Some Interesting Articles About Entrepreneurship (or, why it's not surprising that Madison isn't on these lists)

Jeffrey Glazer
August 20, 2015


There are two new fascinating articles that look at entrepreneurship: Tim Berners Lee's article on that highlights how Today's Tech Boom Is Different From the 1990s and another article from Stepanie Walden at Mashable that looks Beyond Silicon at the Top Emerging Startup Markets in the US. Unsurprisingly, it's bad news for Madison and Milwaukee in both articles; somewhat more surprisingly, Chicago doesn't get a nod, either. Indeed, it's more of the same arguing that (Colorado aside) it will continue to be the coasts that are the centers of entrepreneurial activity for the near future.


Read together, both articles highlight the Ouroboros that is entrepreneurial growth in its current formulation in the United States. The bent of Mr. Lee's article is that today's startups are no longer funded by the public; the "public" being defined as "not rich people." Mr. Lee points out that in the 1990s startup activity was funded primarily by the Initial Public Offering ("IPO") which provided a mechanism for "regular people" to support entrepreneurial activity. Of course, entrepreneurial activity is inherently risky. One of the fallouts of the 1990s IPO boom was public wariness of such risky activity. Regular people lost their appetite for supporting yet another failed (internet or pharmaceutical) enterprise. But they also lost the gains that come from "betting" on the right horse, too. If you invested $1000 in Microsoft when they went public in 1986, by 1996 you would have made a 10x return on your money ($100,000)! 


IPO activity is (way) down and private equity is scooping up those big returns. By Mr. Lee's math, if you invested in Facebook you will have already doubled your investment, but the most valuable company in the world (Apple) is only a 7x return on Facebook. Of course, this has "de-risked" the IPO market for entrepreneurial startups, but it has also stratified the investment pool. Private equity, venture capital, and super angels - rich people - are seeing the fruits of their investments and sucking up the gains in the growth, leaving mostly matured companies for the public.


The result of this ever-increasing reliance on private money (private equity, venture capital, etc.) is that entrepreneurial activity has become concentrated in the areas where the money is - the coasts. Not surprisingly, Silicon Valley, Boston, and New York top most startup lists. Ms. Walden notes that a full three quarters of all venture capital investment occurs in just three states: California, Massachussets, and New York.


But the interesting note that Ms. Walden makes is that entrepreneurial communities don't just happen, they tend to spring up where established businesses and universities are. By that logic then, it's not surprising that the "hottest" emerging entrepreneurial markets are places that are dense in large(-ish) companies and universities: Colorado, Florida, Texas, Washington, and Oregon.  


Given this data and these trends, it's not surprising that Madison and Milwaukee aren't on these lists. While we have a fantastic, world-class University (that our fine state is trying to gut), our share of Fortune 500s is low - we only have 9; Minnesota has 19, Illinois has 31. Interestingly, Oregon and Washington between them only have 11, while Colorado has only 9 as well. However, Colorado has 5 Division I universities tightly packed in the 90 mile corridor between Boulder and Colorado Springs. The same with Oregon and Washington that have multiple Division I schools in a small geographic area. Madison has only 1, while Milwaukee, 80 miles away, has another; the remaining D-I schools in Wisconsin are spread throughout the state.


However, there is reason to be optimistic. While the broader trends point towards continued frustration for Wisconsin, there is better news in niche industries. Wisconsin has a unique opportunity to be a global leader in several, related, niche markets: (value-added) agriculture, (fresh) water, and biotech. These are tremendous areas of focus that fit the natural talents of Wisconsin and the Universities that make up Madison and Milwaukee. We have a density of businesses in these areas and we have a density of students in this areas that few other states can match. As a result, we have an investment community that understands these industries. So, I am optimistic that while Wisconsin will continue to lag in generalized entrepreneurial activity that you can expect greatness in these industry niches.