About JumpStart
Questions Regarding Sub-Brands
General Questions
Economic Questions: 2010
Q: What does JumpStart do?
JumpStart is a nationally recognized, innovative venture development organization that accelerates the growth of high potential, early-stage businesses to create a more prosperous future for Northeast Ohio. JumpStart has a special focus on diverse entrepreneurs.
JumpStart does this by working with these early-stage companies to improve their success in achieving the milestones, and raising the capital, necessary for rapid growth. JumpStart provides customized one-on-one assistance, delivered by former technology CEOs, for free. JumpStart also invests capital in the most promising of companies.
JumpStart does this work to transform the economy of Northeast Ohio. By increasing the number of entrepreneurs who can successfully grow companies rapidly, JumpStart is a catalyst for the creation of wealth and thousands of new, globally competitive jobs in the region. All the companies we support are located in the Northeast Ohio region.
Part of what makes JumpStart so innovative and unique is that it is one of the only public/private partnerships working with entrepreneurs in this space. As a non-profit, its work, including its investments, is charitably-funded. About 50% of funding comes from the State of Ohio and the Federal Government, and 50% comes from private sector, principally foundations, corporations, and individuals.
Q: And how do you define Northeast Ohio?
JumpStart Inc. serves the entrepreneurial community in a 21-county area including Ashland, Ashtabula, Carroll, Columbiana, Crawford, Cuyahoga, Erie, Geauga, Holmes, Huron, Lake, Lorain, Mahoning, Medina, Portage, Richland, Stark, Summit, Trumbull, Tuscarawas, and Wayne counties.
Q: When was JumpStart founded?
JumpStart was created early in 2004, when its founders NorTech and Case Western Reserve University decided to combine the efforts of four existing organizations all geared towards entrepreneurship.
Q: Why was it founded?
It's no secret that the Northeast Ohio economy has lost a great deal of manufacturing jobs in recent years, and did not benefit as extensively as other regions in the wave of technology-based job growth that occurred in the 1990s. There is a clear need to create new jobs and wealth for the region's residents in coming years.
In addition, Entrepreneur magazine had been ranking the largest metropolitan areas in the U.S. according to their overall friendliness for entrepreneurs, and the Cleveland metropolitan area had been ranked 61st, out of 61, for the last 13 straight years. It was time for a change.
Q: Who owns JumpStart Inc.?
JumpStart is owned by its founding entities, NorTech (the Northeast Ohio Technology Coalition) and Case Western Reserve University. It operates as an independent non-profit organization, however, with its own board of directors. It is a 501(c)(3) organization.
Q: Who works for JumpStart?
JumpStart Inc.'s executive team is comprised of experienced entrepreneurs, investors, and business development professionals, many of whom have either personally started or participated directly in starting and growing for-profit businesses. JumpStart's board of directors consists of entrepreneurs, economic development professionals, and academic leaders from throughout Northeast Ohio.
Q: Is it a government organization or a private business?
JumpStart Inc. is a private, not-for-profit organization. It is not a government agency.
Q: Where does JumpStart get funding?
JumpStart receives generous funding from several sources, including the State of Ohio (particularly the Third Frontier Project), the Federal Government, Northeast Ohio corporations, the Greater Cleveland Partnership and COSE, and area foundations, including the Fund for Our Economic Future, The Cleveland Foundation, John S. and James L. Knight Foundation, The Burton D. Morgan Foundation, and others. JumpStart also generates a very small amount of revenue through event fees, although these fees typically do not fully offset the expenses associated with producing the event.
Q: What is economic inclusion, and how does JumpStart think about it?
Economic inclusion represents the process of overcoming the obstacles and barriers that serve to prevent or impede any segment of the population from participating fully in the workplace or marketplace. Economic Inclusion seeks to provide all people with equal consideration and access to available resources to most effectively compete for business and employment opportunities.
At JumpStart, economic inclusion is a way of life, and we approach inclusion both broadly and deeply. Broadly, we are actively inclusive in everything we do. As an example of this, the JumpStart Ventures group has invested in 12 companies which are minority- or women-owned organizations. Out of the total investment portfolio, this represents almost 30% of our total portfolio (compared to the national average of only 4% - JumpStart more than quadruples the national average!)
