July/August 2005

Above: Gabriel Torok, CEO of PreEmptive Solutions Inc., said JumpStart's help is a major reason the Euclid software security developer will stay in northeast Ohio. Photo by Marc Golub.

Looking for Bright Ideas: regional help for startups and young firms
by Dee Logan and Laura Freeman

In 2002, Entrepreneur.com online magazine ranked Cleveland/Lorain/ Elyria No. 61 out of 61 cities for entrepreneurship. The rating was based on entrepreneurial activity, small business growth, job growth and risk.

“That was the catalyst,” said Tom Ruhe, marketing manager for JumpStart Inc., one of a crop of entrepreneurial development and funding organizations taking root in northeast Ohio. “If we continue not starting new businesses, our economy will continue to slump and we’ll continue to decline.

“One of the action items that came out of that report was to start an organization like JumpStart to address the needs of starting and accelerating the growth of high-potential ideas into new companies.”

Ruhe said JumpStart identifies and invests in early-stage northeast Ohio companies with the potential to become a $30 to $50 million company within five to seven years.

“We’re looking for any kind of idea—we don’t care if it’s technology or polymers or whatever,” Ruhe said.

Gabriel Torok, the chief executive officer of PreEmptive Solutions Inc. in Euclid, said JumpStart has been valuable to his company. His 10-employee firm, founded in 1995, provides software security tools that provide hacker protection for users of Java and . NET technologies.

“In addition to financial assistance, JumpStart provides an entrepreneur in residence and a variety of consulting services,” Torok said. “JumpStart really helped our business establish its roots, and is a major reason we’re staying in northeast Ohio.”

PreEmptive is growing. Torok is looking to fill two openings in his office, but not before acquiring more space. The company is moving to Mayfield Village’s Beta Drive technology-based office park. The new building will increase their space from 1,100 to 2,800 square feet.

“We just got a deal we couldn’t refuse,” Torok said. “We’re completely out of office space; we have somebody sitting in our conference room, that’s how bad it is.”

The deal is part of a $50,000 development agreement between Mayfield Village and Panzica Investments. The newly formed investment company, which hopes to revitalize the Beta Drive office park with 24 tech firms, is offering half-off rent discounts and is seeking angel investments.

Help for young businesses

JumpStart Inc. was created early in 2004 by Case Western Reserve University and NorTech, a private sector-supported economic development organization. Because the region had lost many manufacturing jobs and hadn’t benefited from the wave of new technology-based job growth in the 1990s, there was a clear need to create new jobs and help the region’s economy.

NorTech hired a consulting firm to study how the northeast Ohio region compares to other metropolitan service areas. Among the 61 largest MSAs in the country, northeast Ohio ranked in the bottom 10 percent.

NorTech, or the Northeast Ohio Technology Coalition, is an organization of technology and business leaders who have a vision to improve the region’s economy through science, technology, innovation and entrepreneurship. It is a privately funded, nonprofit organization.

Dorothy Baunach, founder, president and executive director of NorTech, said technology is at the heart of what NorTech does.

“We defined a set of technology areas where we hope to create industry clusters, or industries of the future,” Baunach said. “We work with companies from small startups to large corporations, taking a look through their eyes at how we can accomplish this.”

The NorTech board consists of a diverse group of 50 regional leaders, including university presidents, the director of NASA Glenn, CEOs and heads of corporations, plus entrepreneurs from technology companies.

The NorTech staff is concentrating on specific technology sectors such as energy and propulsion that may leverage the region’s strengths and stimulate growth.

The biggest project in that area is fuel cells and alternative ways to produce energy. Other sectors include polymers and advanced materials, nanotechnology, information technology and healthcare.

“We look at places we can invest state and federal dollars and see how we can take that research and move it toward commercialization or the production of products,” Baunach said. “Then you have to decide if that product is something you can build a company around or just a product to be enveloped by an existing company.”

NorTech was instrumental in the formation and development of a variety of organizations. Included are BioEnterprise, Ohio Aerospace Council, Ohio Fuel Cell Coalition and Ohio Polymer Strategy Council.

NorTech also has been active in several state-level advocacy initiatives, including the Ohio Capital Fund that will provide $100 million in early-stage funding for technology ventures and the Third Frontier Project, the state’s technology initiative. The latter has resulted in $95 million in research, development and commercialization funding for northeast Ohio.

Les Vinney, president and CEO of Mentor-based Steris Corp., is chairman of NorTech.

“Hundreds of jobs have been created or preserved thanks to the state’s investment in our future,” Vinney said. “Those investments must continue and grow if Ohio and our region are to succeed in the fiercely competitive global economy.”

Moving the needle

JumpStart receives funding from several sources, among them the state of Ohio, northeast Ohio corporations, and area foundations including the Cleveland and Codrington foundations. JumpStart also generates some revenue through event fees.

