also means higher expectations,” he said.

Madison, on the other hand, over-performed its expected activity level by approximately $55 million, according to the report. Chapman’s analysis indicates college towns tend to be magnets for venture capital dollars, with Champaign, Illinois; Lincoln, Nebraska; Columbia, Missouri; and Iowa City, Iowa also over-performing.

“Interestingly, these communities have significant dollars tied to venture investing, but in many instances, the start-up companies are not, in fact, university spin-outs. Thus, the correlation may have more to do with other factors regarding these towns such as transience of population, alumni networks in richer venture capital environments, access to significant, well-trained human capital, etc.,” his analysis indicates.

Chapman plans to release the full Silicon Prairie Annual Report later this month.

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