JumpStart: IdeaExchange Blog

I just read a copy of the Global Detroit Study, which “revealed the important role that the foreign born play in transitioning our region’s struggling auto manufacturing economy into to the New Economy”. This wasn’t a surprising conclusion given the facts revealed in the study, by the NVCA, and in Richard Herman’s book “Immigrants Inc.”:

• Foreign born people comprise only 12.5% of the U.S. population but possess half of all new Ph.D.s in engineering.
• Foreign born people account for 45% of all new Ph.D.s in life sciences, physical sciences, and computer sciences; and 40% of all new masters degrees in computer sciences, physical sciences and engineering.
• In the workplace, 24% of all scientists and engineers with bachelor’s degrees are foreign born and 47% of all scientists and engineers with doctorate degrees are foreign born. One quarter of all practicing physicians in the U.S. are foreign born.
• Foreign born people are 1.8x more likely to start a business than those born in the U.S.
• Over 50% of tech companies in Silicon Valley have a foreign born founder (including Google, Yahoo, Intel, PayPal, Sun Microsystems, and YouTube).
• Foreign born inventors apply for around 35% of international patent applications filed within the U.S.
• Foreign born people founded 25% of all public venture backed companies in the U.S. between 1995 and 2005, and within the high tech arena, this ratio shot up to 40%.

This is not a new phenomenon; consider American history and the entrepreneurial legends of the past: DuPont, Pfizer, Dow Chemical, Procter & Gamble, and Diebold were all started by foreign born people. Even Andrew Carnegie was born in Scotland before emigrating to the U.S. with his parents and becoming one of the most influential entrepreneurs and industrialists of his time.   

10% of JumpStart Ventures portfolio companies have been started by foreign-born entrepreneurs, including: Echogen Power Systems, Embrace Pet Insurance, Electron Database, CardioInsight, and Great Lakes Pharmaceuticals. All of these companies have been making tremendous progress, as we have been reporting through JumpStart Connect and other vehicles. The team at CardioInsight is a great example of many of the statistics demonstrated above: Ping Jia and Charu Ramanathan, two co-founders, were here getting PhDs from China and India, respectively. In the course of their research, they identified a technology with commercial potential, and have been working on growing the company since. CardioInsight has not only raised JumpStart Ventures money, but also brought in a CEO to lead the company through the next stage of growth, one who has previously led exits in a similar space. Where is the CEO from? Canada.

We need more of these types of stories in Northeast Ohio, plain and simple. Whereas Northeast Ohio and particularly Cleveland grew into a leading city in the U.S. because of immigrants, the rate at which these people have come to the region has slowed dramatically in the last fifty years. Luckily, lots of people are worried about this and there are several initiatives around town to make Northeast Ohio more welcoming to immigrants. One that I find incredibly exciting is TiE Ohio, the Ohio Chapter of The International Entrepreneurs. A little over a week ago, the chapter featured a talk by Dr. Hiroyuki Fujita, the founder and CEO of 3 year old Quality Electrodynamics (QED), a company on Forbes’ 25 Most Promising Companies list with over 60 employees today. Dr. Fujita’s story is similar; he arrived at Case from Japan to get a PhD, incubated his company for two years while proving out his imaging technology, and since that time, has secured global customers such as Phillips and Siemens, leaders in the field of imaging and MRIs. This event was just an example of the activities TiE is leading in the region; in the fall, they will have the International Entrepreneur Awards, a business plan competition for entrepreneurs, more networking support, and most of all, mentoring opportunities. I want to see you at the next event.

Other ways you can get involved with this exciting Northeast Ohio community of foreign born entrepreneurs, or entrepreneurs-to-be? 

1. Engage with JumpStart’s Launch100 program to get help growing your early-stage business.
2. Sign up for Inside Inclusion and JumpStart Connect to hear the latest and greatest on everything related to entrepreneurship in Northeast Ohio.
3. Hire an intern. There are a number of foreign-born students at local universities whose education and experience will benefit your company. Let me know if you are interested.
4. Share your stories with us so we can share them.

Any other ways I didn’t mention here? Let us know!

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.

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 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.