Because minority and female-owned entrepreneurship is on the rise, but these ventures don’t have the historical backgrounds in thinking about and growing high growth companies, we also approach inclusion with services targeted to especially help those companies progress forward. These services are delivered through the JumpStart Inclusion Advisors business.
Q: What makes JumpStart Inc. different from other economic development organizations or other not-for-profits in the area including BioEnterprise, NorTech, TeamNEO, or any of the others I’ve heard of?
Several things. JumpStart:
- Has its own pool of investment funding and makes equity investments in startup companies. JumpStart invests in pre-seed and seed stage companies in a variety of industries including bioscience, information technology, advanced energy, electronics controls, sensors and advanced materials industries.
- Expends resources only on companies that have high growth potential rather than on "lifestyle" businesses (restaurants, small-scale retail, etc.).
Provides intensive advisory services via experienced entrepreneurs to companies in order to help them to accelerate their growth and progress, and create a larger economic impact in NEO. In the last twelve months JumpStart team members provided over 20,000 hours of technical assistance to high-potential companies at no charge to the entrepreneur.
Q: How does JumpStart measure its success?
We are highly accountable to our funders and customers and will report periodically on how we're doing. We measure JumpStart's success in several ways, including:
The number of companies that receive business assistance across all our lines of business, and the hours spent with those companies
The number of companies that receive funding by JumpStart Ventures
The amount of additional funding received by our portfolio companies from outside investors
The number of jobs created
Q: What kind of companies is JumpStart looking to work with?
JumpStart will work with an entrepreneur with the following profile:
The entrepreneur and venture are based in, or willing to move to, a 21-county region within Northeast Ohio.
The entrepreneur has a high potential, breakthrough idea.
The venture has less than $10 million in annual revenue.
The three businesses have some additional criteria, which are used only to make sure that the entrepreneur gets the right type of assistance and support for the stage of development it is in and needs it has.
Q: Does a company have to pay JumpStart for its services?
No.
Q: Can a company receive business development assistance and not funding or vice versa?
A company will receive guidance and assistance with no funding if the company fits best with the services provided by the JumpStart TechLift Advisors, or the JumpStart Inclusion Advisors businesses. If your company is asked to present to JumpStart Ventures, you will benefit from the intensive Assist step of our process whereby a JumpStart associate works with you to refine your business plan and presentation to make it more "investor ready." This assistance can be extremely beneficial to companies whether or not they progress toward receiving an investment. Obviously, companies receiving JumpStart Ventures investments will receive the highest level of assistance.
Q: Does JumpStart focus on any particular types of businesses?
Yes and no. JumpStart Ventures funds companies that fit into its target investing criteria, regardless of what industry they are in. JumpStart Inclusion Advisors work with companies and entrepreneurs that are at least 51% owned by a woman or are 51% owned by an entrepreneur who is African-American, Hispanic- American, or Asian-American. JumpStart TechLift Advisors works with entrepreneurs and ventures which are in the 5 Signature technology industries that TechLift supports. All the companies with which these three businesses work should have high potential for significant growth and impact in the community.
JumpStart’s additional programs – its educational events, its communications, and the online community that it launched called IdeaCrossing – are available to any entrepreneur in any type of business.
Q: I have a very promising idea for a new restaurant. I've done my research, I have a lot of experience, and I'm sure it will work, and I'll probably employ twenty or twenty five people. Will JumpStart work with me?
A restaurant is an excellent business to open. It's what we refer to as a "lifestyle" business, an owner-operated venue that can provide excellent returns and personal wealth, and certainly can employ a number of people in good jobs. Other lifestyle businesses might include a dry cleaning business, or a small retail shop, or even a small manufacturing facility, for example. But this type of business is not what we refer to as a high growth potential business, which, by our definition, means a company that has a unique, breakthrough idea in a large market ($500 million at a minimum), involved with an innovative idea or technology, and ultimately employ hundreds or even thousands of employees.
