JumpStart: IdeaExchange Blog

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.

One of the speakers at last week’s Minority Business Early-Stage Capital Summit (which was amazing, by the way) was Deborah Shufrin from The Initiative for a Competitive Inner City (ICIC). Her 40 minute presentation was packed with facts about inner city businesses across the nation and as a comparison, those in the Cleveland market. (By definition, inner cities are urban cores with high poverty and unemployment rates, and low median income levels). For everything I thought I knew about this topic, this research blew me away. All marketers love insightful facts, so I thought I’d share the top 5 things that surprised me about revitalizing inner cities through entrepreneurship.

As background, ICIC studied the characteristics of companies located in the largest 100 inner cities which met the following criteria: 1) had at least 10 employees, and 2) had grown from $200,000 in revenues to at least $1 million in revenues in the last 5 years. There were 557 companies included in this study, which covered 10 years of data. (I’ll call them the ICIC 100 below).

1. A small number of early-stage high growth firms in the inner city can create dramatic job growth. The ICIC 100 firms created 63,000 jobs between 1999 and 2007. By comparison, 458,000 firms across all inner cities in the U.S. lost 49,300 jobs.
2. Place matters. It’s actually not true that you can create jobs anywhere and all locations benefit similarly. To create jobs for inner city residents, it is much more efficient to do so with companies located in inner city locations. ICIC’s data shows that to create 100 jobs for inner city residents, you need companies that hire 450 people located in the inner city, whereas you need companies that hire 850 people in the rest of the central city and 1,450 people in the broader region.
3. Entrepreneurs leading these companies are participating to their communities. 70% of the leaders of the ICIC 100 have lived in inner cities at some point in their lives, and 30% are living there now. They recognize the importance of creating businesses, and jobs, directly in these neighborhoods.
4. These entrepreneurs are highly educated! 77% have an advanced degree vs. 23% of U.S. small business owners.

5. These firms have higher productivity and lower turnover than comparable U.S. companies their size. This is perhaps not surprising because on average, they offer higher compensation as well as better benefits (healthcare, bonuses, and retirement plans) compared to U.S. firms overall. They also spend 2x as much on training.

It has made intuitive sense to me that entrepreneurship in urban locations is one way to create jobs for inner city residents, and should be part of the urban agenda for that reason. Here, the facts prove it out. So how can we encourage more entrepreneurship in inner cities in Northeast Ohio? The Summit isn’t just enough, and the JumpStart Inclusion Advisors are here but can’t do it alone. What ideas do you have?

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.

Time is running out my friends. You only have a few days left to register for one of the most exciting and worthwhile events to hit our region in quite some time. Transforming The Landscape of Business In America: A Minority Business Early-Stage Capital Summit will truly be a game changing experience for those that make the investment. As I recognize that times are hectic right now with the holidays upon us and a host of year-end activities pulling us in many directions, I thought I would provide a little food for thought as you consider whether attending this event is truly worth your time. So without further ado, here are my top 12 reasons why you should be at The Intercontinental Hotel on December 3rd:

1. To better understand how growing diverse and inner city businesses positively impacts ALL citizens in the region
2. To hear new and positive messages and strategies relative to growth, hope and prosperity for our community
3. To learn new and innovative approaches to growing more vibrant job creating companies in the midst of rapidly changing technologies
4. To best position your business or business idea for investment consideration as you kick off 2010
5. To learn and adopt new strategies for creating wealth as an investor and/or business owner
6. To better understand the emerging markets and industries if you are even considering entrepreneurship
7. To better understand the challenges and pitfalls of growing a successful company and how to address these concerns
8. To clearly understand precisely what investors are looking for when they choose to invest in a business venture
9. To understand the unique and critical differences between what a bank looks for versus what an investor looks for
10. To better understand how to position your business for alternative forms of capital when traditional credit is so difficult to come by
11. To see live investor presentations from diverse entrepreneurs that are currently raising capital for their high growth businesses
12. To network and build relationships with some of the nation’s foremost thought leaders in creating wealth in challenging environments

I could certainly add to this list, but I imagine you get the idea. We can only guarantee seating at the event if you register in advance by no later than the close of business on Monday, November 30th. Don’t miss out on this rare and groundbreaking opportunity designed to give you the specific information you need to chart your path to success in the coming year.

Hope to see you there!

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.

During this week, Americans are considering those things for which they are thankful, and I am no exception. But while this is often a reflective, quiet exercise, I have the opposite reaction when I consider JumpStart progress; I find it incredibly energizing and exciting. Did you know…

• Last week marked the sixth anniversary of our community’s leaders determining JumpStart was necessary and taking the first organizing actions. Without their vision and maybe more importantly, their commitment to action, there would be thousands of entrepreneurs whose ideas might not have been as successful, or who might be living somewhere else.
• JumpStart was a proud sponsor of this past weekend’s “Cleveland Startup Weekend“, a 54-hour event to bring together people who want to start a high tech business. There have been Startup Weekends around the world (including Boston, Paris and Israel) but ours rocketed to the top. Northeast Ohio’s session sold out, even with more tickets added, and had the highest number of sponsors of any city in the world. As Clint Nelsen, the Seattle Partner of Startup Weekend said, “The event in Cleveland embodied everything we stand for! We were literally writing code on a boat next to a WWII submarine, two blocks from the Rock & Roll Hall of Fame, building new ideas and launching new startups.” Who knew, six years ago, we’d be setting the bar for the world in entrepreneurial energy.
• JumpStart Ventures companies continue to hit key milestones. In less than four weeks, three JumpStart Ventures portfolio companies - BSKLive, Neuros Medical, and MAR Systems - raised nearly $5 million in follow-on funding collectively. This is in addition to the global recognition two companies received in BusinessWeek. Once again, the region’s companies are competing and winning investment dollars and global recognition.
• This region has also been recognized as a national leader by The Initiative for a Competitive Inner City, and The Marathon Club. Both these organizations decided to work with us — in our region — to host next week’s early-stage capital summit focused on increasing access to capital for minority and female business owners.

Enjoy your time this week with your family and friends, and take just a minute to relax. We deserve it.

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.