If you sense that something is stirring or hear a buzz, it might just be the sound of Milwaukee’s high-tech community building the foundation for a new entrepreneurial economy. In the past several years, an outcropping of high-tech entrepreneurs has emerged here, universities have gone all out to teach entrepreneurial skills, and established companies are on board to support this emerging startup ecosystem. But perceptions change slowly, as the underlying reality shifts.
The Milwaukee area brought up the rear in the 2016 Kauffman Index of Start-up Activity, a place it has held for three consecutive years. “That galvanized a lot of individuals to put more focus on entrepreneurship,” says Louis Condon, program director of Gener8tor—a nationally ranked accelerator that invests in high-growth startups. In a 2017 report, the Public Policy Forum also found that Milwaukee lagged in its rates of startup development and survival, as well as in attracting venture capital. The report concluded that, while Milwaukee’s talent pool is growing stronger, it must continue to grow to remain competitive.
“I’m not really worried about the Kauffman Foundation data. It’s certainly alarming and concerning that we aren’t a top-10 city for entrepreneurs,” says Matt Cordio—founder and president of Startup Milwaukee, a resource aggregator for the entrepreneurial community. “There are some people who completely write it off, like maybe it’s not accurate or something. I think it’s accurate. We are behind a lot of other cities and metro areas.” Cordio, a successful entrepreneur himself, is also founder and president of Skills Pipeline, LLC, an information technology talent acquisition firm.
But Guy Mascari, executive director of the Technology Innovation Center (a startup incubator in Wauwatosa’s Research Park), says using venture capital as a measure of the number of startups in a region “does not capture all of the entrepreneurial or innovation activity in a region.” Startups that self-fund or are bootstrapped by entrepreneurs who grow their companies from revenues—and not through infusions of venture capital—are not reflected in many startup surveys and rankings. “I think we’re doing better than some of those things indicate.” Bootstrapping is a common practice in Milwaukee.
It Takes an Ecosystem
Area colleges and universities are teaching entrepreneurial skills reflecting a national and international educational trend. For example, UW-Milwaukee’s Lubar Entrepreneurship Center, the Kohler Center for Entrepreneurship at Marquette University, UW-Whitewater’s Entrepreneurship Program, CULaunch! at Concordia University and MATC’s Technical Diploma in Entrepreneurship all teach skills and methods to help entrepreneurs succeed.
“We want to arm all of our students with important skills that will make them more successful in their careers, regardless of their discipline,” says Brian Thompson, president of the UWM Research Foundation and director of the Lubar Center. “We want to give them skills in entrepreneurial thinking, innovation and creativity.” Pop-up classes—in which an entrepreneurship professor visits classrooms in other disciplines—reached 1,500 students last year. The Lubar Center wants to offer entrepreneurial education to the entire campus, not just to a small group in the business school.
The center sponsors several competitions to encourage entrepreneurship for students and faculty. In 2015, Sheldon and Marianne Lubar donated $10 million to establish the center. Construction will begin on a new building later this year and will be completed in 2019. The new space will provide new instructional space, as well as “maker” space for students, where they can design and build prototypes of their technology.
Within established companies, the practice of “intrapreneurship” is taking hold. “An intrapreneur is an entrepreneur within a large company,” says Eric Baumgartner, vice president of academics at Milwaukee School of Engineering (MSOE). Just because someone has an entrepreneurial mindset it doesn’t necessarily mean he or she will found a startup. “Sometimes it’s better to do that within a big company because you have the fiscal resources and the other resources behind you when you’re doing something new.”
Teaching the ‘Mentality’
The Commons is a collaborative partnership among 24 colleges and universities, the business community and entrepreneurs in southeastern Wisconsin. It finds talented and motivated students and teaches them how to think like entrepreneurs in a nine-week accelerator program. Since its inception three years ago, 500 students have passed through its entrepreneurial accelerator. The Commons is offering programming to students from 30 area high schools. However, Mascari, who has been running the Technology Innovation Center for 20 years, is skeptical that entrepreneurship can be taught.
“For the past 20 years, going back to the mid-’90s, the dot.com boom and Silicon Valley, the idea, prevalent in the community right now, is that innovation and entrepreneurship are the keys to economic prosperity. The universities are always talking about it. They want to train students to be entrepreneurs.” Mascari thinks the key to economic prosperity is in workforce development. “I’ve dealt with hundreds of entrepreneurs. The mentality, the risk taking, the moxie is part of a basic personality that people have, so you can’t take Student A and turn them into an entrepreneur,” he says. “Just like you couldn’t turn me into a musician.”
