State funds bridge hard times, pave a path to success for Ohio entrepreneurs

Entrepreneurs and startup companies are the future of Ohio's growth. Few would argue the point, but discovering, nurturing and supporting the economic building blocks of the future takes money. For smart people with good ideas, Ohio has considerable monetary resources--as long as their plans come to fruition in Buckeye country.
 
One robust infusion of funding comes from Ohio Third Frontier, a 10-year, $1.6 billion project to re-energize Ohio’s economy by investing in emerging technologies. A $700 million renewal of the program that was approved by voters three years ago continues through 2015. Add it all up and Third Frontier officials expect to pour more than $2 billion into Ohio's entrepreneurial ecosystem over the course of the project.
 
That money could support research and development at a university, pre-seed funds for prospective new companies, or startups with dreams of later-stage commercialization and development. Ohio's New Entrepreneurs (ONE) Fund, for example, recruits young entrepreneurs to launch new ventures under the guidance of seasoned business owners, industry experts and investors. Third Frontier also recently added three new programs intended to move technology products to the commercial market faster.
 
"These funding sources have a great deal of flexibility," says Norm Chagnon, deputy chief of technology investments at the Ohio Development Services Agency, the state-run organization that distributes Third Frontier monies.
 
Third Frontier has ten programs available for startups, from the imagination stage all the way through incubation, growth and sustainability. As of June 2012, the state had awarded over $1 billion to companies representing industries including fuel cells, biomedical technology and advanced materials.
 
The Entrepreneurial Signature Program (ESP) is one program reaching beyond the initial funding stage, notes Chagnon. The effort is designed to establish powerful regional networks of entrepreneurial services and capital to accelerate the growth of early-stage technology outfits.
 
"We've seen college students come in with a concept on a napkin," says Mihaela Jekic, innovation manager with Third Frontier's office of technology investments. "By the end of these programs they're ready to raise capital and go to the next level."
 
Fundraising can be difficult for companies moving along that tricky continuum, particularly in a climate where money invested in local startup companies has dropped in recent months. The Ohio Capital Fund, established to increase private investment in Ohio companies in the seed or early stage of business development, has been depleted for the last few years.
 
Still, Third Frontier officials are confident there is enough funding available to pull companies through the "valley of death," a common term in the startup world referring to the difficulty of covering the negative cash flow in a business's early stages.
 
Funding gaps often occur after companies receive pre-seed money, as potential investors become wary of taking risks on new products, notes Chagnon. This means the state must continue to build a "critical mass" of companies that can survive the tide of changing administrations and economic fortunes. 
 
"That's the challenge for Ohio," Chagnon says. "But we have demonstrated that there's a defined strategy to funding here that will continue our momentum."
 
Ohio's commitment to innovation has helped transform entrepreneurial imaginings into real live businesses. While these adventurous capitalists know it's not easy to raise money no matter what stage their startup is in, the state and venture backing they have received has provided a much-needed spark of life during difficult times.
 
Keeping cool in a harsh climate
 
Global Cooling, an Athens-base manufacturer of portable, ultra low temperature medical freezers used to store vaccines and biomedical materials, was created in 1995 as a technology development company. It transitioned to manufacturing in 2008, a significant step in the company's entrepreneurial existence.
 
CEO Neill Lane arrived on the ground floor of the change-over. A former CEO at Sunpower Inc., Lane was hired by Global Cooling founder Dave Berchowitz. Even considering the company's longevity, its fresh focus was akin to launching a brand new startup. Global Cooling won a Third Frontier grant of about $1 million through the since-discontinued Advanced Energy Program.
 
TechGROWTH Ohio, funded by a Third Frontier grant with support from Ohio University, stepped in as the manufacturer's lead investor. The organization provided post-investment services, including introduction to a regional network of angel investors for critical “follow-on” capital. Global Cooling accessed one of those angels to help scale up production, sales and marketing of its chilly technology.

"We couldn't have done this without help from the state. It wouldn't have been possible," says Lane. "We may have raised the money, but it wouldn't have been in Ohio."
 
Global Cooling recently closed a $3 million Series A investment, a financing round made a little less stressful now that the company has a 50,000 square-foot facility manufacturing products for use all over the globe.
 
"We are in good shape; it's a nice story we have to tell investors," Lane says. "It's easier to raise money when you have more than a PowerPoint presentation."
 
Obtaining operating capital will always be a challenge, as many in the venture capital community are moving to later-stage, less volatile investments. Global Cooling is fortunate to be backed by a solid business plan, as well as what Lane deems "a microclimate of entrepreneurs, angel investments and funding" taking shape in southeast Ohio. For the burgeoning manufacturer, Third Frontier and other resources have filled in potentially disastrous gaps in the funding cycle.
 
"Raising money is something we will always have to do," says Lane. "We want to stay here and create jobs, and have been able to do that because of what's available from the state."
 
Easing the transition
 
A combination of in-state assets has been a boon for Flare Code, creator of a content management system for building mobile websites. TechGROWTH provided the initial financing, but that was just the beginning. The tech firm was also part of the Columbus-based 10Xelerator "boot camp," a mentor-driven enterprise focused on converting promising ideas into viable businesses.
 
Started by The Ohio State University Fisher College in collaboration with the Founders Factory,  and funded by ONE Fund and Third Frontier, the business booster helped Flare Code founders Ian Bowman-Henderson and Niklos Salontay "make the transition from 19-year-old college students to executives in business," says Bowman-Henderson, 23.
 
10X pointed Flare Code to companies that could use its product. The startup collaborators, both Ohio University graduates, debuted their creation last year at the South By Southwest technology and entertainment conference. In 2012, the Columbus Dispatch used Flare Code to gather all of its digital reporting for a major golf tournament into a single mobile web page.
 
The company is now concentrating on the nonprofit sector, and has built an app that allows users to create custom sites advocating their favorite charity or fundraising endeavor. When individuals promote a nonprofit on their own rather than through a third party, "that leads to higher participation and better fundraising," says Bowman-Henderson. "It makes people more passionate about their cause."
 
The next challenge for Flare Code is acquiring additional capital; and the company has been working hard to produce more revenue as it eyes that next outside funding bump. The nonprofit sector is a smaller vista than Flare Code's founders originally intended, but in a trying venture capital landscape, a niche outlook is necessary.
 
"You go from wanting to be the be-all, end-all to fitting a niche," says Bowman-Henderson. "It's about small goals for more suitable returns."


For a partial list of Ohio Third Frontier programs, click here.
Click here to download a spreadsheet detailing all OTF awards.