S. Michael Camp, Ph.D.The Center for Entrepreneurship
The Ohio State University
September 25, 2007
The Ohio Capital Fund Early Stage Summit III
Ohio Venture Capital Overview
Confusing Messages
“(Ohio) VC investing hits bottom . . .”
“Ohio venture capital plummets . . .”
“Ohio venture-backed companies have growing economic impact . . .”
“Ohio ranks best in Midwest for venture capital investment . . .”
“Venture capital flows to Midwest life sciences at record rate . . .”
It Depends
• Source of Data– Timely, reliable and relevant
• Unit/Level of Analysis• Definitions and Selection of Metrics• Time Frame
– Sound research design and methodology
• Agenda– Regional collaboration and agreement on use
Problems with National Data:Ohio Seed and Early Stage Investment (000)
Collaborative Project Goals
• Ohio Capital Fund– Fund compliance– Economic impact
• State-Wide, Cross-Regional Assessment– A single reliable source for data
• Project future needs, demand, and opportunities• Measure economic impact• Promote unique investment opportunities• Inform public policy
Regional Collaboration
• State and regional leaders take initiative– BioEnterprise– CincyTech– Dayton Development Coalition– JumpStart– Regional Growth Partnership– TechColumbus
• Focus of analysis and time frame– Seed and early stage investment activity– 2002 - 2006
Definitions
• Stage of investment– “Seed Stage Investment” includes:
• startup, non-VC seed, seed, individual, angel and TITC funding
– “Early Stage Investment” includes:• first round or early funding
– “Growth Stage Investment” includes:• expansion, growth, “later stage” including explicitly
recorded 2nd, 3rd, 4th, 5th and later rounds of funding
Ohio Seed & Early Stage Investment:Number of Companies
Ohio Seed & Early Stage Investment:Total Dollars Invested
Ohio Seed & Early Stage Investment:Total Dollars Invested by Stage
Ohio Seed & Early Stage Investment:Total Dollars Invested by Stage
Ohio Seed & Early Stage Investment:Percent of Dollars Invested by Industry (2002-2006)
Ohio Seed & Early Stage Investment:Percent of Investment by Geography
Ohio Seed & Early Stage Investment:Weighted Moving Average Investment per Stage
Stage of Financing
Average Annual Investment per Company per Year
Average Total Investment per Company
Seed $530,000 $1.06 million
Early $2.47 million $4.94 million
Growth $6.89 million $13.78 million
• Weighted moving average weighted heavier for 2004-2006• Data have been scrubbed for outliers (e.g., Sky Bus)
Ohio Seed & Early Stage Investment:Estimating Future Capital Demand
• 2 year development cycle per stage• 50% attrition rate from seed to early and early to growth stages• conservative 5% annual growth in average investment per company• conservative 6% annual growth rate in deals• no other investment activity considered (only new seed deals)
Ohio Seed & Early Stage Investment:General Outlook
• Seed level funding is accelerating in Ohio, suggesting a surge in new deal flow
• Better accounting of deal activity• New influx of risk capital• Deal quality and aggressive grassroots networking• Solid technological advancements in key technologies
(e.g., life sciences, IT, materials)• State/regional policies/programs designed to encourage
seed & early stage investment (e.g., Third Frontier, ESP)• State programs designed to encourage advanced R&D in
select target industries (e.g., Wright Centers)
Ohio Seed & Early Stage Investment:General Outlook (cont.)
• Four to six year lag from lab to market, suggests a pending acceleration in idea/deal flow in Ohio
• Will require focused commercialization strategies
• Two year lag in the need for follow on funding for surviving seed deals suggests a pending surge in early and growth stage funding over the next 4 to 5 years
• Including deals in the pipeline in 2007 and new activity between 2007-2011
Ohio Seed & Early Stage Investment:General Outlook (cont.)
• Ohio’s seed-level funding needs in next five years could easily exceed $330 million
• Focus only on new activity (2007-2011)• Assumes 6% annual growth rate in number of new deals• Assumes 5% annual growth rate in company investment
• Additional funds necessary to take surviving new seed companies through growth in 5 to 7 years could easily exceed $2.1 billion
• Assumes 50% attrition from seed to early stage• Assumes 50% attrition from early to growth stage
Ohio Seed & Early Stage Investment:General Outlook (cont.)
• For every $1 in seed funding, Ohio needs approximately $7 dollars in follow on funding to adequately fund surviving ventures
• Assumes an average of 2 years per company per stage
• Funds will have to come from:• New independent funds• New sponsored funds (e.g., OCF, Third Frontier seed
and validation funds)• Non-domestic funds
Ohio Seed & Early Stage Investment:General Outlook (cont.)
• Rate of investment in Ohio by funds from outside Ohio is increasing
• Less competitive climate (i.e., better valuations)• Access to unique technologies and talents• Increase in qualified deals through angels
• More research needed on attractiveness of VC investing in Ohio
• Valuations and returns
Ohio Seed & Early Stage Investment:General Outlook (cont.)
• The future is ours and we must be the champion of our own story
• New regional funds are difficult to raise• Convince LPs to put money in Ohio• Partnership is in place through OCF
“You teach people how to treat you.”
Dale Carnegie
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