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Madison

Why Tech Startups Are Mad For Madison

Madison, Wisconsin, already has a healthy startup scene, thanks to the success of heavy hitters, like Sonic Foundry and Call of Duty co-creator Raven Software. Now progressive legislation is helping the city spawn the next generation of innovators.

The university town of Madison, Wisconsin, regularly shows up on those vaunted "best places to live" lists: there's an educated and talented workforce; exceptional public amenities like parks, schools, and transportation; and a well-known, if perhaps not universally shared, commitment to quality of life. Even its suburbs shine--Money Magazine recently named Middleton, Wisconsin, one of the top 10 small towns in the U.S. But progressive legislation that targets investors and innovators is helping Madison make its mark in another way: as a vibrant tech hub.

"Historically when you think about industry in Madison, bio-tech and agriculture would come to mind," says Tammy Jackson, executive director of Accelerate Madison, a tech networking nonprofit that's been active in the city since 2001. "But about 20 years ago there was an influx of then-edgy startups in the purely tech space that came on board, and they've adapted and endured to become established, mature companies."

Jackson points to two leaders who have set the tone in Madison: Sonic Foundry, a successful audio and video streaming service focusing on educational webcasting, and the gaming company Raven Software, which merged with Activision and became one of the creators of Call of Duty, easily one of the most popular video games in the world. The commonality here, Jackson says, is a culture of sharing, which helped pave the way for a new generation of emerging tech startups. "The entrepreneurs want to collaborate, share best practices, successes, and war stories, and there are lots of avenues to do that here," Jackson says.

In 2000, Sonic Foundry relocated Jason Weaver from L.A. to Madison. At first, he remembers, he was quite reluctant. "I had a Sun Belt strategy when it came to where I wanted to live," he recalls. But Weaver was won over, not only by the livable city, but also by that increasingly supportive local business climate. In 2010, he struck out on his own, founding Shoutlet, which produces social media management software that helps companies launch content and campaigns across social networks.

Investors like that we're fiscally conservative Midwesterners.

Earlier this month, Shoutlet received $15 million in Series C funding from FTV Capital, which brings the startup's total funding figure to $24 million. What's a tiny Wisconsin startup doing raising that kind of money? Weaver says that funders are often won over by their bred-in-Madison values. "They like that we're fiscally conservative Midwesterners."

At the state level, when politicians aren't busy trying to bust up unions, they're passing legislation aimed at incentivizing growth: Wisconsin offers a 25% tax credit to local angel investors who sink funds into young, emerging startups. Earlier this year, the legislation was amended so that the credit does not have to be paid back within the first three years, even if the business fails or is acquired. This has made investing locally extremely attractive to big companies--which keeps their money in Madison, says Weaver.

Another major effort is helmed by local educational powerhouse the University of Wisconsin, which not only feeds graduates into the local market, it also provides a continuing education of sorts for the tech leadership of Madison's larger corporations -- big names like American Family Insurance and Sub-Zero. The UW E-Business Consortium is a peer network for the CTOs and CMOs of local corporations addressing issues ranging from digital marketing to supply chain management. "We do foster diversity in the industries we serve as the cross-pollination of ideas is extremely powerful and not found in other venues," says Sandra Bradley, practice director of the consortium.

This unprecedented communication between so many large local companies (usually $800-plus million in revenue) allows for an incredibly open sharing of best practices and emerging technologies across industries, making Madison stronger and more stable for all businesses. "We hear that people really value the non-commercial environment and the ability to discuss hot-button issues with peers and colleagues," says Bradley. "Our focus is very much on actionable insights, things that companies can use today to impact their businesses and we often hear that those kinds of takeaways are really useful."

There's a reason why you haven't heard more about Madison's tech scene: It's overshadowed by governmental woes.

Jackson agrees that building those relationships between various tech players--big and small--is central to their work at Accelerate Madison. "We want to create a real environment that fosters communication and idea-sharing between investors and startups, established companies and prospective employees, and technology heavy-hitters on the national scene." Even the startups have a lot to learn from the big companies, says Weaver, who was able to get feedback on his product by engaging with marketing managers from respected companies like Rayovac. "They helped me form an opinion on what I should build."

Although companies like Shoutlet are thriving, there's probably a reason why you haven't heard more about Madison's tech scene. All the good news from startups might be overshadowed by Madison's governmental woes--the capital city is better known lately for its attempt to recall its governor in a highly politicized election and a series of pro-labor demonstrations. Weaver says that these issues don't directly affect the tech sector, but it's hard to believe that such political strife doesn't take its toll on the workforce. The ongoing labor battles could hurt schools and public services, endangering Madison's famous livability and making it less attractive for talent.

But maybe defending your state's merits to the world has an upside: Weaver thinks the Madison tech community has developed an exceptionally strong sense of loyalty. Large companies like American Family Insurance act as angel investors to small startups. Weaver also points to a trend where local CEOs are selling their companies and reinvesting in local businesses, like serial entrepreneur Brian Wiegand, who has founded and sold three companies in the city, including shopping site Jellyfish.com, which sold to Microsoft for $50 million in 2007.

In fact, as a now-heavy hitter on the scene, Weaver himself is committed to growing and supporting the local economy. He already employs 85 people at Shoutlet, and with the recent funding, plans to add 100 more jobs. Even with this growth, the reformed Sun Belt resident won't be looking outside the city to expand, he says. "Our home will always be Madison."

Follow the conversation on Twitter using the tag #USInnovation.

[Image: Andrew Jalbert/Shutterstock]

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13 Comments

  • Andrew Arentowicz

    For those people who have great ideas, but don't want to give up their lives chasing them, there is a company called Idea Marketplace, www.ideamarketplace.com, that allows people who have great ideas to post them for sale to people or companies that have the resources to develop them.  Similar to Accelerate Madison, just online.    

  • Jen Burkhardt

    I live in Madison. That is in fact the state capitol. It is beautiful here, you should come visit. The midwest isn't all corn fields - contrary to popular opinion.

  • Jen Burkhardt

    I live in Madison. That is in fact the state capitol. It is beautiful here, you should come visit. The midwest isn't all corn fields - contrary to popular opinion.

  • 53703

    See the snow on the ground?  It's that pretty in the winter, even nicer in the summer.  I am glad I moved here .... 

  • Ben

    A well-written piece. Our tech startup culture thrives despite a governor and legislature in thrall to the big money of large, old-line businesses and many parties outside the state.

    Expansion of health care to all in Wisconsin (the opposite direction of our current government) would help provide a safety net for would-be entrepreneurs.  Currently, getting coverage for individual of family on the open market is a mess.

  • Max

    Yea, that's the Milwaukee skyline. I would say the Madison shot coming up from John Nolan should be there, AND it's prettier.

  • Entrepreneur here for 34 years

     Madison IS the state capital, ergo the state capital building is in the picture. Built on 4 lakes, it's a gorgeous city as this picture suggests. Great place to headquarter a biz, too.