JumpStart: IdeaExchange Blog

Two weeks ago in Columbus, 500+ venture capitalists, entrepreneurs, and government leaders gathered to hear about the accomplishments of The Ohio Capital Fund (OCF) and our State’s growing venture capital community. (For those of you not familiar, OCF provides incentives for investors from outside Ohio to invest in companies based here). Due to the work of many, including the OCF, the Ohio Department of Development, and all of the other members of the venture community - Ohio has earned some serious bragging rights! Among the many great accomplishments shared at the OCF Summit, here are some of the most compelling:

• 196 companies received $446 million in equity investment in 2008. Of this, 73 companies (37% ) and $259 million (55%) were from the Northeast Ohio region.
• Total investment dollars ranked Ohio as 13th in the U.S. for venture investing.
• Early-stage funding (which represents the type of dollars that would be invested in a company after a JumpStart Ventures investment) was up 67% from 2007 ($238 million in 2008), compared to a decrease nationally of 20%.
• Organized angels invested $45 million in 107 companies in 2008. I have to believe this is one of the top levels of investment and broadest reach of companies of the last decade, if not longer.

*Read the rest of the 2008 Ohio Venture Capital Report from Ohio State for the rest of the details

Relative to The Ohio Capital Fund itself, its success is also evident with these stats:

• The fund has invested $111 million in 21 funds, which have deployed that capital in over 35 companies.
• These companies receiving investment have created 1400 jobs, and not one of those jobs has gone away in the last 12+ months.

Some of the other information shared included the impact of Ohio Third Frontier, as reported by the Stanford Research Institute’s report released last month. Consider this data regarding VC investment in the state:

• Venture capital investing has grown over 13% per year over the last five years in Ohio, more than double the national rate of VC growth
• Total seed and early-stage VC has actually grown at 18% per year over the last five years

Ohio Third Frontier and the Ohio Capital Fund have played an instrumental role in this growth, but not the only role; this success is also due to the entrepreneurs of our region, who have identified the ideas, pursued their growth, and grown the businesses that are attractive and competitive investments for investors within and outside of the region.

John Dearborn is the Chief Development Officer of JumpStart and brings experience as an entrepreneur, founder and CEO at companies across the US and Europe over the last 25 years to the pursuit of economic transformation in Northeast Ohio.

I have had a chance recently to spend some time at the White House to meet some of President Obama’s leadership in the area of Social Innovation and Regional Economic Development and I have to say that I was more than impressed and encouraged.

A few months back, Obama announced a new Social Innnovation Fund which he has requested $50 million for in his FY2010 budget. The Fund’s purpose is to identify the most promising, results-oriented non-profit programs and expand their reach throughout the country. I think that this is the kind of leadership we need from the federal government to maximize and leverage existing public/private partnerships to help them sustain and increase their impact in these times where non-profits of all types are really struggling. The person that Obama has tapped to manage this fund is Sonal Shah. Sonal joined the administration directly from a position focused on global development Google.org — the philanthropic arm of the internet search leader.

Along with this exciting development, I have also been talking to leadership in Washington around all sorts of ideas that can accelerate regional economies, and this week a great article came out from ScienceProgress.org called The Geography of Innovation. This article speaks to the fact that the Obama administration has also requested $100 million to support regional innovation clusters across the U.S. — in fact it even shares the Northeast Ohio and Southwestern Pennsylvanian partnership, an initiative we in the region call TechBelt, in this article.

What is so encouraging to me about these actions is that it shows the Obama administration understands they have a critical role to play to highlight best practices and to encourage partnership. When initiatives like the Fund For Our Economic Future and the Ohio Third Frontier Project have provided such significant leadership and resources with similar goals, it has been discouraging that the Fed’s have not taken a more direct role in the work of these incredible public/private partnerships.

It now appears with programs like the ones mentioned above, that is about to change in an important way which is great news for everyone who has invested and labored so hard to make an impact in changing the trajectory of communities like Northeast 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.

JumpStart Ventures exists to serve entrepreneurs with high growth business ideas located in Northeast Ohio who want to raise additional growth capital. And while entrepreneurs are our primary “customers”, I like to think that we have two additional types of “customers” as well:

1. Investors (angels, VCs and other sources of risk capital), and
2. Funders (primarily government entities and foundations). 

Part of my responsibilities is communicating (along with our talented Vice President of External Finance, Kerri Breen) with our investor customers about all of the terrific investment opportunities available here in Northeast Ohio. To this end, we have taken numerous marketing trips where we meet with investors, introduce JumpStart, describe its focus on venture development and, hopefully, generate interest in our portfolio of high growth companies.

As part of our “pitch” to these investors we tell them about the non-financial assistance that our team provides in addition to the cash we invest. Basically we describe all the “stuff” we do to help the entrepreneurs and their companies get “venture-ready” which is usually followed up by comments like “Really?” or “That’s terrific” or “Wow, very helpful.” We highlight this fact because it sets JumpStart Ventures apart as a source of high quality deal flow, a group that “gets it” and understands what VCs want.

So, just what does it mean to get a company (and an entrepreneur) “venture-ready?” We like to think of it as an on-going boot camp of sorts, where we try to de-mystify the world of venture capital for the entrepreneur and help them to understand a VC’s motivations so they can properly navigate the waters. Some of the things we encourage entrepreneurs/companies to do in order to set themselves up for a venture investment are as follows:

1. Instill proper governance. Set up a proper board of directors (generally 3 or 5 people) that contains industry and business experts. Give the board the right to hire/fire the CEO.
2. Set up the proper legal structure. This will most likely be a C-Corp although some angels may invest in an LLC. Make sure all of your company’s legal and financial documents are complete and easily accessible.
3. Understand your company’s “capitalization table” (i.e. the spreadsheet that shows ownership percentages), what “dilution” means (i.e. when someone buys stock in your company, your ownership percentage will drop) and all about “preference stacks” (i.e. who gets paid out first in the event of a sale).
4. Understand an investor’s motives. VCs are in business to generate returns for investors. Angels are in business to generate returns for themselves. Both want to see a return on their investment at some future date (generally starting in year seven post-investment). So, when they start bugging you in year five or six about selling the business, they are not being annoying or greedy — they are just doing their job.

Preparing entrepreneurs to successfully raise outside capital is a big part of what we do and why we exist. We hope that our entrepreneur customers appreciate the education and that our investor customers see us as a trusted source of high quality, “venture-ready” deals.

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).

I do not envy anyone in State leadership today. The tsunami in our national economy which first hit Washington DC has now come to Columbus.

Since the state of Ohio, from a constitutional perspective, cannot have a bi-annual budget deficit, now is the time for some very hard decisions. No matter what the final decisions are, all of us are going to feel real, significant financial pain, or at least real disappointment.

Every decision has significant pro’s and con’s — spending cuts, increased taxes, gambling. The fact is there are no perfect solutions to help Ohio move easily forward.

Press clippings that speak to this challenge include: Columbus Dispatch, Dire costs to fixing budget hole, Cleveland Plain Dealer, Both parties in the state budget debate fear decisions that could leave them vulnerable to campaign attacks, and Akron Beacon Journal, Closing Ohio budget gap would be painful.

Now is the time where government leadership really counts and while the decisions have not been made to date — but will be made by June 30th — I have to say that I have been impressed by the leadership in the State across the board.

Like it or not, these decisions and their impact on Ohio’s future may very well be the most important decisions in our lifetime.

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.