Q: Why do you only consider working with and funding (through JumpStart Ventures) what you call "high growth potential" businesses, and not "lifestyle" businesses like restaurants, or small retail stores, or even, say, a small manufacturing operation?
There are several reasons why JumpStart was mandated by its owners and funders to concentrate its efforts on high growth potential companies.
As an economic development organization partly funded by the State of Ohio, JumpStart's mission is to THINK BIG, and to look for companies and ideas that have the opportunity to create wealth and employment on a very large scale. Fifty years ago, there were many such companies in Cleveland. Think TRW, Standard Oil, and the steel giants. Many of these companies have either left the region or no longer exist, and what our mission requires of us is to help identify and grow the replacements to these giants.
Think of us as working to renovate an old-growth forest by carefully and selectively tending to the seedlings of the future Giant Oaks and Redwoods. While we want that forest to be carpeted with lovely wildflowers and smaller trees, our job is to nurture the giants.
Another reason, of course, is that there are many other sources of money for smaller businesses to tap. Such traditional sources include angel investors, SBA loans, and government grants.
JumpStart Ventures
Q: What is JumpStart Ventures?
JumpStart Ventures is the business within JumpStart that invests money and forges partnerships with diverse innovative, early-stage Northeast Ohio companies that have the potential to generate $30-50 million in revenue in five to seven years. JumpStart Ventures helps companies accelerate their time to venture-readiness by bundling guidance from experienced Venture Partners with seed investment capital.
Q: How do I know if I have the growth potential to reach $30-$50 million in revenues?
We offer the following points to consider as you ponder that question:
Start with your customer in mind. Are you considering individual consumers as your primary audience, or is your product or service targeted to a business or institutional customer?
What geography do you have in mind for your customer base – regional, national, or international?
What need does your product or service address, and how is that need currently being satisfied, if at all, in the marketplace?
What is the anticipated selling price of your product or service, and how many sales (units) must be sold to reach the $30 million sales level?
Answering these initial questions requires extensive self-study and research and will serve to get you started.
Q: How many minority or women-owned companies has Jumpstart Ventures invested in?
JumpStart Ventures has made 18 investments in 12 minority or women-owned businesses, in addition to providing in excess of 14,450 total hours of technical assistance to these companies. With 30% of our portfolio companies owned by minority or female entrepreneurs, JumpStart Ventures quadruples the national average (of 4% of venture backed companies being owned by minority or female entrepreneurs.)
Q: Does a company have to pay JumpStart for its services?
No.
Q: Do you help with the patent process?
If your business successfully transitions through the JumpStart Ventures investment process and receives a financial investment, a portion of that investment may be used to further develop or secure intellectual property, commonly through patent protection.
Q: How does JumpStart Ventures decide which companies to invest in?
The JumpStart Ventures team starts by looking at many companies and ideas. We review hundreds of business plans each year. We select about 36 companies per year to proceed to our Assist step, a formal presentation to our extended team. Based on a rigorous due diligence process, JumpStart Ventures will choose from this group up to twelve companies per year in which to make direct investments. In sum, we attempt to invest in those Northeast Ohio start-up companies that have the most potential for success.
Q: What are the mechanics of a JumpStart Ventures investment?
JumpStart Ventures is a very active and engaged investor! The investment range starts at $250K and can increase to a total of $600K depending on the stage of development and particular needs of a company. Our business model is this: we approve a total investment amount for a company, and then we release installments of money over time to that company. For example, if JumpStart Ventures approves a $250K investment in a company, we may release $100K initially, and then another $100K five months later upon hitting certain mutually agreed upon milestones, and then the final $50K five months later upon the company hitting more milestones. This model of investing is a great, tried and true model that works for many companies because it forges a strong operating partnership between investor and portfolio company. That said, this model of financing is not for everyone. Some people would prefer a more standard arms-length relationship where they only engage with their investors during quarterly board meetings and at report time. If that is your preference, you should seek funding elsewhere.
