JumpStart: IdeaExchange Blog

Last month the Brookings Institute published a report, authored by Frank Samuel, called “Turning up the Heat: How Venture Capital Can Help Fuel the Economic Transformation of the Great Lakes Region.”  

The 54 page report makes the case for increasing the amount of pure venture capital in the Great Lakes region* as well as the amount of funding for those organizations that essentially “prime the pump” for VCs. For those of you who have read my blog posts you know that this topic is right up my alley, so I say “Right On!” to Frank and encourage the leaders in these states to read the report and take action.

For those of you who prefer the CliffsNotes version, here goes: The region in question has more than enough assets to support a vibrant venture eco-system — great university R&D**, quality graduates from top tier educational institutions***, a strong industrial base, and expertise in growth sectors such as biomedical and cleantech. Of all the venture capital raised in the U.S. approximately 40% is contributed by the Great Lakes region’s large public pension funds while the region only receives about 13% of that back in the form of investments. (Hmmm, does this seem fair?) Mr. Samuel’s proposal involves forming a fund-of-funds (with capital invested by Midwest pension funds) that will be invested in venture funds actively investing in the Midwest region. I love the idea and it makes tons of sense. More Midwest VC money = more Midwest deals funded = more Midwest economic growth = more Midwest employment = more Midwest prosperity.

The devil is always in the details, however. My guess is that the situation at present is a result of the average Midwestern pension fund manager claiming not to be able to find any “top tier” Midwestern-based venture funds to invest in. Most Midwest-based venture fund principals bristle at this complaint, but there’s some truth to it; there simply are not enough large VC funds in the Midwest with “top quartile” track records to absorb all of the money pension funds want to invest in this asset class.**** So, what’s the solution? I am sure there are several, but I can think of two at the moment. One, invest the money with a coastal firm only if it will open and staff a Midwest office (hint: Draper Fisher Jurvetson provides a great example of how to do this) and two, take some risks and invest in first time funds (something conservative pension fund investors have been historically loathe to do) as long as the principals at the fund can show they have experience successfully investing in and/or starting and exiting companies.

I hope this report creates momentum and cooperation among the leaders of these 12 states and, in turn, these leaders put pressure on the pension funds to invest in their own backyards (or put their money where their mouths are — pick your idiom). The benefits of a vibrant venture ecosystem are obvious (think Silicon Valley, Austin TX, etc.) and could be realized with a little bit of cooperation and whole lotta creativity.

* the Great Lakes region as defined in the report includes 12 states: Illinois, Indiana, Iowa, Kentucky, Michigan, Minnesota, Missouri, New York, Ohio, Pennsylvania, West Virginia, and Wisconsin

** 33% of all U.S. research and development dollars and 35% of all NIH research grants go to the Great Lakes region

*** who, historically, have fled to the coasts to look for work

**** most pension funds only want their investment to represent a small portion of the overall venture fund’s assets

Lynn-Ann Gries is the Chief Investment Officer of JumpStart Ventures. She previously worked in the investment banking departments at both McDonald Investments and Smith Barney (now part of Citigroup), and in the sales and trading area at Morgan Stanley. She received her MBA from New York University’s Stern School of Business and her BA in Economics from Smith College. She currently serves on the board of the Fund for the Future of Shaker Heights, the Great Lakes Science Center and Summer on the Cuyahoga (SOTC).

Issue 1 is a statewide ballot measure that would authorize renewal and continuation of the highly successful Ohio Third Frontier (OTF) program. OTF is a visionary public-private partnership created in 2002 with bipartisan legislative leadership and support as well as widespread editorial support.

The purpose of OTF is to firmly establish Ohio as an innovation leader and to fuel long-term economic growth and create jobs in our state. OTF targets state investments to promising industries, technologies, and entrepreneurs. The initiative is directed by a bipartisan, appointed advisory board and commission. Funds are awarded through a competitive process in which independent experts review proposals and assure a base level of excellence for all projects.

With a 10 year initial life and an initial commitment of $1.6 billion, OTF has emerged as the centerpiece of Ohio’s technology-based economic development and job creation efforts. The bond funding mechanism for OTF, approved by Ohio voters in 2005, expires in 2012. On February 3, 2010, the Ohio General Assembly authorized a bond measure on the May 2010 ballot at a level of $700 million over four years. Support for placing the bond issue on the ballot was strong and bipartisan (30-2 in the Senate, 83-14 in the House).

OTF also has proven results including helping to:

• Create over 48,000 jobs.
• Attract or capitalize 571 startup companies.
• Attract $3.2 billion in follow-on dollars (from federal, state, local, private, and foundation funds) on top of the $473 million it has expended (through June 2009) on technology-based programs.
• Produce more than $6.6 billion in total economic impact in Ohio (through December 2008).
• Produce a total return on investment that has averaged 22% per year over the life of the initiative.
• Grow product sales from OTF-funded projects to $440 million per year (through June 2009) and are estimated to total at least $900 million by 2013.
• Double licensing income earned by Ohio’s leading research institutions from 2002 to 2007 it rose from $16 million to $40 million.
• Increase Ohio’s research base, from 2002 through 2008, it increased more than 60 percent, from $1.1 billion to $1.8 billion.
• Increase venture capital investment in Ohio. From 2003 through 2008, venture capital investment in the state grew almost 2.5 times faster than the U.S. average – 20.4% per year compared to 8.6% per year.
• And, 50% of the State’s OTF investment to date (through December 2008) has been repaid through tax receipts. The original investment, now projected to be $1.35 billion, is forecast to be fully repaid by 2014.

