JumpStart: IdeaExchange Blog

Since this is the first time I’ve ever posted a blog, please allow me to introduce myself. I’ve had the pleasure of working at JumpStart since January 2006 helping our entrepreneurs identify capital sources for follow-on funding. In addition to working with early-stage venture funds throughout the country, I am always on the prowl to uncover prospective angel investors who have a passion for entrepreneurship. It’s a terrific job. I get to spend my time working alongside entrepreneurs with fascinating ideas and smart investors who are dedicated to building our region’s most promising companies.

Recently, I read a great posting in PeHub about the importance of Angels in the early stages of a company’s funding (Angels are the New Rock Stars). Author Dan Primack touched on several things that our portfolio companies experience all of the time in Northeast Ohio.

First and foremost, Angels are loved! Angel investors usually work closely with the entrepreneurs they’ve invested in. Most angel investors want to invest more than just their money, they are passionate about helping other entrepreneurs build a successful company. I find that a lot of dedicated angel investors have the luxury of choosing how to spend their days. Most angel investors joke that they would rather work with entrepreneurs than golf every day. Our entrepreneurs welcome the valuable guidance and support that isn’t as prevalent with institutional investors.

Angel investors can be impulsive. In some regards, this is still true. However, over the past several years, the organizational efforts in Northeast Ohio have added structure to a majority of our region’s angel-funded rounds. The North Coast Angel Fund (NCAF), Akron ARCHAngels and the Medical Growth Fund  are examples of angel groups that actively invest with screening committees, approval processes, and due diligence teams in place. Also, JumpStart launched IdeaCrossing to connect entrepreneurs with investors and service providers. This tangible progress leads to a better investing environment overall and early-stage entrepreneurs are benefiting from our community’s increased knowledge of what it means to be an angel investor. 

Angel investors are loud. There has been a lot of press lately about the increase in organized angel groups and angel funding. Angel investors should spread the word — especially Ohio Angels! Ohio is home to over a dozen formal angel groups and the Ohio TechAngel Fund’s Chairman, John Huston, recently ended his tenure as the Angel Capital Association’s Chairman. We’ve gained visibility in the national spotlight for being a state that encourages early-stage investing. State programs such as the Third Frontier’s Pre-Seed Fund Initiative and the Technology Investment Tax Credit give incentives to investors that reduce some of the risks associated with angel investing. Ohio’s dedication to early-stage investing is evident in the amount of companies that have been funded. For the first time ever, Ohio was ranked nationally in the top 10 for the number of companies that received venture investment. This includes angel-funded transactions, which accounts for a large number of the 2009 funding rounds. Regionally, 2009 was a record year for NCAF with eight new investments (the group invested in four companies each of the prior two years). 

Angels seek visibility to gain better access to deal flow. I’ve talked with angel groups and venture investors around the country and can confirm that, when it comes to accessing pre-qualified deal flow, the Northeast Ohio entrepreneurial ecosystem is recognized as a national leader in priming early-stage, high growth companies for investors. JumpStart, GLIDE and North Coast Opportunities Fund are a few initiatives that source and prepare companies for angel/venture investment.

If you were ever considering becoming an angel investor, now is the time. Angels are critical to the success of early-stage companies. Since 2004, JumpStart portfolio companies have raised approximately $114 million in follow-on capital and 32% came from angel investors. Entrepreneurs need smart angel investors to provide the guidance and support to grow their companies. JumpStart has several educational sources for prospective angel investors. Check out some of the resources in this posting or feel free to contact me if you have any interest in learning more!

Angels, we need you! Plus angel investing is a lot of fun — definitely better than golf!

Kerri Breen joined JumpStart Inc. with several years experience in capital markets and banking. Prior to JumpStart, Kerri was a Vice President in the Syndicated Finance group at KeyBank where her emphasis was on structuring and distributing large corporate lines of credit and construction loans. From 1997 to 2002, Kerri served in the Investment Banking division at McDonald Investments, where she was involved in public and private offerings of debt and equity securities, corporate mergers and acquisitions and real estate asset dispositions. Kerri received her MBA with a focus on finance from the Weatherhead School of Management and her BA in marketing from Ohio State University.

JumpStart, in collaboration with Governor Ted Strickland, and the State of Ohio Minority Enterprise Division, recently kicked off an exciting new initiative called Launch100 which seeks to create a pipeline of 100 high potential minority and inner city based businesses across Ohio over the next 5 years. If the turnout at the event, which exceeded 250 attendees, as well as the interest that has followed is any indication of the potential of this initiative, we are even more excited about the opportunities for growth and expansion throughout our region.