Core to this active, engaged business model is the concept of “going passive” in some investments. If a company is hitting milestones, JumpStart Ventures will continue to release installments of funding per schedule, and may in fact approve additional funding. This happens regularly with our portfolio companies. However, other companies struggle to hit milestones and do not advance through stages rapidly enough to, in our opinion, be attractive to additional follow-on investors. These companies may well have great ideas with great entrepreneurs, but they just couldn’t grow fast enough (a core part of JumpStart’s mission is to accelerate the growth of companies). As such, if a company is progressing more slowly than projected, JumpStart Ventures will reallocate its Venture Partner to another company in the portfolio that is progressing more rapidly, and we will cease to release originally scheduled installments of money. This is always a hard decision, but it is fundamental to our business model as “high-velocity” investors.
Q: How long does the investing process take?
From receipt of a potential client's Executive Summary to a decision to fund takes four to eight weeks. After a decision has been made, due diligence can take an additional two to four months.
Q: Is JumpStart Ventures going to run the businesses it invests in?
No. JumpStart Ventures believes it is critically important that a company's management team and leader are empowered and motivated. However, we're there to help in any way we can. There could be certain situations, such as those where the entrepreneur has requested more assistance than usual or where a company is not meeting its milestones that JumpStart Ventures is requested to become more involved in the business.
Q: Does JumpStart or JumpStart Ventures provide grants?
No. JumpStart Ventures invests funds and requires equity in return for this investment.
Q: What does JumpStart Ventures ask for in return for its investment?
JumpStart Ventures typically invests using convertible debt, which will ultimately be converted into equity in the company and which will be “returned” to us through an exit. If a company does not move forward and raise additional equity for any reason, we will discuss repayment options at that point.
We also ask for observer status on your company's board of directors.
Q: How do I apply for consideration for funding from JumpStart Ventures?
You can find information on the application process on the JumpStart Ventures portion of the website in the Investment Process section. You will be asked to initiate the process by completing the Advisory Request and providing information about your company or idea in a short, electronic format. Following that, if the JumpStart team believes there is a potential fit for the JumpStart Ventures group, they will contact you to schedule a discussion. If, as a result of that conversation, there is mutual agreement about the potential fit, you will be invited to apply by submitting an Executive Summary.
Q: What happens after I’m invited to apply and I submit an Executive Summary to JumpStart Ventures?
The JumpStart Ventures team will review your Executive Summary and contact you about one to two weeks later with feedback and to determine any next steps. If you are not selected to move on to the next stage, it doesn't mean your idea is bad. It could mean that your written plan didn’t convey the idea as compellingly or simply as it could have, in which case you have the option to rewrite and resubmit it. It could also mean that the idea does not have a sustainable competitive advantage or differentiator. Or, it could simply mean that your growth objectives are not aligned with our investment objectives (for example, you don’t plan to raise additional equity investment from other investors). We welcome entrepreneurs back into our process if they are able to address any obstacles that we have identified or if there are material changes to their business of which we should be aware.
Q: My business was just turned down for JumpStart Ventures financing. What gives? I thought JumpStart Ventures had a lot of funds to invest in Northeast Ohio businesses.
With the new expanded services that JumpStart now offers, if your business is turned down for JumpStart Ventures financing, you may still have the opportunity to work with an Entrepreneur-in-Residence from JumpStart TechLift Advisors (or potentially, JumpStart Inclusion Advisors). These associates can help you continue to refine the articulation of your high growth plan, identify and connect you with other funding sources, and assist you with moving your business forward through key operational milestones.
JumpStart Ventures does have money to invest in businesses in Northeast Ohio, which we define Ashland, Ashtabula, Carroll, Columbiana, Crawford, Cuyahoga, Erie, Geauga, Holmes, Huron, Lake, Lorain, Mahoning, Medina, Portage, Richland, Stark, Summit, Trumbull, Tuscarawas, and Wayne counties. We expect to invest a total of about $3 million per year over the next five years in area companies and ideas, and while that's a considerable sum, it is not an endless pot of money. Because we expect our investment in any one company to range from about $50,000 up to as much as $600,000, and to average about $250,000, it's clear that the number of companies we are able to finance is finite. In fact, we expect to invest in up to 12 companies per year for six years, for a maximum of 60. Compare that to the fact that, on average, we are receiving an Advisory Request for one new business idea every day.
