Record funding raised for startups in tax credit plan
375 companies get certification since 2005 start
The ecosystem for early-stage companies is maturing, a Wisconsin Economic Development Corporation report suggests.
The report, released Wednesday, examined companies that earned the state’s Qualified New Business Venture certification in 2016. The certification allows investors in the company to earn tax credits for invested funds.
Total funding to those certified companies topped $281 million in 2016, up from about $176 million in 2015. It’s the largest funding total in at least the past 10 years.
“We’re seeing more consistency in companies being able to raise capital and grow,” said Aaron Hagar, WEDC vice president of entrepreneurship and innovation.
In 2016, 211 companies were certified, exceeding previous years. Less than a quarter were new certifications. The program has certified 375 companies since its inception in 2005.
Other years with high funding totals were driven by a couple of companies that finished large funding rounds of $30 million or more. This year, more companies raised between $10 and $20 million, accumulating to the $281 million total. Hagar said this shows that investors are seeing more enticing opportunities in the state.
“Continued upward trends through the life of the program are good signs that the ecosystem is maturing,” Hagar said.
But, Hagar said, the report is not a comprehensive look at entrepreneurship in Wisconsin. It doesn’t capture Main Street small businesses or others that are raising capital without the tax credit program or growing without outside assistance.
Of the $281 million in funding received by certified companies, $71.7 million qualified for credits through the program. The state supported the certified startups fundraising with $17.9 million in tax credits.
The idea behind the program is to incentivize investment in Wisconsin firms. Investors into certified companies earn a tax credit equal to 25% of the equity investment.
Ultimately, the goal is for companies to grow out of the program. Companies need to have fewer than 100 employees and have received less than $10 million in aggregate private equity investment, among other criteria.
That’s the goal for certified companies such as Milwaukee startup Access HealthNet.
The company works to incentivize getting medical care from costefficient providers. Angel investors put $655,000 into Access HealthNet last year. Another $200,000 was made as fund investments and $213,750 in tax credits, according to the report. The company is rapidly expanding and recently moved to a new office in downtown Milwaukee.
The certification is valid for one year. Many companies apply again while others are no longer eligible. For instance, Promentis Pharmaceuticals Inc., a Milwaukee-based company developing drugs to treat psychiatric disorders, outgrew the program. Recently, it raised $26 million in its third round of financing.