Most importantly for JumpStart and the entrepreneurs across Northeast Ohio and the State, OTF provides the opportunity for future potential critical resources which will leverage significant non-state resources for both direct investments into companies and for additional resources that may support the work of all of the Edison incubators in the region. The incubators include the Akron Global Business Accelerator, BioEnterprise, Braintree in Mansfield, GLIDE in Elyria, MAGNET, and the Youngstown Business Incubator, in addition to our local research-focused Universities and innovative established companies in the state.

Please read more about Issue 1 and please join everyone at JumpStart to help accelerate the progress of innovative companies in Ohio!

In the above blog, Ray is expressing his personal views as a citizen of the State of Ohio.

Ray Leach is CEO of JumpStart and brings his energy and leadership experiences from founding five high growth entrepreneurial and intrapreneurial endeavors in the last 20 years. Ray is a Sloan Fellow and earned an MBA from the MIT Sloan School of Management. He also earned a BA in Finance from the University of Akron.

The Burton D. Morgan Foundation in Hudson has an incredible asset: a Norman Rockwell print called “High Dive”. As you can see, it’s a boy leaning over the edge of the diving board, scared to jump into the pool. As Deb Hoover (President of the Foundation) told me, Steven Spielberg has the original and takes a look at it prior to starting each movie; the Foundation thinks it’s a great example of how many of us feel prior to taking a risk.

Last week, I had the chance to participate in a meeting of the JumpStart Higher Education Collaboration Council, held at the Foundation’s offices. This Council was formed in the fall of 2009 with the express purpose of increasing the connection between JumpStart and members of higher education communities across Northeast Ohio, including university, community college, liberal arts college, and technical college constituents. In addition, for me, it was a chance to immerse myself more with this thriving, dynamic set of leaders, who represent constituencies equal in size to 50% of Cuyahoga County’s residents.

While we are still in the process of pulling together both our agenda and our marketing communication approach (more to come on that in future months), I was 100% energized by what seemed obvious to me:

There is no better regional higher education network for supporting student entrepreneurs, in the country. Period.

(Perhaps that’s why the region’s Entrepreneurship Education Consortium — a group of just nine of the higher education institutions in the region — recently won the 2010 National Outstanding Entrepreneurship Pedagogy Award from the U.S. Association for Small Business and Entrepreneurship. The national award, which has always gone before to just one university, recognizes innovative teaching in the field of entrepreneurship.)

So students (and that means undergrads, graduate students, adult students, high school students, students of life), we want you! Learn more about high growth entrepreneurship. Test the waters with an idea through a business plan competition (check out IdeaLabs (info coming soon) and LaunchTown) or just devoting some time to an idea. Jump in to the myriad of opportunities across the region to learn more about starting up a company at the higher education institutions. Learn more about how JumpStart can support you by signing up to receive our email communications or reading the website. Jump off the high board. The region’s assets will help you swim.

Cathy Belk is the Chief Marketing Officer of JumpStart. She specializes in branding, marketing communications, and business management. She brings 16+ years of experience in a variety of marketing and business roles, but gets her energy from working daily with entrepreneurs and their growing companies.

I wrote in an earlier blog that everyone should regularly read the blog of one marketing guru — I follow Seth Godin’s religiously. One of his recent posts ‘Random Rules for Ideas Worth Spreading‘ hit a few chords for me relative to topics I’m often discussing with early-stage companies.

• “You can name your idea anything you like, but a Google-friendly name is always better than one that isn’t.”
  • I think this is particularly relevant, as is most of his advice, for people working on consumer ideas or businesses. That said, if you are working to rebrand or rename your company, considering the implications of search for your brand is often overlooked but increasingly critical. Criteria for a brand name: clear (or can become clear, depending on your budget) to your target audience, punchiness and memorability, and helps in organic search.
• “Figure out how long your idea will take to spread, and multiply by 4.”
  • This seems like a good benchmark, especially as my gut reaction was “no way, 4x as long?” That’s probably why delays tend to be such bad surprises. I would much rather have to deal with the challenges of too much momentum, more quickly than planned. That might actually be fun.
• “Seek out apostles, not partners. People who benefit from spreading your idea, not people who need to own it.”
  • Along these lines, I was talking a few weeks ago with JumpStart Venture Partner Ted Frank about finding customers whose own profit, or sales strategy, or value proposition is made better with your product. If you are trying to get your channel to sell something that inherently won’t help them accomplish their goals, it’s much harder. Very obvious to write, harder to do, I realize.
• “Prefer dry, useful but dull ideas to consumer-friendly ‘I would buy that’ sort of things. A lot less competition and a lot more upside in the long run.”
  • Loved this idea of “dry, useful but dull” ideas — and that idea that these are, in fact, sexy businesses. A few of these to a consumer marketer like me: microprocessors, enterprise solution systems, clean energy technologies to sell to energy companies…     no big businesses there, right? Realizing this is a challenge. I wish mainstream media wanted to cover these technologies and innovations more, thinking about how to make them interesting for everyday consumers.
• “Surround yourself with encouraging voices and incisive critics. It’s okay if they’re not the same people. Ignore both camps on occasion.”
  • Amen! We’ve had our own critics — or should I say, challenging voices — lately, if anyone has been reading them on Cleveland.com. In fact, we’ve had lots of people challenge our thinking throughout our history. Their points of view definitely make us better, as we listen to the questions and concerns, learn from their perspectives, and double-check our own thinking. This thought is also why our culture at JumpStart is about being both honest and fun (equal parts incisive and encouraging?).

Check out Seth’s blog - or suggest another one your favorites here.

Cathy Belk is the Chief Marketing Officer of JumpStart. She specializes in branding, marketing communications, and business management. She brings 16+ years of experience in a variety of marketing and business roles, but gets her energy from working daily with entrepreneurs and their growing companies.