Q: If JumpStart Ventures turns me down for financing, does that mean there is nothing you can do for me?
No. There are still many ways that JumpStart can assist you in accelerating the growth of your company.
First, you will be referred to an associate within JumpStart TechLift Advisors or JumpStart Inclusion Advisors. If you want, this associate will help you continue to refine the articulation of your high growth plan, identify and connect you with other funding sources, and assist you with moving your business forward through key operational milestones.
Second, at any point in the process you can access IdeaCrossing, the online community launched by JumpStart. In IdeaCrossing, you can enter a profile of your idea, which will be matched with investors around the country who are looking to invest in a company with a similar investment profile. And it’s free!
Third, check out the Community Resources section of the JumpStart website. We want EVERY new business to succeed, and we have put together a comprehensive list of Northeast Ohio resources on this page.
Fourth, please continue to be part of the JumpStart community through our networking and educational activities to unite you with other entrepreneurs, funding sources, service providers, and other relevant assistance to help you get your business up and running. By subscribing to JumpStart Connect, you can learn about other events, information, or programs which can help your business. You may pick up a useful idea from one of the JumpStart management team members through their posts on the IdeaExchange blog.
The bottom line is that it takes more than just money to grow a business, and even if JumpStart can't finance your business, we can help in other ways.
Q: I believe my business does have the potential to achieve the kind of sales figures you talked about, and is in a high-technology area with a huge market potential. Why was I turned down?
Excellent question. There are several possible answers.
First, we may simply disagree on the potential of your business. Our decisions aren't personal; they're based on a lot of hard work and a fairly classic due diligence process. When we look at a company, we consider these broad topics:
Potential of the company's technology and/or product/service offering
Attractiveness and viability of the target market
Experience and talent of the management team in place
Financial model and revenue projections
Potential to generate return on investment through an exit strategy
Of course you may feel that all the above criteria describe your company, but we may not view things the same way.
Another possible reason is that your business may already be too far advanced for assistance by JumpStart Ventures. One important aspect of JumpStart's mandate is that we work with pre-seed and seed-stage companies. If you have advanced your company to the point where you're selling a significant amount of products or services, are profitable, or have already raised a significant amount of equity capital, you do not fit the profile of the kind of company JumpStart is looking to invest in.
To put it simply, you may not really need us.
In the final analysis, it comes down to the fact that we have a limited pool of money and time to invest in a select number of high-potential companies and we have to make hard choices, just like any other venture capital firm does, every day.
JumpStart Inclusion Advisors
Q: What is JumpStart Inclusion Advisors?
JumpStart Inclusion Advisors is the line of business that works deeply and specifically in support of minority and women-owned businesses that want to grow to be large national and international firms. JumpStart Inclusion Advisors also works with firms that are located in the urban centers of Northeast Ohio, whose business directly impact minority populations.
Q: Why is JumpStart Inclusion Advisors even needed? I thought that inclusion was a way of life for you.
Inclusion is a way of life for JumpStart. The fact that almost 30% of the portfolio companies who have received a JumpStart Ventures investment are owned at least 51% by women or minority entrepreneurs shows how committed we are to inclusion in everything we do. That said, we don’t feel that the activities that we do as part of our normal course of businesses will move economic development in urban centers and with these types of entrepreneurs forward fast enough. As a result, we also want to include some deeply focused activities.
The reason that inclusion needs more attention is based on the current level of activity in this sector. Right now, only 4% of total venture capital is invested in companies that are owned by minority entrepreneurs, and another 5% is companies owned by women. This is clearly below the average of the population, and minority entrepreneurs and female entrepreneurs are starting businesses at a rate that exceeds their percentage of the population. For example, 52% of the people who start businesses today are women!
Q: Why is it that minority and female entrepreneurs are not securing venture capital at the same rate as the rest of the population?
