Milwaukee’s startup scene is about to take off. Get in before the secret gets out.

Get in

If I had to describe Milwaukee’s startup and entrepreneurship scene, I’d call it active, with a lot of potential for massive growth. And as is the case with many things here in Milwaukee, we have a much better story to tell than the one we’re actually telling right now.

By Chris Abele
Managing Director, CSA Partners

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There are far more examples of successful startups in Milwaukee than most people probably are aware of. That’s largely because most people here who are focused on growing a startup are so obsessively focused with growing value and growing their market that they’re really not thinking about press and updating their Facebook page. That’s about to change, thanks to the new MMAC MKE Startup News initiative.

There’s this notion that all venture capital is centered appropriately at the coasts — Silicon Valley, Boston, New York. Yes, there’s a lot of venture capital money out there. But there’s a very strong business case for bringing that funding to the Midwest and Milwaukee. There’s also a strong business case that VCs are hurting themselves and the companies they invest in by concentrating on the coasts.

Invest in the Midwest

The cost of doing business is a lot less in Milwaukee – and in many cases, the chances for success and a high rate of return are actually better.

Here’s what the data tells us: The value one gets for your venture capital dollar invested in the Midwest is massively more, on average, than what you’re going to get on the coasts. The likelihood that a company that is founded in the Midwest is still going to be here in three years, in five years, versus a company that started in California is a lot higher. And the percentage of companies invested in the Midwest that return a 10x or more multiple for their investors is much higher in the Midwest than it is on the coasts.

Some of these facts probably are surprising to you. They were surprising to me when I first heard about them. But facts incentivize people’s behavior only when people are aware of them. Again, this goes back to the idea that we have a better story to tell than we do.

As an example, one of the companies that I helped to move from Boston to Milwaukee is Bright Cellars. They were three people when they moved out here, and now they’re 120. Those are jobs here in Milwaukee.

Revolution Capital’s venture fund is based in Washington, D.C. and San Francisco. They did most of the second round for Bright Cellars. That’s an out of state company investing a ton of money to help a company in Milwaukee work and grow. They noted that Bright Cellars qualified for Wisconsin’s QNBV (Qualified New Business Venture) program, which offers incentives for investment in early-stage Wisconsin businesses. They said, “The benefit is much better than anything we’ve seen in other states. You should tell people about that.”

Meanwhile, there’s an unintended consequence of so much venture capital being concentrated on the coasts: They’re basically competing to fund the same group of entrepreneurs. And while that may sound like a terrific deal for those entrepreneurs, there’s a problem: If you raise too much money at too high a valuation when you start, unless this startup all of a sudden takes off, the next time they need to raise money they can’t raise any more because they haven’t justified their initial valuation. A lot of these very publicly flame out and lose hundreds of millions of dollars for people.

‘How do we get to Milwaukee?’

There’s a part of me that kind of likes being in on a secret that a lot of people haven’t figured out yet: I’m doing phenomenally well investing in companies based in Wisconsin. I love being able to invest in the Midwest, because I know, in general, I am going to get a much better value and better odds of return.

The same qualities that make us attractive to established companies make us attractive to entrepreneurs. Unbelievably low cost of living, relatively speaking, and a low cost of doing business. Phenomenal arts and culture — way above our weight class. Good health care. K-12 education certainly could be better, but we are way above the national average for colleges per capita. And we’ve got a great engineering program at MSOE, we’ve got a great engineering program at Marquette, a great engineering program at UWM. So we generate a lot of talent. It’d be great to be known as a place where it was easier to hire the kind of talent that startups need, especially coders and engineers. We have a real opportunity to differentiate ourselves here.

Also, people know how to work here. We talk about the Midwestern work ethic, but what does that really mean? We have low labor turnover, low absenteeism, good credit ratings, low loan default and high volunteerism. I’m not saying it’s perfect. But relative to the rest country, it looks pretty good.

It would be great if, five or 10 years down the road, the most promising high-potential startups in the country — wherever they were at the time — were thinking, “You know, this is an all right place to start. But how do we get to Milwaukee? Because that’s where you grow.”

If we’re successful at building high-growth startups, then there’s more people here, more jobs, more income being spent here more, which generates more for the community. When I ran the county, I can tell you how much of our budget came from the development and growth of companies. That translates to better services, more bus routes, better parks and more. Everybody wins. And then it becomes a virtuous circle making it easier and easier to recruit.

And for people who think, “How is Milwaukee going to somehow end up being seen as this bleeding-edge, hipster-cool place for startups?” I just point to

Austin 30 years ago. Nobody was saying this is the place to be for hipness and economic opportunity.

Give me any example of your number one in any field. And I’ll tell you a story of someone that wasn’t always number one, but they got there because nobody told them, “Sorry, you don’t get to aim that high” – and if someone did tell them that, they sure didn’t listen. We’ve got a better story to tell than we do. And to those folks who say it can’t be done, I say … stay tuned.