For investors looking to go off the beaten track to find quality deals, Ohio might be the answer.
According to the most recent Ohio Venture Capital Report, venture capital activity in Ohio was up more than 80 percent in 2010, surpassing the national average, which was up only 20 percent. Due to the strength of angel groups such as the Ohio Tech Angels Fund (OTAF), East Central Ohio Tech Angle Fund (ECOTAF), and North Coast Angels — in combination with the success of state programs, including the Ohio Capital Fund and the Ohio Technology Investment Tax Credit program — Ohio saw a significant increase in pre- and seed-stage investments amounting to $183.8 million, up 78%.
What makes Ohio so ripe for investment?
1. Untapped investment opportunities – Ohio has significant deal flow in two of the most dynamic market segments — healthcare and information technology. With biosciences and healthcare leading with almost 40%, or $216.8 million, and information technology following with $164.2 million, or almost 30%, of capital invested, the vast majority of deals in the region are in these two sectors. Given the state’s regional assets such as the Cleveland Clinic, University Hospitals and The James, it’s not surprising healthcare is such a booming industry, and recent deals, such as Akebia Therapeutics, point to this sector’s growth only continuing.
2. Attractive deals for the right price – Ohio is full of quality investment opportunities that are not typical “club” deals, allowing venture firms to avoid overpaying. From more attractive deal terms, to cheaper facilities leading to better financing provisions, to lower costs of labor reducing burn rates (which typically have a favorable impact on follow-on pricing), not only are the right deals available but they’re available for the right price. Recent examples include AssureRX, which completed a successful second round that brought Sequoia into Ohio, and Manta, which just received an additional $44 million from Norwest Venture Partners.
3. Long-term vision — Avoiding “speed to market” deals and focusing on those that promote change in an industry is a proven principle of investing supported by the venture landscape in Ohio. Midwestern investors are more likely to back companies that actually create something tangible – such as a new medical device (Diagnostic Hybrids and Cardiox) or electronics products (Comet and Pacejet) due to the region’s supply chain assets and sophisticated manufacturing workforce. As such, venture firms need significant operational experience and strong technical understanding, particularly in a state that is sometimes seen as less “venture-experienced” than California and Massachusetts.
4. Supporting its entrepreneurs — Ohio has an abundance of resources for entrepreneurs across the state to help them along the way and to get their ideas out. A select few include TechColumbus, TechGrowth, CincyTech, and JumpStart.
Investing in Ohio will continue to reap impressive returns over the next 10 years. As the pace of innovation doesn’t slow down, and instead often quickens, during economic downturns, many investment opportunities are being driven by quality entrepreneurs in the area. Perhaps venture firms need to focus more on investment opportunities in the heartland of the country instead of only considering those along the coasts.
Mitchell Rosich is a partner at Athenian Venture Partners. In addition to a decade of technology venture capital experience, he has over two decades of industry experience in product and engineering development, and in the management of three startup technology companies, including Omnia, which he and his team sold to CIENA for $498M. He has been awarded 11 computer technology patents for software and hardware, eight of which have been used in commercial applications. Currently, he represents Athenian as a director on the boards of Manta Media and Comet Solutions and as an observer on the board of Sendio.
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