JumpStart: IdeaExchange Blog

It’s been exciting to see a groundswell of activity in Washington focused on encouraging entrepreneurship and innovation (such as the creation of the National Advisory Council on Innovation and Entrepreneurship, of which Ray is a member). 

The most recent example that I noticed was legislation introduced that would provide a 25% tax credit for angel investors who invest in small or early-stage businesses that have received SBIR (Small Business Innovation Research) grants. The investment, which would be limited to half the size of the SBIR grant, would require a holding period of at least three years. Even though a three year investment is typically within the exit expectations for any angel investor (on the early side, in many cases), it’s nice to see legislation structured that reflects an understanding of the need for long-term investment. I also like to see incentives in place to encourage private investment when federal dollars are already being invested.

Apparently this bill (called The Innovation Technologies Investment Incentive Act) was based on the best practice learning of a biotech tax credit available in Maryland which has helped small, young biotech companies raise $50 million in investment. I also noticed one of the legislators sponsoring the bill was new Congressman and successful entrepreneur Jared Polis, the founder of Proflowers.com and Bluemountain.com (both of which had multimillion dollar exits) and represent one of the country’s hottest new entrepreneurial hubs: Boulder, Colorado.  

Another piece of legislation based on best practices…the Business Incubation Promotion Act, introduced in September of 2009 with the intent of encouraging and funding the establishment of more business incubators. Now let’s get that out of committee!

Cathy Belk is the Chief Relationship Officer of JumpStart. She specializes in branding, marketing communications, and business and relationship 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.

CB Insights recently published a report that showed Ohio is #3 in the nation for providing grants to innovative, early-stage, scalable companies.

The graph above is from the report, which shows that Ohio’s state government provided 14% of all grants awarded to support innovative companies and activities in the last five quarters.

While I am as cautious in general of large government funding programs as anybody these days, I’m also incredibly encouraged to see the state of Ohio’s commitment, relative to other states, to encouraging more innovation and entrepreneurship. 

It’s not new news that Ohio’s government leadership, on both the Republican and Democratic sides, have supported Ohio Third Frontier, Ohio’s program to accelerate innovation in the state through research, technology commercialization, and entrepreneurship. JumpStart folks have blogged about Ohio Third Frontier in the past, including the results of the program to date (such as over 55,000 jobs and venture capital investment growing at more than twice the national rate.)

What is exciting and new is to see third party validation that the state’s activity is one of the leaders in the country.    

Seeing this relative leadership, it’s less surprising that Ohio is now seeing results in private sector activity. According to the National Venture Capital Association and its MoneyTree data from Thomson Reuters, Ohio was a top 10 state for its volume of venture capital investments in 2009, up from a top quartile state in 2008 and lower than that in previous years. Of the client companies with which JumpStart works, some of them used some of this state grant funding for initial capital (or received an investment from JumpStart Ventures, also a recipient of Ohio Third Frontier grant funding) and then went on to raise risk capital afterwards. They were able to use state grants to develop their companies to the point at which they were in the range of acceptable risks for for-profit investors, and then secure that follow-on funding. They are great examples of how state dollars are being leveraged to generate private sector dollars and private sector jobs.    

I’m somewhat familiar with the results of the Ben Franklin program in Pennsylvania and the results of organizations that have received Ben Franklin funding (such as Innovation Works). They are similarly impressive. So whatever your personal political position is relative to government programs, don’t you want your state’s entrepreneurs to be raising private sector dollars and creating jobs, no matter what was needed to spur that activity?

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.

Larry Page and Sergey Brin did not invent their mathematical PageRank algorithm technology or build their company, Google, alone. They had a mentor, Rajiv Motwani, a Stanford professor of computer science. Brin wrote last year, “…Rajeev helped to coordinate a regular meeting group on [the subject of data mining]. Even though I was just one of hundreds of graduate students in the department, he always made time and effort to help.”

“…always made time and effort to help”: a true sign of a mentor, and Motwani left his mark as a mentor or advisor on many more Silicon Valley startups, among them one of our favorites at JumpStart, StumbleUpon.* In fact, most people know intuitively how important advisors, coaches, and mentors are to a startup’s development and success, but it’s rare indeed that we actually celebrate advisors, coaches, and mentors. Do we even know what a mentor is vs. an advisor vs. a coach is, never mind having an iconic image of a mentor like we do of an entrepreneur (the equivalent, mentor/advisor/coach-wise, of a Brin, Khosla, Gates, Jobs, Ellison)?   