“We are so fortunate to have the support of the corporate community. Without it, it would be very difficult to move the needle,” Ruhe said.

The portfolio of companies that JumpStart nurtures is an eclectic mixture. For example, Embrace Pet Insurance provides pet health insurance policies. ComSense Technology Inc. manufactures high temperature pressure sensors for engines that improve fuel efficiency and lower emissions. Ayalogic Inc. is a developer of extremely secure instant voice messaging and voicemail systems for computer and phone networks.

JumpStart doesn’t invest in what it terms “lifestyle entrepreneurs,” such as restaurants and hair salons.

“It’s not that we don’t think they’re important, it’s just that we’re trying to make up for so much lost time that our focus has to be exclusively on high-growth potential opportunities because they’ll have a greater impact on the economy in a shorter amount of time,” Ruhe said. “We’re working with companies that are in the very early stages and need the services we can provide for them.”

In return for its investment, JumpStart usually receives equity in the company and some form of participation on the company’s board of directors.

“Beyond investing, our team provides a variety of business development services to client companies to help insure their success, both in investment capital and intellectual services,” Ruhe said.

JumpStart gives entrepreneurs detailed feedback and intensive coaching.

“We advise, assist and accelerate,” Ruhe said. “We work very extensively to help them construct a business presentation. The process they go through to receive money from us is really a practice session for the process they’ll eventually have to go through.”

JumpStart’s first fiscal year ended June 30. The organization has received 300 applications and has committed $2 million to date.

BioEnterprise assistance

Another person with high hopes and an idea was James Kuras, founder of AxioMed Spine Corp. of Beachwood. He visualized a way to advance the standard of care for patients with degenerative spinal disease. In 2002, his new firm began developing a next-generation artificial spinal disc using innovative design and materials. Clinical trials begin this year.

AxioMed is one of about 20 bioscience companies in northeast Ohio that received more than $60 million in venture capital investments last year, a 200 percent increase from 2002. The region now boasts more than 350 bioscience firms. In the last quarter, there was more venture capital investment in Ohio bioscience companies than in any other Midwestern state except Minnesota.

AxioMed was assisted in its planning by Cleveland-based BioEnterprise Corp., a business formation, recruitment and acceleration initiative designed to grow bioscience companies.

Created in July 2002 by Case Western Reserve University, the Cleveland Clinic and University Hospitals Health System, BioEnterprise works with a select group of companies to help them grow. A new partner, Suma Health System, came on board more recently.

BioEnterprise helped AxioMed define its market and evaluate the spinal implant sales potential, a necessity for attracting venture capital.

BioEnterprise’s objective is to make sure bioscience companies getting started or coming to the region receive the support they need to get up and running.

“We help companies get started in a variety of ways—provide management assistance, collaborative partners, research, funding, whatever it takes,” said Paul Nickels, director of corporate communications for BioEnterprise. “Basically what we do is help them to find their way, and find initial funding they need.”

BioEnterprise doesn’t actually fund companies but helps companies pursue capital. The nonprofit organization expects to hit its goal of helping bioscience companies in the region raise $100 million this year.

“From the outset we set a very simple metric for our success,” Nickels said. “Our goal is that in five years we would raise $500 million.”

Other BioEnterprise clients include emerging medical device, biopharmaceutical and health care services firms.

“We provide management counsel, business development and capital access services to bioscience companies,” said Baiju Shah, president of BioEnterprise. “Our efforts have created, recruited and accelerated more than 40 companies that have attracted more than $150 million in new funding in two-and-a-half years.”

The organization can provide clients with experienced bioscience management and access to clinical research and institutions.

Nickels said BioEnterprise looks at all the opportunities in the region, both established businesses and businesses that are just a gleam in an entrepreneur’s eye, and carefully selects those it feels are best.

“We enter into an agreement, help them with their business plan, find funding, find the employees they need—any way they need help growing, we provide them with that help,” Nickels said.

BioEnterprise is also looking for opportunities to recruit from external markets looking to gain a foothold in the U.S.

“We’ve had some success on that count,” Nickels said. “We have brought a couple companies from Israel and one from Japan that have set up operations in Cleveland.”

Holding their breath

The organizations involved in northeast Ohio’s economic resurgence are keeping tabs on how they affect the region’s growth. JumpStart has formed a partnership with Cleveland State University to monitor its impact. By the end of the year, CSU will publish an Entrepreneurial Confidence Index that will track these statistics.

This year, Entrepreneur.com ranked the northeast Ohio area No. 31.

“Our data is two years in arrears so our impact won’t likely be known for another year or two,” Ruhe said. “We’re going to be watching that.”

D.E. Logan is a Concord freelance writer. Laura Freeman is assistant editor of the Lake County Business Journal.