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.

It’s that time of year, the State of the Union/State time of year. And while I won’t give you a State of JumpStart address here, it’s become obvious to me that:

The State of Cleantech In Northeast Ohio is booming.

The Governor of Ohio, Ted Strickland, visited a JumpStart Ventures portfolio company yesterday, rexorce thermionics (in the process of changing its name to Echogen Power Systems). Aside from the company’s accomplishments including the installation of its commercial pilot for its heat engine and the creation of 20 engineering jobs, the Governor was visiting because it’s the perfect example of the growth of the cleantech sector in Ohio. A few other examples showing this is real growth, not just rhetoric, from The 2009 Venture Capital Report for the Cleveland Plus Region:

• Cleantech companies are the fastest growing segment of companies receiving venture capital or angel investment in the Cleveland Plus region. While they received only 3% of the dollars 5 years ago, they received 20% of the dollars in 2009.
• 33 cleantech companies have received venture or angel investment in the last five years.

One of those companies is VADXX Energy, whose CEO, Jim Garrett, presented its business plan yesterday at JumpStart to the Oberlin Entrepreneurial Scholars. VADXX Energy, which transforms waste plastics (such as the seats of old cars) back into synthetic crude oil, set up its first production facility in Akron recently, and will shortly be starting its first commercial pilot production.

Another of those companies is Phycal, a JumpStart Ventures portfolio company creating algal biofuel. Aside from the algal pool in its Mayfield Heights location, the company is in the process of setting up its first pilot production facility in Hawaii. Phycal was identified as one of BusinessWeek’s 25 Most Intriguing Companies last month.

With the Federal and State initiatives that will ultimately be funding Northeast Ohio cleantech companies in the future, with the new advanced energy incubator in Warren moving forward, and with the continued support of Ohio Third Frontier, there’s no better place to be for a cleantech company.

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.

Recently I was asked to give a presentation at a local Chamber of Commerce’s annual meeting on ‘What is happening in entrepreneurial development in Northeast Ohio?’. The topic made me think about what initiatives are ‘getting it done’, and some of the key organizations taking part in the transformation. With the list of such organizations being so long, this will be the first post of a series (‘Getting It Done’), taking the key points of my presentation and bringing them to life here in our blog. If you remember, I did another post on a similar subject early this year. ‘We’re building something big‘ took a 30,000 foot look at the ecosystem. ‘Getting It Done‘ will be a deep dive into some of the individual organizations behind the transformation.

Let’s start with BioEnterprise and JumpStart Ventures, organizations that have played pivotal and nationally visible roles in our entrepreneurial ecosystem. 

BioEnterprise

BioEnterpise came onto the scene in 2002, and has led Northeast Ohio’s surge in the Healthcare space.

How it works: BioEnterprise has made itself a national leader for regional healthcare industry development, and has been a coalescing force in making Northeast Ohio a recognized hub for healthcare entrepreneurship and activity. They give extremely strong support for select, high potential healthcare startups from industry experts who have done it before. BioE connects these select companies with investors across the nation interested in healthcare investing. 

Results: The results have been impressive. BioE has been involved with creating, recruiting, and accelerating over 80 companies, evaluated over 1,100 opportunities and more than 1,900 invention disclosures, and brokered over 300 technology transfer deals. However, the best measure of BioE’s success is in the new capital brought into Northeast Ohio, which includes nearly $150 million in technology transfer revenues, and over $860 million of new capital attracted in the healthcare sector. 

Why it works: BioE has made itself a huge piece of the Northeast Ohio entrepreneurial ecosystem. Baiju Shah and his team have been able to create a huge “buzz” around Northeast Ohio as a healthcare destination and center for medical device development, and coalescing the strengths represented by the Cleveland Clinic, University Hospitals, the top-ranked biomedical engineering department at Case, the Summa health system and others. They have hired top talent to provide support for their companies, and have developed a reputation and relationship with venture capital funders throughout the U.S.

JumpStart Ventures

JumpStart Ventures is JumpStart Inc.’s (started in 2004) line of business investing in, partnering with, and accelerating the growth of early-stage companies. 