Much has been written over the past few years about the economic opportunity that exists for our community if we had more of our region’s citizens participating in high growth entrepreneurship. In short, higher growth emerging businesses simply create more jobs. The challenge has been that many of our region’s entrepreneurs, specifically ethnic minority populations and firms based in lower income census tracks commonly referred to as the inner city, have not participated equally in the types of growth opportunities attractive to angel and venture capital investment. Absent this critical component of early-stage funding, these entrepreneurs have been led to the types of businesses that generally did not require much capital which in turn led to a greater propensity of lower growth service oriented businesses. While smaller firms have always been, and will always be a critical component of our economy, even a modest increase in more diverse businesses growing larger scale operations can have a dramatic impact on job creation for all of our region’s citizens.

Launch100 seeks to identify, educate, prepare, and connect these historically underserved entrepreneurs to the types of businesses that can at minimum achieve sales growth in excess of $15 million over the next 3-5 years, create 50 or more jobs, and be operating in or targeting an emerging industry or technology, just to name of few of the criteria.

The initiative received a tremendous surge of adrenaline from the recent kickoff event, and we are confident that at least 12-15 high growth opportunities will be identified in the initial pilot phase over the next 12-18 months. An additional 12 firms tracking to exceed $15 million in annual revenues equates to about $180 million of new revenues over time, and with one new job generally created for every $200,000 of new revenues, that’s another 900 potential jobs for our community. With a successful pilot in Northeast Ohio, the effort will then be rolled out and expanded across the entire state in an effort to reach the targeted pipeline of 100 high potential firms.

Please be sure to check the Launch100 website at www.launch100.org for more information, and to submit your application today!

Darrin is Chief Economic Inclusion Officer of JumpStart and President of JumpStart Inclusion Advisors. He founded and ran his own strategic planning and management assistance firm and spent 16 years in the commercial banking and finance industry. Darrin has an MBA from Baldwin Wallace College and an undergraduate degree from Mount Union College. He has led a series of workshops and seminars on matters of economic development and diversity.

In late 2004, Lynn-Ann and I sat with our computers one night at a cafe at Cedar-Lee and put together a five year projection of how much additional capital the companies JumpStart would invest in might be able to raise. The first year showed $3 million. The second showed $6 million. We had benchmarked against Innovation Works in Pittsburgh, a phenomenally successful venture development organization; we would try to use their success ratios for our projections; no sandbagging. The third year showed $15 million. Year four showed $20 million. And year five showed $30 million. These numbers (totaling $74 million*) seemed huge at the time, especially since we projected that 25-50% of the companies we invested in would likely fail; it’s inherent to Imagining, Incubating and, to a lesser extent, Demonstrating stage investing. As we sat at our computers that night, JumpStart had only invested ~$300 thousand in two companies, Stanton Advanced Ceramics and PreEmptive Solutions. 

Suffice it to say, $100 million seemed light years away.

About three weeks ago, the companies in JumpStart Ventures’ portfolio officially surpassed the $100 million in capital raised mark (almost $103 million to be precise, or nearly 7 times the $15.7 million we have invested in 45 companies). By the numbers, 32 of the portfolio companies have raised follow-on capital over 127 fundraising rounds, with the average total amount raised by those 32 companies being $3.2 million and ranging from $50 thousand to $20 million, and the median timeline from our investment to next investment being 15 months (and trending downwards). Twenty-three companies raised over $1 million dollars. Cleantech companies have slightly edged out Healthcare companies, with the former totaling $41 million in follow-on funding raised, and the latter at $39 million. Phycal and Echogen (fka rexorce) have led the charge in Cleantech, and in Healthcare, Juventas, CardioInsight, and Synapse Biomedical have also raised significant capital. By type of investor, venture capital investors have carried the day, with angel investors close behind; grant funders (especially from the federal government) rose as a percent in 2010, but we expect that to even back out in 2011. Also, $100 million represents about 10% of the total amount raised in the Northeast Ohio region over the past five years of $1.1 billion.**

That’s the numbers, but as we all know, this is not about “companies” raising “capital”: too cut and dry sounding in so many ways. It is human beings, namely Northeast Ohio entrepreneurs, telling a story about innovation and how that innovation will somehow make the world a better place. And these entrepreneurs being resourceful enough to find people with money who happen to love their particular story – whether these people are former entrepreneurs turned angel investors, associates at investment funds, or even sometimes government officials who provide grants. Sure, while it’s not really “companies” and “capital” and various takes on the numbers, it is also no love story. Anyone who’s raised money knows that it is due diligence, term sheets, a whole lotta elbow grease, and, eventually, return on investment. It’s about taking something that is a science project and turning it into a product that customers want, which, if the revenues at our portfolio companies are any indication, is happening consistently, with ever more customers buying what these portfolio companies are offering.

