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Investing and Services

Tuesday, February 07, 2012
Posted by Ray Leach

JumpStart has historically been known as an investing organization. And, in fact, in 2011 JumpStart invested $3.2 million through 15 investments in 14 high growth companies (bringing our total to more than $22 million committed to 62 Northeast Ohio tech companies since 2004 and making us one of the most active seed-stage investors in the US over this period of time).

But truth be told, we’ve always been much more than a nonprofit investor in startups. We also provide significant services to entrepreneurs, both those leading companies in which we've invested and those that have not (yet) received direct investment from JumpStart but that get a ton of support from us to gain access to other resources they need to succeed. In fact, some of our clients say these services are much more valuable than money.  We’re able to do this work because our public, private and philanthropic partners and supporters agree with a comprehensive approach of providing both investment capital and assistance.

One of JumpStart’s most important partners in accelerating the successes of our region's entrepreneurs is the Ohio Third Frontier.  Recently, JumpStart was asked how we have used the resources awarded by Ohio Third Frontier and the required non-state matching resources related to these grants.

(As a side note, you might be asking yourself, what are matching resources? For every dollar that we, or any other entity receives from Ohio Third Frontier, some type of “match” is needed.  Many times, $1 dollar of non-state “match” is needed to receive $1 from Ohio Third Frontier, although that ratio has changed from time to time. This required match ensures the State of Ohio that it is funding programs and activities that others are also willing to support.  Furthermore, a “match” agreement leverages dollars for greater impact.)

JumpStart philosophically believes in transparency and in engaging with our community, so we’ve posted information pertinent to this and other operations on our site. Relative to the question about our allocation of funding, we’ve posted a listing of every grant we’ve received (both for our investing activities and our entrepreneurial services) and we’ve identified the amount of match allocated towards each.

A few headlines:

  • We believe that investment dollars and services go hand-in-hand; that is, that an entrepreneurial company at the early stages will have its best chance of success if it receives both capital (funds) and entrepreneurial services.
  • We have, with the encouragement of our funders, partners and collaborators, always tried to secure as much Ohio Third Frontier funding as possible for our region’s entrepreneurs, in both services dollars and investment dollars. 
  • We have always matched 100% of the funds for investing we’ve been awarded by the State of Ohio, and sometimes, have overmatched those funds.
  • JumpStart has raised more money for investing than for services from the Ohio Third Frontier over its eight year history, and has invested more money than it has spent providing services.
  • In order for JumpStart to draw down state funds for investing, we must have a company in which we will invest and provide evidence of the match. As a result, even if JumpStart has received a commitment from the state for investment dollars, those dollars are not disbursed to JumpStart and sitting in a checking account! They are sent to JumpStart once JumpStart is ready to close a funding tranche with a company.

We realize this is a lot of detail, so we’ll continue to provide insight into JumpStart’s projects and processes in short blogs. Please feel free to submit topic ideas at askjs@jumpstartinc.org.

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.

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Ron Copfer
wrote on 2/8/2012 10:59 AM

Then that begs the question Ray: Why, if allocated a certain amount of funding from the Third Frontier, you didn't make investments into startups utilizing the other "matching" dollars your other funders gave you? Are you telling the community that you could not find enough worthy startups to invest in? Or as I have asserted, you would rather use the "matching" grants given to you to match your "services"? Remember, your original mission, of which I was involved in creating was to "startup" businesses by investing in them... services are wonderful but nothing gets a new company traction better than cold hard cash!

Ray Leach
wrote on 2/9/2012 11:15 AM

First, I want to be clear that JumpStart must use all matching resources for the purposes to which they are matched with State monies on all Ohio Third Frontier grants. Matching funds used to secure services must be used for services, matching funds used to secure investment dollars must be used for investing.

Second, I’m glad to see that we both agree that both services (“wonderful” as you call them) and investment funds (“cold hard cash”) are both important. JumpStart believes today (as it, and our funders, have believed since 2004) that technical assistance and support services for entrepreneurs are very important. In fact, some entrepreneurs have said that technical assistance is often more important than investment dollars, so perhaps not everyone feels as you do. Regardless of which resources are perceived as having higher value, JumpStart works to bring more of both of them to NE Ohio. In addition to our own programs, we fundraise and provide services and opportunities to help our NE Ohio partners (YBI, BioE, MAGNET, the Innovation Fund, Akron Global Business Accelerator, GLIDE, North Coast Angel Fund, Glengary, OAI, and Braintree, among others) maximize their reach and deliver intellectual and human capital to a variety of entrepreneurs across the region.

Regarding our founding mission, I appreciate that you were one of the people who, back in 2003, took part in the NorTech Entrepreneurship Task Force that generated an important report that resulted in the creation of JumpStart (http://j.mp/NTETF). Anyone who reviews this plan can see that this new effort was always intended to involve more than investing. The report spoke to three key lines of services for the new entity: an entrepreneur gateway, development or technical assistance services and funding of entrepreneurs; JumpStart is doing today exactly these things as described in this document. Also, in regards to our founding, six of the 17 people on the NorTech task force went on to become founding members of JumpStart’s board, including our current board chair, Doug Weintraub (and these six do not include Dorothy Baunach, Becca Braun and Brad Whitehead who were also on the task force and who all played major roles in shaping the focus, programs and goals of the organization in its earliest days). Clearly, you’re frustrated, but stating that JumpStart is not doing what it is supposed to do, or was supposed to do, is just not correct.

Having said all this, JumpStart continues to work every day on exciting opportunities to get more investment resources available to NE Ohio entrepreneurs. This spring, the Ohio Third Frontier is going to provide opportunities for both non-profits and for-profit organizations to compete to win over $37.7M to be used for investing. This is not only a significant increase from previous years (up from $25M last year) but JumpStart will also be able (for the first time) to request a $3M award from the state that will, along with the required match, provide us with $6M to invest – up from the maximum amount of previous proposals of $4M. We hope that at least 50% of this total of $37.7M will be won by entities focused on investing in NE Ohio entrepreneurs (as there will be other existing and new funds focused on NE Ohio entrepreneurs pursuing these state resources), and JumpStart anticipates that it continue to provide significant support and back-office resources to these funds just as we currently provide services to six non-JumpStart-controlled funds in NE Ohio at no cost to them!

JumpStart has worked with Wooster, Barberton, and Canton to establish community funds that provide more capital to the region’s entrepreneurs. We also believe that new initiatives led by the City of Cleveland and Cuyahoga County are encouraged and enhanced by the support we have provided to the economic development community. We are enabling more public and private stakeholders in NE Ohio’s economic future to provide capital to entrepreneurs. JumpStart is also currently working with other non-Ohio entities that desire to provide risk-friendly access to capital to more NEO entrepreneurs, so all of our efforts are not starting and stopping in Columbus. Hopefully we will have great news to share on this front later this year. All of this progress demonstrates a fact that you and I can agree upon: providing an increased amount of capital to entrepreneurs is critically important and JumpStart is actively working to make this happen.

Ron, while we may agree to disagree on our perspectives, I’d like to think that we could agree on many other topics or opportunities that could be helpful to entrepreneurs in NE Ohio. JumpStart is committed to making things better for all entrepreneurs in the region. You are welcome to join us in this effort.