Conventional STEM education (a curriculum aimed at educating students in four specific disciplines—science, technology, engineering and mathematics—in an applied, interdisciplinary approach) is taking place at all the regional universities. At UWM, Brett Peters—dean of the College of Engineering and Applied Science—says his school has seen strong growth in the demand for engineers, both in student interest and employer interest, and in the past few years, there has been a large increase in employer recruitment on campus.
Across the country, corporate partners are a big presence on campus these days and play a role in defining the curriculum and in sponsoring the kinds of research and projects that students do. MSOE has a tradition going back to 1913 of partnering with industry. UWM partners with GE Healthcare, Rockwell Automation, A.O. Smith and Badger Meter, among others, in training the next generation of engineers to innovate while solving industrial problems. “One of the strengths of Milwaukee is that we’ve got strong industry here in town; we’re working with them in trying to integrate them in the educational process,” says UWM’s Thompson.
Ideas Young and Old
“People think that innovation comes from young kids, like Facebook and Mark Zuckerberg,” says Mascari. “The majority of successful companies at the Technology Innovation Center were started by people who had been in the industry for a while. A blind squirrel finds an acorn every once in a while, but to think that a 21- or 22-year-old is going to come up with ground-breaking innovations, I don’t think is borne out in reality.” Cordio of Startup Milwaukee agrees with this assessment. “Entrepreneurs in the area are good at bootstrapping,” he says. “They are not a bunch of young, college dropouts building businesses. There are those prodigy-type situations, but by-and-large it’s people who actually have real work experience who create the more viable, sustainable companies.”
Gener8tor’s Condon says California has eliminated all non-compete clauses in employment contracts, which restrict employees who leave a company from working in a competitive business. In California, “you can leave a large corporation and go out and start a startup in the same space; whereas in Wisconsin you can’t do that,” he says. He advocates loosening or eliminating non-compete laws in Wisconsin to encourage entrepreneurship. He knows of no venture-backed startups in Wisconsin that have started from executives of large corporations.
“A mature and thriving startup community takes about 20 years to develop,” says Joe Poeschl, project director and co-founder of The Commons. He reckons that the new startup community in Milwaukee is about three-to-five years old right now. “Something real and quite powerful is being connected across the city, but it is not at that level where rankings that consider how many companies are getting investment dollars and significant amounts of money” are measuring it, he says. “That’s not the sort of story we’re producing right now. We have a lot of smaller companies that are really establishing themselves. It might lead to establishing themselves as a lifestyle business rather than a high-growth type of thing, but it might just be a much more practical type of growth pattern where they are not taking external investment dollars but bootstrapping.”
Michael Liang, a partner at Baird Capital, a venture capital firm in Chicago, is familiar with the Milwaukee ecosystem. He says developing an ecosystem takes a lot of time, echoing Poeschl’s assessment. “Silicon Valley has been going on since the 1970s and ’80s. We believe that building up these ecosystems, like what’s happening in Wisconsin, is going to take 10 to 20 years, and we’re probably in inning three or four, to use a baseball analogy.”
Poeschl says it’s important to “think about playing to your strengths instead of just trying to become the next ‘blank.’ We don’t need to recreate Silicon Valley here in Milwaukee. We just need to do what we do best.” Milwaukee startups have shown strength in the healthcare, financial services, information technology and water technology sectors. More than 60 startups are working in healthcare and information technology alone.
Looking for Capital
Though lagging badly in venture capital investment and in national rankings, the number of startups in Wisconsin that raised investment capital from 2011-2016 almost doubled, as did the amount of investment capital raised—from just over $150 million in 2011 to almost $280 million in 2016, according to a Wisconsin Technology Council report. Just last year, 38 Milwaukee-area startups raised around $56 million in investment capital. With UW-Madison spawning many startups, Madison garnered the lion’s share of the $276 million in investment capital raised in the state.
Cordio says that there is actually enough seed money and very early stage funding around. He sees the biggest deficit in early stage angel funding, which bridges the gap between seed funding and formal venture capital. He thinks that the State of Wisconsin could help with this by revising the regulations for the Wisconsin Economic Development Corporation’s Qualified New Business Venture Program. Right now, the state gives a 25% tax credit on the total value of their investment.
“What I think would get angel investors off the sidelines potentially is doing a 100% tax credit for up to $250,000.” Cordio says. “Currently, that pool of money is not being fully tapped. Last year, it got diverted into a manufacturing tax credit program because it just was sitting there left over.” He adds: “It gets challenging in Milwaukee and Wisconsin as a whole. Wealth is managed very conservatively. Maybe it’s our Germanic roots? We need some sort of catalyst to get money off the sidelines and into these early-stage, high-growth start-ups. Let’s try it for five or 10 years to see the impact of all the wealth that it gets off the sidelines. It’s not a total wash to give those people a tax credit because they’re creating new jobs, and those companies are paying corporate income tax in Wisconsin.”