$100 million is more than a number. That’s the point. So, regardless of which number or ratio holds meaning to you, here’s to the entrepreneurs who lead the companies in the portfolio and to whom “capital efficiency” is way more than a buzz word: Andrew, Arnon, Bill, Bob (3 of them actually), Brad, Brian, Chad, Chris, Craig, Dan, Dana, Dave, David, Dean, Elliot, Ethan, Fred, Gabe, Jay, Jeff, Jeeva, Jim (2), Jodi, Jon, Karl-Heinz, Ken, Kevin, Krzysztof, Lance, Laura, Len, Mark, Mike, Nick, Phil, Rahul, Scott, Steve (2), Sue, Tony (3), and Wendell. And here’s to the hundreds of investors who have put their hard-earned money behind these growth stories, from Arboretum to Charter Life Sciences, from Draper Triangle to Early Stage Partners, from North Coast Angel Fund to Ohio TechAngels, and from the Ohio Department of Development to the U.S. Department of Defense.   

Now before year’s end, the JumpStart Ventures team will sit and project out the path to $1 billion for JumpStart Ventures portfolio companies. It’ll feel like as much of a SWAG as $100 million did five years ago. But at least now that path has faces, names, relationships and the other things that make a spreadsheet more than a spreadsheet: they make it an ecosystem.***

Notes:

* These numbers then increased by about 25% because we increased our investing budget from $3 million per year to $3.75 million per year, hence giving us the $100 million number.

** This is a slight apples to oranges comparison since our follow-on funding numbers include some grant funding and the overall region’s numbers include angel and venture capital only.

*** Thanks to Kerri Breen who took the spreadsheet I referenced at the beginning of the post and who has not only successfully supported many entrepreneurs on their fundraising efforts but also runs the numbers like it’s nobody’s business.

Becca Braun is President of JumpStart Ventures. She founded and led a number of early-stage companies and organizations, as well as worked as a private equity investor and management consultant. She received her MBA from Harvard Business School and her BA in Linguistics from Harvard University. She is keenly interested in the intersection of wealth creation and broad-based regional economic growth.

Why don’t more minority entrepreneurs, particularly African American and Hispanic entrepreneurs, attend the array of technology based workshops, seminars, and events throughout the region, or join more of the organizations focused on emerging industries and technologies? While this is somewhat of a rhetorical question given that I’m not completely unaware of why this phenomenon exists, I pose the question nonetheless as I believe the variety of responses to this question can inform some larger strategies around inclusion for our region, state and nation. JumpStart recently put on a groundbreaking event in collaboration with a host of regional and national diverse partners entitled – Transforming the Landscape of Business In America: A Minority Business Early-Stage Capital Summit, which attracted over 250 diverse entrepreneurs, investors and stakeholders to a world class event focused on preparing more minority entrepreneurs for high growth ventures that are likely to attract angel investment and venture capital. We had a terrific mix of ethnicities, genders, and backgrounds present for the event, which got me thinking about why this rich diversity doesn’t take place on a more regular basis. A few thoughts came to mind:

• Minority leaders must create a sense of urgency around the need to get involved in the industries and opportunities of the future.
• Event planners and tech-based organizations must jointly promote their events and activities with media partners that cater to unique audiences.
• Guest speakers, panelists, or participating members must consist of and represent the diversity that exists within the community.
• The messaging as to “who should attend” must speak directly to the variety of “pain points” that different audiences are experiencing or are likely to experience if they fail to act.
• Minority entrepreneurs and stakeholders must be far more proactive in seeking out and attending events or joining organizations that are not necessarily “minority focused” but address universal issues and challenges that impact all constituents.

While the above list is by no means all inclusive, and each point could easily consume volumes of information on its own, I’d like to pay particular attention to the final point which basically places the responsibility on each individual to simply get involved. 

Ultimately you are responsible for you –- period. To the extent that you recognize that learning is continuous, and we all must continue to broaden our skills, competencies and relationships, I urge those of you who have not historically been proactive in joining associations or attending events focused on emerging industries, technologies, and strategies to do so at your earliest opportunity. To assist you in this effort, please refer to JumpStart’s event postings frequently for upcoming events taking place throughout the 21 counties of Northeast Ohio, and beyond.

I also urge event planners and “mainstream” associations and organizations to rethink your promotional campaigns to ensure your partners, messaging, and strategies are as diverse as the communities that you serve.

Collectively we can truly make a difference in better engaging more of our diverse community. 

Darrin is Chief Economic Inclusion Officer of JumpStart and President of JumpStart Inclusion Advisors. He founded and ran his own strategic planning and management assistance firm and spent 16 years in the commercial banking and finance industry. Darrin has an MBA from Baldwin Wallace College and an undergraduate degree from Mount Union College. He has led a series of workshops and seminars on matters of economic development and diversity.