There has been a lot of talk in the last few weeks in Wisconsin about startups and entrepreneurship, a conversation our Madison-based firm wants to support and build on.

There are exciting things happening with entrepreneurs across Wisconsin, especially in Madison where a combination of market-leading tech companies, a world class university and a great quality of life is leading people to start game-changing companies and attract employees who want to work for them.

But often the data across the landscape can be hard to follow, and sometimes sliced and diced to serve the motives of the messenger, whether it’s startups who bemoan the lack of capital, economic development organizations who often want to show their impact, or policymakers who want to divert criticism. So what should be made of recent data that shows Wisconsin is 50th in the U.S. when it comes to high-growth startups and fares better in other areas, including company survival rates and the growth of main street businesses?

The short answer? It’s complicated. But for us, it’s instructive on some of the challenges and opportunities of investing in early-stage companies in smaller markets with less connectivity.

We’ll comment on a few areas from various recent reports and how they affect venture capital:

  • Wisconsin is 50th in the U.S. in the most recent Kauffman Foundation “Startup Index” (report): It goes without saying this is a disappointment for the state and something the entire community needs to work on to improve (moving funds out of programs to support startups doesn’t help). The reality though, is there is no easy answer and proposed solutions can have as varied stakeholders as rival fans at a Wisconsin-Marquette basketball game. Some entrepreneurs and their support organizations would place the blame on risk-averse Wisconsin investors who are too hesitant to put capital in risky investments. There could be some truth to that, but often there are other factors at play, which sometimes can point back at the fundraisers and their growth plans and ability to execute. In other cases, hesitancy to invest (and therefore fewer companies started) has to do with a lack of return on previously-invested capital. According to a recent Endeavor Insight presentation to a group of Madison business leaders, a key ingredient of success is focusing on industries where local entrepreneurs have already found great success. Surprisingly, one industry that was left out was health technology, which has been a leading reason for job growth in Madison (heavily tilted toward EHR company Epic, which never raised venture capital, but did create an unprecedented amount of economic activity in Dane County). Other firms include Nordic, UW Health, Forward Health Group, Catalyze, Redox, Propeller Health and many others.
  • Wisconsin is 7th in the U.S. for companies with a six-year survival rate, according to the U.S. Commerce Department’s Bureau of Labor Statistics (story): No doubt Badger entrepreneurs deserve credit for this recognition. This period in a young company’s life cycle can be the hardest and companies need to have the right combination of hyper-focus and innovative flexibility (a tough mixture) to get to the next level. But, ultimately, in high-growth investing the name of the game is exits and liquidity. If these companies are backed by outside investors, surviving in business is a good thing compared to the alternative, but also a challenge if capital isn’t returned and wealth isn’t being created. There is also an opportunity cost of founders who continue a hard path with a slow growth company and investors who end up funding a lifestyle business for many years. Is the type of company taken into account in this data on survival? It is a hard problem to solve, with very challenging decisions by stakeholders along the way.
  • Madison ranked as the #1 place to live in the U.S.: Liveability.com/Great founders want to live in great places: Heading into summer there’s no better time to defend this ranking for Madison: The #1 place to live in the U.S., according to Livability.com and other sources. Although some analysis has focused this on founders’ desire to live and start companies, it flows through the rest of the community as companies need more than just the men or women at the top. Madison has been doing a much better job attracting and keeping a young and educated workforce, many of whom are students who used to graduate and head to bigger cities or the coasts. Increasingly, we find them staying close to the Capital Square, where some end up working for early-stage companies. Others head to Epic or American Family Insurance company. All give Madison a leg up on other state cities that have a harder time keeping their brightest residents. It also offers an advantage to companies with high-growth plans that will require capable, smart and flexible employees. We can’t argue for this strong enough and why we call Madison home.

So all of this leads to a statistic that anyone who works with startups has heard many times before: The data consistently shows that most new jobs are created by young firms and have so for decades. It was mentioned in several major presentations in the last few weeks. It’s just that the question of how to create more is becoming harder and harder to answer.  Not everywhere can or should be “the next” Austin, Nashville or Silicon Valley. And therefore, a recipe can’t be exactly followed with a pinch of capital, a dollop of incubators and a dash of service providers. Instead things have to bake in over time, and we think for health technology Madison has a promising recipe.

Dan Blake is a partner at HealthX Ventures. He spent a number of years at the Chicago Tribune, Epic and also as the executive director of the Wisconsin Angel Network, an entrepreneurial support organization.