Local Investment Trends Better than National

Starting and growing a high potential business takes serious money. Because startup investing is risky and does not offer quick returns, traditional bank financing is not always an option for seed and early-stage companies. Instead, entrepreneurs, who have tapped out their savings, personal credit, family, and friends, often turn to angel investors and venture capitalists.

For those unfamiliar, the angel community is made up of individual investors willing to bear the high risk associated with seed stage startups. They provide money “out of their own pockets” to fund entrepreneurs who are seeking to validate their proof of concept and develop a prototype. Venture capital organizations, on the other hand, are professional investors with a responsibility to their partners. They seek to mitigate risk by investing in startups that have grown from seed to early-stage and have products gaining traction in the market.

While the investment activity of angel and venture capital investors is critical to individual entrepreneurs seeking to grow their businesses, it is also essential to the development of entrepreneurial ecosystems. With an influx of capital from investors, Northeast Ohio entrepreneurs are able to build their companies from simple business plans to freestanding, profitable companies, while at the same time transforming the economy of the region by creating new jobs and industries.

Although raising capital in the aftermath of a national recession may seem daunting to startups, venture capital and angel investors continue to support Northeast Ohio entrepreneurs looking to turn their ideas and research into competitive products and services. According to the findings of the Venture Capital Advisory Task Force, Greater Cleveland’s fledgling companies raised over $237 million in 2010—more than double the amount raised in 2009. In fact, since 2006, 205 unique regional high potential startups have attracted more than $1.4 billion dollars from hundreds of investors.

It’s not just Northeast Ohio investors that have seen the potential in the quality of our entrepreneurs and technological innovations. Last year alone 42 out-of-region investors, including five headquartered out of the country, recognized Northeast Ohio’s highly competitive investment opportunities and funneled money into 28 seed and early-stage companies. In fact, investment in our region is outpacing much of the country as the growth rate of capital raised by Northeast Ohio companies (137%) exceeds the national growth rate of 19%.

The investment opportunities have not been limited by stage or industry. Entrepreneurs looking to launch and grow their seed stage businesses successfully raised $23 million and accounted for 55% of the deals in the area, while other early-stage companies benefitted from increased growth stage investments, accounting for 51% of the total dollars invested in Northeast Ohio. The Greater Cleveland region is a center for healthcare innovation and our entrepreneurs involved in medical innovations collectively raised $136 million to grow their technology-based companies. Information technology and clean technology businesses were also successful in raising capital, raising $74 million and $24 million respectively.

Investors have also benefitted from Northeast Ohio’s entrepreneurial ecosystem. While angel and venture capital investors enable entrepreneurs to continue on their high growth trajectories and bring their innovations to market, the process of growing a startup into a mature firm requires the better half of a decade. In 2010, the patience of some angel and venture capital investors paid off. Nine Northeast Ohio firms exited the market through sales or mergers that allowed investors to walk away with substantial gains. Last year’s venture capital and angel investing activity points to the strength of our region’s entrepreneurial ecosystem and demonstrates investor commitment to Northeast Ohio’s innovative companies. If you’re an entrepreneur with a high potential idea or seed stage company, get connected to the right resources to grow your unique company by filling out an application with the JumpStart Entrepreneurial Network.

Leah’s primary focus as JumpStart’s Market Analyst is developing a deep understanding of the key challenges and opportunities facing entrepreneurs and early-stage companies. Using her experience leading research projects and framing problems to identify creative solutions, Leah works to build stakeholder relationships, ensure the growth and success of client and portfolio companies, and drive organizational strategies. Additionally, Leah brings her insights to life through communications and advocates for and connects entrepreneurs to additional capital and service resources beyond those provided by JumpStart.