This situation occurs for many reasons, although sometimes the data is inconclusive. Some ideas could be these entrepreneurs lack the support for approaching and acquiring venture capital, and lack the knowledge around how to start and grow a high growth company that will employ hundreds or thousands of people. One reason may be that these start-ups typically are started with less capital in the bank, and grow more slowly as a result.
Whatever the reasons, JumpStart Inclusion Advisors is focused on addressing these opportunities, so that all the diverse citizens of Northeast Ohio have the opportunity to participate in economic prosperity and wealth-creation. JumpStart Inclusion Advisors focuses on three activities which will help these entrepreneurs grow companies more quickly:
Please see the information regarding JumpStart Inclusion Advisors to better understand how the team works with entrepreneurs. If you would like to work with JumpStart Inclusion Advisors, fill out the Advisory Request.
Q: Does this have any implication on jobs for minority populations?
Firms which are owned by minority entrepreneurs are found to employ minority associates at a rate more than double that of companies owned by non-minority entrepreneurs. Likewise, companies located in “urban centers” are found to hire associates in the surrounding neighborhoods, which tend to also have large minority populations. As a result, growing more large national or international minority-owned firms is a significant economic opportunity for minority populations or those in urban centers.
Q: How do I know if my firm is located in an “urban center”?
If your firm is located in one of the “Hub zones” identified by the SBA, it would be considered as being located in an urban center. You can look up your firm’s address on the SBA website to see if you fall within a “hub zone” or “qualifying area.”
JumpStart TechLift Advisors
Q: What is JumpStart TechLift Advisors?
JumpStart TechLift Advisors guides Northeast Ohio’s high potential technology entrepreneurs. It assists these entrepreneurs in creating and articulating high growth strategic and operational plans, accessing investment funds, and moving their businesses towards key milestones.
Q: I don’t understand all the different services of JumpStart TechLift Advisors, and how they operate.
JumpStart TechLift Advisors offers a variety of different programs, funds, and services, which are delivered by various organizations in the entrepreneurial ecosystem in Northeast Ohio:
One-on-one technical assistance is delivered by two different types of associates:
Entrepreneurs-in-Residence who work with technology entrepreneurs based in their technology sector area of expertise. These EIRs have technology expertise gleaned from their work as CEOs and leaders of high tech companies.
Entrepreneurial and business experts located at the
NEOInc Incubators. These experts enable companies and entrepreneurs to access help conveniently, based on where they are located.
The creation and implementation of investment funds for early-stage companies:
While JumpStart TechLift Advisors cannot guaranty that a client can receive these funds, the associates are often involved in an investment decision, and actively help entrepreneurs prepare to access these funds. Programs, which entrepreneurs can attend and are produced and sponsored by JumpStart TechLift Advisors, to educate and help the region’s technology entrepreneurs:
First Pitch, in which companies come practice their pitches for funding and receive helpful feedback in the session and in follow up
Grantwriting seminars and one-on-one assistance which enable entrepreneurs understand and access SBIR grants
Internship programs, which match talented students with positions at entrepreneurial startups, at a subsidized rate
And others, including the CEO-in-Residence program
Q: How is TechLift Advisors different than JumpStart Ventures?
JumpStart TechLift Advisors works with any entrepreneur working in one of the 5 technology sectors most important to Ohio, regardless of their stage of development, desire to seek external investment funding, or ability to do so. As such, JumpStart TechLift Advisors works with companies who are not quite ready to seek JumpStart Ventures funding and will help them get in contact with pre-seed funding sources. JumpStart TechLift Advisors will also work with entrepreneurs who apply for JumpStart Ventures funding but aren’t able to receive it, helping them further develop their idea and secure funding from other sources.
Q: I thought there was something called TechLift. Is that the same?
The TechLift program was initiated by NorTech in 2007. To make it easier for entrepreneurs to understand and access all the resources for them in Northeast Ohio, the TechLift program was moved to JumpStart for management. Now called JumpStart TechLift Advisors, the program and services are the same as they were when the program was called TechLift. However, it’s easier for entrepreneurs to now access these services. Just fill out the Advisory Request on the JumpStart website, and a JumpStart associate will help them identify the right services and help based on their stage of development.