Advisor
I think of an advisor as a professional who advises the company and not the individual entrepreneur, though this role is more informal than that of a Director. That said, it is not a totally casual role either. For instance, at JumpStart Ventures, we typically advise that companies that put together an Advisory Board should absolutely pay those advisors, albeit a very small, even token amount. $250 per meeting (plus expense reimbursement) is fine for a startup; the point is for the entrepreneur to show that she values what she is getting and to add a hint of formality to the advisory process. Paying in options or restricted units also works so long as an entrepreneur is able to issue those options with minimal administrative cost (ie, don’t spend $3K on legal fees to get the stock issuance mechanism right just for the BOA alone; if it’s part of a bigger strategy, then OK). .1% (that’s one tenth of one percent) per advisor is OK for a startup, and of course is probably rich for a company that is beyond startup stage.** Getting creative is smart too. If you’re a pet food company, pay advisors not with cash or equity, but with a year’s supply of pet food. If you’re a $5MM+ dollar travel company, then offer a free cruise or something like that.

With regard to coaches and mentors, I once heard an interesting differentiation between coach and mentor, specifically:

• A coach focuses more on results; a mentor focuses on attitude
• A coach focuses on skills; a mentor focuses on vision
• A coach encourages you to fix problems; a mentor encourages you to lead a great life
• A coach helps you understand the “hows” of your career; a mentor helps you understand the whys

Coach
The way I would also boil this down is that a coach focuses on the individual, but is also aware of the team and company overall. A coach is trying to get the most out of an entrepreneur for the benefit of the company. Some coaches are paid; executive coaching is a whole industry. In startup land, vs. big company executive land, cash is tighter (what a revelation, eh?) and so you see entrepreneurs finding creative mechanisms to get coaches. Sometimes they find a peer to coach them. Or, they find a group like YPO, EO, or Vistage International. Maybe they wait until they are past startup stage, more in positive cash flow stage, to get a coach. Occasionally, they are able to find a coach who will do the job at a significant discount or for free. Honestly, it’s all over the map.

Mentor
A mentor is the most personal connection. It is that person who will help you grow as an individual, and here I now reveal the answer to the question posed in the blog title: Obi, Dre, and Sir Laurence were all mentors to, respectively, Anakin Skywalker, Eminem, and Jack Nicholson. The idea of the mentor is to help the individual reach their fullest potential in life. That personal connection can be impactful enough that it ends up benefiting the company, but that is not necessarily the goal. I have had a mentor, coach and advisor and I can definitely attest to the fact that while the coaches and advisors helped the company and me, the mentor did have the biggest impact on me in life. In fact, I still have his three primary pieces of advice to me as the top Memo in my handheld device so that I see it every day, kind of a security blanket (or, a hair shirt perhaps, since it is also brutally honest) for the soul.

Whether service providers, professors, investors, serial entrepreneurs, or big company executives, these forces behind the forces — these advisors, coaches, and mentors – are really important to a company’s, and/or an entrepreneur’s, and/or an individual’s success. What’s common about them is that they take more initiative than they need to take, really believed in the company, concept or individual in some way, and expect little (and deserve much) in return.

At JumpStart Ventures, we have nearly 50 portfolio companies run by nearly 50 diverse entrepreneurs, so I have been able to see tons of great advisors, coaches, and mentors. I have a running list of some tops, and it’s surprising how different one is from another other than their genuine desire to help, just like Motwani — but I would love to know who you think is top. Drop me a line or better yet reply to this blog with your thoughts on some top entrepreneurial advisors, mentors, and coaches. Celebrate them.*** They deserve it. By the way, they don’t need to be based in Northeast Ohio: I am, alas, open to the possibility that there may be some entrepreneurial passion, talent and skills beyond the NEO area…

Notes:

* Actually, I’m not sure whether he was advisor, mentor, or (the more mercenary, mortal) investor, or all three, in StumbleUpon

** Full disclosure: the “math” here is very back of the envelope. Say the average high growth start-up nationally is valued at inception at $1MM total. .1%=$1000. I suggested that $250 per meeting might be a good token cash amount. Board of Advisors might meet 4X/year = $250 per meeting = $1000 in cash. On the one hand, the options are not liquid and are slightly an administrative pain to deal with (accounting, vesting, remembering you have them). On the other hand, they ostensibly have big upside and one wouldn’t be on a board if one didn’t believe that. In a very scientific manner worthy of a blog, I figured those two pros and cons equaled each other, and so came out at .1%. Also, I saw somewhere that someone else expert-like recommended approximately this amount, which only reinforced my back-of-the-envelope, non-Black-Scholes calculation. Also, I have not to-date seen anyone recommend >1% for a member of an Advisory board (BOD is different) so that may set an upper bound. 

*** Twinsburg, Ohio celebrates twins every year with a festival that draws national crowds. Maybe Mentor, Ohio — beautiful, and right here on Lake Erie — ought to celebrate mentors every year with a similarly large event.

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.

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.