Ohio Third Frontier | Ohio Investment Capital: Growth and Resilience in a Tough Economy

Arisdyne Systems, Inc. - Innovation for the Alternative Fuel Industry

The ethanol industry is under pressure to be competitive with petroleum-based fuels and to increase yields to a level that makes renewable fuels not just an option, but a cost effective and profitable segment of our alternative energy economy. Innovative companies such as Cleveland-based Arisdyne Systems Inc. aim to help ethanol producers increase yields and reduce the cost per gallon. In March 2008, Arisdyne was awarded a $1 million grant from the Ohio Third Frontier Advanced Energy Program. The company has secured more than $7.5 million in private equity funding during its first year of operation, including out-of-state investments from Houston-based Chevron Technology Ventures and Georgia-based Cordova Ventures.

Capital is the lifeblood of any business, but especially small, start-up technology-based businesses. Access to capital is a critical factor that often determines whether a great idea ever becomes reality. Recognizing this, Ohio has made capital formation a pillar of its technologybased economic development strategy. Mindful of the need to have sufficient capital resources available at all stages of a company's creation and maturation, Ohio has been one of few states to foster capital growth across the entrepreneurial continuum from the earliest preseed stage funding through later stage venture capital. It has accomplished this through Ohio Third Frontier, the Technology Investment Tax Credit Program, and the Ohio Venture Capital Authority. Applying this comprehensive and sustained strategy, Ohio has made significant progress in a relatively short period of time.

Dr. Michael Camp

Steady Focus In Uncertain Times - 2008 Ohio Venture Capital Report

In his recently published "2008 Ohio Venture Capital Report - Steady Focus in Uncertain Times," Dr. Michael Camp, Director of the Center for Entrepreneurship at The Ohio State University's Fisher College of Business, reported that "in a year when the U.S. venture capital industry realized not just a decline in total investment, but one of the more significant drops in the last 30 years, Ohio's total venture capital investment in 2008 was $446 million in nearly 200 companies."

One of the most notable findings of the report was that Ohio's early-stage investment capital increased from $143 million in 2007 to $283 million in 2008. This represented a 67 percent increase in year-to-year investment activity at a time when the national investment activity level decreased by 20 percent. The momentum has been generated, in part, by Ohio Third Frontier's steady investment in more than 40 pre-seed funds, and more than $30 million in Technology Investment Tax Credits issued to active angel investors in the last several years. Dr. Camp observed that, "Ohio's angel investment community is one of the strongest and most active in the nation with more than $186 million in cumulative investment in the last five years."

Rosalyn Baxter-Jones, MD (pictured) along with Michael Ross, MD and Dean Koch founded CerviLenz Inc. in 2008.

CerviLenz - Predicting
Preterm Birth Risk

More than 500,000 babies are born preterm every year and are at risk of lifelong, even life-threatening health problems. Every day of pregnancy is important for the baby, and every baby deserves a healthy start on life. CerviLenz, Inc., based in Chagrin Falls, can help. CerviLenz makes a disposable tool to help doctors and midwifes easily assess whether a pregnancy is at higher risk for preterm birth. In the spring of 2008, CerviLenz received $350,000 from Ohio Third Frontier partner JumpStart, Inc. A few months later, CerviLenz received $200,000 in seed financing from the North Coast Angel Fund. In May 2009, CerviLenz raised $4 million in the company's initial round of venture funding from two Midwest venture capital firms: Chrysalis Ventures and Arboretum Ventures.

According to the same study, between 2004 and 2008, total venture capital investment in Ohio grew by 13.2 percent per year (from $243 million to $445.6 million) - more than double the annual growth rate of total U.S. venture capital investment during the same five-year period (5.1 percent per year). The Ohio Venture Capital Authority has contributed significantly to the growth of venture capital activity in Ohio. As of September 30, 2009, the Ohio Capital Fund has committed $108 million to 17 Ohio-based and four out-of-state funds. Those 17 Ohio-based funds include eight that have established a new presence in the state. Collectively, these new-to-Ohio funds give Ohio companies access to more than $600 million in venture capital for later stage investments. The four out-of-state funds represent more than $1.6 billion of venture capital that is also within reach of Ohio technology companies.

While Ohio was not immune to the downturn in later-stage venture capital, our state did show greater resilience than the nation as a whole. At a time when many other states realized declines of as much as 50 percent in the year-toyear investment activity from 2007 to 2008, the decrease in Ohio's venture capital investment was slightly less than 4 percent.

CH Mack - Providing Solutions for Long Term Care

CH Mack Inc., based in Cincinnati, provides a case management solution that extends the promise of consolidated Electronic Medical Records to long-term care scenarios. These solutions enable healthcare, human services, and managed care organizations to reduce healthcare costs, improve quality of care, and shorten access time for delivery of services to a rapidly growing population in need of health and human services. CH Mack provides true seamless integration with both provider and payor systems. To date, CH Mack, a portfolio company of Ohio Third Frontier Partner Queen City Angels, has received more than $7 million in private equity including an investment from Draper Triangle Ventures.

In total, Dr. Camp's report suggests that Ohio has done a good job in utilizing its strengths and attracting investment in Ohio companies that, in the past, would more than likely have found its way to east and west coast opportunities.

A cautionary note was given in the Camp report that overall investment nationally may decline for the next several years, and that both public and private efforts in Ohio must continue to focus sharply on making the state's portfolio companies highly attractive to follow-on capital if these positive results are to continue. There is no question that Ohio is up to the challenge. The SRI Report, summarized on page four of this report, determined that Ohio Third Frontier and other state programs have not only dramatically increased the availability of earlystage capital, but have also markedly improved the entrepreneurial environment in Ohio that gives rise to investment-worthy companies. SRI stated that, "The Ohio Third Frontier has successfully filled in the missing elements of risk capital and entrepreneurial skills, and catalyzed the connections between the various elements in the technology commercialization continuum ensuring that the whole is greater than the sum of its individual parts."

With meaningful and sustained support of activities across the spectrum of entrepreneurial needs, Ohio will weather the tough economy and continue to be a winner in the investment capital arena.