How it works: JumpStart Ventures employs a highly selective process to choose companies for investment, and strictly adheres to the process to achieve fairness and consistency. Unlike traditional funders, they actually help companies selected to present to them through a process called ASSIST. After investment, JumpStart Ventures companies receive significant operational support from a Venture Partner (as much as 20% of an experienced executive’s time), as well as direct help in raising the all-important next round of funding.

Results: JumpStart Ventures is primarily measured by follow-on capital raised by its portfolio companies, and the results are outstanding from the more than 40 companies in the portfolio. Since 2004, these companies have raised over $80 million in follow-on funding and generated an estimated $180 million in regional economic impact. Additionally, JumpStart has been recognized by the U.S. Economic Development Agency as the nation’s top urban or suburban economic development group, and has been featured in national press like The New York Times, The Wall Street Journal and PARADE magazine. 

Why it works: JumpStart Ventures works by primarily providing funding to early-stage companies at the time when they most need it — when they are in the proverbial “Valley of Death”. Beyond that, the operational support and connections to next level funders afforded to portfolio companies is top-notch and significant. JumpStart Ventures has taken a very process oriented approach to company selection and to other aspects of the successful entrepreneurial mix, making it understandable and repeatable. Like BioEnterprise, JumpStart Ventures has created and accelerated a “buzz” around Northeast Ohio as a place where things are happening in early-stage entrepreneurship.  

Next in the series: JumpStart TechLift Advisors and JumpStart Inclusion Advisors

Chris Mather is the President of JumpStart TechLift Advisors. 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.

National Awards. Global Product Launches. Lifesaving Products. New Investments. Here’s a rundown of some progress in the JumpStart Ventures portfolio in just the past week or two:

• BusinessWeek named two JumpStart Ventures portfolio companies — Phycal and Freedom Meditech – to its inaugural list of the Top 25 Most Intriguing Startup Companies in the World. I really like that Phycal founder and CEO, Kevin Berner, is not only commercializing a technology (its lipid extraction process is projected to make algae an economical biofuel), but he also is building an enduring company. From day one, he has built into the company culture certain values based on his experiences and life beliefs, values such as discipline, charity, and intelligence.
• Microsoft featured PreEmptive Solutions in two separate keynotes on two continents (in Berlin and Las Vegas) as part of the launch of PreEmptive’s Runtime Intelligence Service (RIS), a cloud-based service that monitors application usage and user behavior. RIS has the distinction of being the only part of Visual Studio not written by Microsoft. Given this powerful, unique “in-the-box” position, I think RIS’s global product launch could take PreEmptive, which is already profitable and growing, to a whole new level as a leading company in the application lifecycle management industry.
• China suffered a mining tragedy over the weekend and in China alone, 3,000 miners have died this year in mining accidents. Our portfolio company, InSet Systems, has a technology that helps find miners within ten feet instead of within 500 or so feet (which is the approximate accuracy of existing technologies). Noting that it could save many lives in a very dangerous industry, Popular Science magazine, in 2008, named InSet’s inertial tracking and wireless communications technology “one of the Top 10 technologies” of the year. The InSet system will be ready for pilot installation in a working mine in a few weeks; the company has a software development partnership with the renowned Draper Labs as well as a distributor relationship in the Far East; and the company needs angel investment to get to the next steps. I hope the early-stage capital markets will support this company so that it can get this product to market and save lives.
• We made a new investment in Checkpoint Surgical which has developed a neuromuscular locator/stimulator. Checkpoint is a spin-out from NDI Medical, which was founded in 2002 by Geoff Thrope. NDI spun out its MEDSTIM bladder pacing system technology a few years ago and shortly thereafter the product line was acquired by Medtronic, which provided a nice “early exit” to the NDI team and others. The excellent Checkpoint team, led by CEO, Len Cosentino (former VP of Business Development at NDI), and Chairman, Geoff Thrope, is well positioned to do a repeat of  MEDSTIM: develop a differentiated product, build a good company, forge strong partnerships, and get acquired. Easy, right?

About as easy as sailing across the Atlantic on a cargo ship and arriving in unfamiliar territory at the start of winter. And on that note, I wish these entrepreneurs and all the metaphoric pilgrims of the North Coast technology scene (OK, I know that brand-wise I’m supposed to say “Northeast Ohio” not “North Coast”, but go with me here: my literary side is trying to get a coastal angle on this pilgrim thing) a happy Thanksgiving!

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.