Dec 4, 2019

How Ohio boosted venture capital investment

Illustration of an Ohio interstate sign being watered by a hand in a suit

Illustration: Sarah Grillo/Axios

In the battle for talent and economic growth, U.S. cities are often competing with each other to become the next tech hubs and lure new investment and jobs. In Ohio, however, venture capital investors in three cities are taking a different approach by working together to boost the state's startup appeal.

Why it matters: The midwest is hardly a hotbed for venture capital activity, the majority of which goes to New York, Massachusetts and California. But legacy rustbelt states see a chance to attract entrepreneurs looking for alternatives to pricey cities like San Francisco.

Driving the news: The Ohio Third Frontier Commission, a statewide economic development initiative, recently approved about $77 million to support tech startups throughout the state. It's invested more than $2 billion since 2003.

  • A sizable portion of the latest round of funds went to three of the state's venture development funds: CincyTech in Cincinnati, JumpStart in Cleveland and Rev1 Ventures in Columbus.

What's happening: After years of population decline, Cleveland, Cincinnati and Columbus are seeing growth again. Local business leaders there have been focused on using their legacy industries to their advantage and collaborating on deals, advising each other on portfolio companies and exchanging tips for attracting executives from the coasts.

Columbus is one of the fastest-growing cities in the midwest. It's the state capital and home of Ohio State University and major corporations like Nationwide Insurance, Cardinal Health and Big Lots.

  • Tom Walker, CEO of Rev1 Ventures, created a 70,000-square-foot startup studio in an old mattress warehouse. As it's grown, he said he's now able to attract more co-investors from the west coast and it's gotten easier to bring senior executive talent from other regions.
  • Investing in entrepreneurs who are women and people of color is a priority for the three firms. About 50% of Rev1 Ventures' portfolio has diverse founders and leadership teams.
  • "The best way to win the talent war is to provide the best opportunities for the most diverse population," Walker said.

Cincinnati's legacy industrial economy has been somewhat challenging to revamp, said Mike Venerable, CEO of CincyTech, a seed fund focused on life sciences and digital startups. Technologies spinning out of Cincinnati Children's Hospital and local universities have been central to the strategy.

  • Venerable expects e-commerce and logistics to grow thanks to the new Amazon hub landing in nearby Kentucky.
  • Several of CincyTech's investments have been acquired by out-of-state companies.
  • "Buyers are finding really good talent here and there's a lifestyle arbitrage factor that goes into it," he said. "It's much easier to hire and grow here and employees tend to be more loyal. Maybe they're not moving their headquarters here, but it's easier to scale it here."

Cleveland has leaned into its health care and medicine expertise since the bottom fell out of manufacturing jobs, said Ray Leach, CEO of JumpStart Inc., a Cleveland-based nonprofit venture development organization.

  • JumpStart saw significant exits from investments about four years ago, and now the goal is to have two to five exits across Ohio every year.
  • Cleveland and the surrounding seven cities in northeast Ohio account for 40% of the state's population. "But the culture of Cleveland was not oriented toward entrepreneurs," he said. "It's taken 10 to 20 years to get that flywheel going."

The big picture: The public-private collaboration and cross-city relationships is what has made the difference for Ohio, the investors say.

  • Leach, Walker and Venerable meet frequently and have a running text-message chain to compare notes.
  • The state's investment, Venerable said, has let each city "spin up what made sense for it" allowing each to develop a distinct entrepreneurial ecosystem without directly competing for resources.

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