Q: What is venture development? I’ve never heard of that.
Venture development is a new form of economic activity. This activity combines the best practices, skills, and perspectives of the venture capital world with the goals of economic development, namely job and wealth-creation. Organizations that operate in venture development often provide intensive business assistance for entrepreneurs, and invest risk capital in their ventures, but do so with the intention of creating jobs and economic prosperity in a region, as opposed to generating profit and return for investors.
Q: So how does that work? Does a venture development firm make its associates rich?
If a company that has received an investment from JumpStart Ventures realizes an exit (such as the company is purchased by a larger firm or is taken public), JumpStart’s investment will be repaid. At that time, the repayment will be reinvested back into other companies in the Northeast Ohio region (as opposed to be distributed to partners, as might be the case in a venture capital situation).
Q: What specifically is venture capital?
The Venture Capital (VC) Industry is a major source of funding for the entrepreneurial community. Venture Capital is capital provided by outside investors for financing of new or high growth businesses. Venture capital investments generally are high risk investments but offer the potential for above average returns. In exchange for the investment, the VC receives an equity stake in the business. The VC also helps the business develop its management team, and takes seats on the board of the company. VCs are typically interested in making a few large investments, due to the manpower needed to support each investment (recruiting and board seats). They focus not only on the business opportunity that is presented to them, but closely on the management team that is offered.
Q: What is an angel investor?
An Angel investor is a person who provides financial backing to very early-stage businesses or business concepts. Angel Investors are typically entrepreneurs or executives who have become wealthy. Often these individuals are looking for a higher rate of return than would be given by more traditional investments and will be looking to play an active role in the management of the company. Instead of investing in the stock market or mutual funds, Angels take high risk investments with new companies.
General
Q: What are the most important national economic opportunities to be addressed for 2010?
According to the Kaufmann’s Foundation’s State New Economy Index study, from 1980-2001, all U.S. net job growth was from companies less than five years old. There’s never been a time like now for the government to focus on supporting entrepreneurial ventures, which create new jobs for Americans and keep us globally competitive. The most important thing the national government can do to encourage entrepreneurism right now is make sure that capital is available and that the right tax inventives are in place for early-stage investors. Capital has to be freed up for banks to lend and for VC firms and Angel Investors to invest in entrepreneurial ventures.
More specifically, JumpStart wants the Obama administration to take note of the private and public commitment to entrepreneurship in this region, and match our commitment with federal funding. The region has taken an aggressive approach with the new administration via The TechBelt initiative, spearheaded by the 3 chambers in Cleveland, Youngstown, and Pittsburgh (The Greater Cleveland Partnership, the Youngstown-Warren Regional Chamber, and the Allegheny Conference on Community Development). It’s an initiative to elevate the awareness of the commitment business, community, and government leaders have made in this geographic region to spur innovation and entrepreneurship; the investments from state government in these regions has returned over $800 million. Learn more about TechBelt.
Q: What needs to happen in the region to spur economic growth and create jobs in 2010?
Supporting early-stage disruptive innovation and entrepreneurial ventures is critical to the transformation of the NEO economy (see Kauffman quote above).
State and regional government and community leaders within our region have focused on expanding sources of risk capital and the results have been dramatic. The number of pre-seed or seed investment or loan funds available for entrepreneurial ventures in NEO has grown dramatically in the last five years. Some examples of those funds which are relatively new include the GLIDE Innovation Fund and the North Coast Opportunities Fund. This is absolutely the right type of activity for individuals and local governments to consider, and we are actively supporting the development of new funds for entrepreneurs in this area.
In addition, providing guidance to entrepreneurs to foster rapid growth for their companies is essential. This is especially true for entrepreneurs in markets which have historically had small or lower growth companies. Providing intensive assistance for entrepreneurs, helping them articulate their high growth plans, aiding in identifying capital, and guiding them in achieving rapid growth is necessary for their success.
Q: With the equity markets being uncertain now, what impact might this have on JumpStart’s activities?
