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.

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.

Over the past month or so, I’ve taken you through some of the organizations behind the transformation taking place in our region around entrepreneurial development. These last two round out the group quite well — and bring some very unique strengths to the table. And, if you missed parts one through three, make sure to check them out too.

Akron Global Business Accelerator

Akron Global Business Accelerator (AGBA) was formed in 1983, and in its nearly 27 years of service, has provided business assistance, highly effective space, and a superb entrepreneurial environment to Akron area technology companies. AGBA’s longevity is largely due to its ability to react to changes in the environment.

How it works: AGBA offers very nice, edgy office space in a converted, 7 floor manufacturing facility. In addition to low rent, AGBA offers on-site entrepreneurial support, provided in partnership with JumpStart TechLift Advisors. The facility has been popular — it has truly become a “place to be” for entrepreneurs in the area. The large number of tenants creates an extremely robust and energized entrepreneurial environment, where companies are learning from each other, and leaning on each others’ expertise and experience.

Results: In terms of state defined follow-on funding and revenue metrics for its clients, AGBA leads the group of Edison funded incubators in Northeast Ohio. The incubator has grown to include nearly 50 companies, and its expansion plans continue indefinitely. AGBA was awarded the National Business Incubation Association’s 2008 Incubator Innovation Award as one of the nation’s best incubation facilities.

Why it works: AGBA works because it keeps innovating, pays attention to the facility’s environment, connects with funders and other support mechanisms, and is highly supported as a community resource by the city of Akron and other stakeholders. AGBA actively reaches out to companies when they receive funding from early-stage structures like JumpStart Ventures, North Coast Angel Fund, and works closely with JumpStart TechLift Advisors, The University of Akron, and others.

Youngstown Business Incubator

Youngstown Business Incubator (YBI) is a key community resource for entrepreneurial rebirth in the Mahoning Valley area. It has achieved spectacular results by focusing on one area: software.

How it works: YBI offers office space and business mentoring services to its clients involved in one business area: business to business software. The modern facility is in downtown Youngstown, and is the centerpiece of the city’s revitalization. The initial rent is very reasonable: free. Once a company has gotten some traction and achieved some success, they are asked to pay reasonable rent. Also, “veteran” companies are expected to coach and help “rookie” companies.

Results: YBI has seen a great deal of success, not only in receiving national attention (The Wall Street Journal, and others) for its efforts, but also in the success of its companies, Most notably, Turning Technologies has raised $8 million in capital, hired over 150 employees, and was named “the fastest growing software company in America” by  Inc. magazine. YBI has opened a new 30,000 sq. ft. facility, and continues to lead Youngstown’s downtown revitalization.

Why it works: YBI works largely because of focus. Since it only caters to business to business software companies, YBI is very good at working in that area, understanding the nuances, and how to be successful. Also, through focus, YBI creates tremendous synergy amongst its tenant companies, and a noticeable sense of energy and purpose in the facility.

This brings the ‘Getting It Done’ to an end. I hope that you enjoyed digging a bit deeper into a few of the entrepreneurial support structures that are transforming Northeast Ohio’s entrepreneurial landscape. As I mentioned at the outset, these are not the ONLY successful structures, just some notable ones. If you’d like to share others successes of note you know of — comment here to let us know. We’re always looking for more great stories to tell about the positive transformation taking place in our region.

High growth entrepreneurism has really caught fire in Northeast Ohio, and I really believe that if we aren’t there, we are well on our way to becoming “the best place in America to start and grow a small technology company.”

Chris Mather is President, JumpStart Entrepreneurs-in-Residence. Previously, he managed a number of technology initiatives in Northeast Ohio for NorTech. Before entering the economic development world, Chris ran a number of technology companies in Northeast Ohio and New England, including Ion Optics Inc., where he raised $6.7 million in venture capital, and Apsco Inc. and Gould Instrument Systems. Prior to that, he spent 13 years in sales, marketing and management roles with Hewlett Packard after graduating from Worcester Polytechnic Institute with a BS in Electrical Engineering.

If you’ve missed the first two parts of ‘Getting It Done’  - check them out: Part 1 on BioEnterprise and JumpStart Ventures, and Part 2 on JumpStart TechLift Advisors and JumpStart Inclusion Advisors. And, here’s Part 3 — highlighting two more organizations doing incredible work to help fund our region’s startups.

The Innovation Fund

The Inovation Fund was formed in 2007, with funding provided by the Third Frontier Entrepreneurial Signature Program and the Lorain County Community College Foundation, and administered by the GLIDE Incubator. It plays a key role in Northeast Ohio’s early-stage funding climate.

How it works: The Innovation Fund provides early-stage funding to qualified technology companies in the form of grants (‘A’ grant — $25,000) and repayable grants with a funding replenishment right (‘B’ grant — $100,000). Both require the awarded company to provide an educational experience to a local university. The process is competitive, and is collaboratively administered by GLIDE, JumpStart TechLift Advisors, Youngstown Business Incubator, the University of Akron Research Foundation, and a high quality selection committee. It serves the entire 21 county Northeast Ohio region, a real show of vision by the president of LCCC, Roy Church.

Results: The Innovation Fund has shown significant results since its start in late 2007 — making 38 grants to 35 companies totaling $2.075 million. Many of those companies have gone on to receive funding from somewhat later-stage structures like JumpStart Ventures, the North Coast Angel Fund, and Series A venture investors. They have received 210 applications from 15 of 21 counties in Northeast Ohio. The educational experiences at these companies have ranged from internships to teaching classes and research associate positions.

Why it works: The Innovation fund works because it provides funding just when it’s needed. It helps make Northeast Ohio to offer funding options to qualified companies at all levels of the entrepreneurial spectrum. GLIDE and the LCCC Foundation have done a remarkable job of creating a highly effective, region-wide structure that collaborates with multiple organizations and entrepreneurs.

North Coast Opportunities Technology Fund

The North Coast Opportunities Technology Fund began in 2008, jointly announced by Cuyahoga County and JumpStart TechLift Advisors. It is a great example of a public/private partnership that works to enhance the entreprneurial and technology climate in Northeast Ohio.

How it works: North Cost Opportunities Technology Fund (NCO) is yet another vehicle to provide very early-stage funding ($50,000 — $125,000) to venture capital fundable companies located in Cuyahoga County. It makes loans that “feel like venture capital” to back a specific project designed to bring the company demonstrably closer to the next level of funding. Highly competitive company selections are made by a team from JumpStart TechLift Advisors, the MAGNET Incubator and Cuyahoga County. The unique loans are administered by the county.

Results: NCO has made six investments, from nearly 60 applicants, and has $480,000 in capital put to work. A seventh company has been selected for investment, and is in the works. NCO’s companies have already shown progress: Tremont Electric has received significant national press, SparkBase has doubled its employment, and CitizenGroove has received significant follow-on funding. Most importantly, the collaboration shows that Cuyahoga County is visionary in its plans for technology development.

Why it works: Like the Innovation Fund, NCO works because it provides critical funding to put early-stage companies in position to achieve the next level of funding. The project structure ensures that the relatively modest amount of funding is used wisely, and in a way designed to achieve results.

Next in the series: Youngstown Business Incubator and Akron Global Business Accelerator 

Chris Mather is President, JumpStart Entrepreneurs-in-Residence. Previously, he managed a number of technology initiatives in Northeast Ohio for NorTech. Before entering the economic development world, Chris ran a number of technology companies in Northeast Ohio and New England, including Ion Optics Inc., where he raised $6.7 million in venture capital, and Apsco Inc. and Gould Instrument Systems. Prior to that, he spent 13 years in sales, marketing and management roles with Hewlett Packard after graduating from Worcester Polytechnic Institute with a BS in Electrical Engineering.