JumpStart is absolutely committed to investing capital in early-stage companies with innovative ideas through 2009 and 2010. With the uncertainty in equity markets, we do know that we might end up making a few more additional follow-on investments in our portfolio companies, should angel and venture investors slow their investment pace. Taken to an extreme, this may mean that we invest in fewer new companies this year versus last, since our funds may need to be used for current portfolio companies.
Q: How are you feeling about 2010? What do you see the future of our region to be?
At JumpStart, we are feeling optimistic about the region’s economic prospects because we are seeing all the conditions needed for the starting and growing of entrepreneurial ventures. The first condition is the creation of entrepreneurs with innovative ideas in large markets, and we’ve seen that activity here uptick since last year at this time.
The second is investment. JumpStart is still investing at the same pace that we have been investing. We will invest ~$4MM this year, approximately the same rate as last year. This activity makes us a top early-stage investor nationally, and is an indicator that we have the quality and flow of ideas to invest in, which will drive the region’s prosperity over time.
Lastly, we are seeing continued support for early-stage ventures in the market from VCs and Angels. We work with several partners to compile the NEO Venture Capital Report, and in doing so, see the region’s investing activity. The amount of venture and angel investing in NEO is down from last year, the decline is a bit steeper than nationally. That said, the bright spot here (as it is nationally as well) is in seed and early stage financing, which has not dropped significantly versus last year. Not all the data is available yet and won’t be until the end of December.
We are in a very different position than we were in during the tech bubble in the early 2000s. At that time, risk capital investing stopped. The situation we are in right now is different; while capital availability and the general market is affecting everyone’s decisions, nothing has stopped yet.
Financing
Q: What are the macro trends you are expecting related to venture financing?
From a macro trend perspective, we think that Cleantech will be the big opportunity. The Obama administration as well as other global governments will be generating significant demand for Cleantech technologies. It will become the biggest VC sector segment by 2010.
We also think that venture or angel deals will continue in 2009/2010, but investments may be more conservative and the average size may be smaller. We are expecting that venture firms may need to support their existing portfolio companies for longer, which at an extreme may mean that the number of new investments goes down. We haven’t seen that happen yet.
The basics become incredibly important at these times. As always, great products (those with ownable, disruptive technologies in large markets) and talented, experienced teams will be critical to companies wishing to access capital investment, loans, or grants.
One idea for entrepreneurs is to embrace online communities that match entrepreneurs to investors, mentors and service providers. A whole world of investors – literally – is available online. We’ve developed one that’s free and is quite popular: IdeaCrossing.
Entrepreneurs
Q: What advice would you give to a start up company or entrepreneurial venture during these tough times?
There are a number of very tactical steps that companies should take:
- Cut costs as much as possible and look to create revenue quickly. Cash is king during tough times.
- Spend more time fundraising and developing strategic relationships
- Communicate more. During anxious times, it’s more important than ever that people know what you are doing. When they don’t know, they get nervous.
- Focus on activities and milestones that will allow you to get the product to market or to increase revenues.
Regarding cost-cutting, some specific things entrepreneurs can do include:
- Manage expenses associated with space. Consider sharing lab space, allow employees more flexibility for telecommuting if you are able to cut down on space needed, and don’t sign options or other costly extensions on leases.
- Consider cutting down on travel expenses through web conferencing or phone calls.
- Offer equity in lieu of cash as payment to external partners such as consultants. (Equity is expensive, but cash is too. Vesting periods of 4+ years should take you beyond this uncertain period).
Q: Have you had a higher rate of portfolio companies fail recently?
We have not seen a higher rate of failure in companies at this time. The companies JumpStart works with are very early-stage companies, and they are risky ventures under any economic scenario. Because they are early-stage companies, many of them are not generating revenue yet so don’t have the risk of revenue downturn, and keeping tight control of costs is already a way of life. There is risk associated with slowdown in capital investment, and these companies could be affected by that.
Q: How many companies in your portfolio have closed their doors, and do you expect that number to increase?
We have had three companies close their doors since we have started over 4 years ago, but that is a low percentage of any early-stage investment portfolio. We have made investments in over 40 companies, so that is less than 10%.