November 25, 2008

Regional Cooperation in Action

The ARCHAngels collaborates with a number of NEO Economic Development resources. We especially like working with like-minded people like Jim Cossler, Chief Evangelist of the Youngstown Business Incubator. Here's a taste of Jim's wit and enthusiasm:     

“We are pleased to announce that YBI portfolio company, Eris Medical Technologies, has received a $100,000 investment from the Innovation Alliance Fund. The Fund is a partnership of Lorain County Community College, the University of Akron Research Foundation, and GLIDE, an Edison Incubator sister organization of YBI.   

Eris will use the proceeds to finish the Beta test trials and speed the commercialization of the firm's revenue integrity technology that identifies lost charge capture opportunities for hospitals and medical centers. You can learn more about the product at www.erismed.com. 

Akron and Lorain investing cold, hard cash in a Youngstown software company.   

That, ladies and gentlemen, is real regional cooperation.”     

Thanks to Jim, the Youngstown Business Incubator, Lorain County Community College, the University of Akron Research Foundation, and GLIDE for making this possible.  To find out more about Jim and the Youngstown Business Incubator, please visit www.ybi.org.

October 2, 2008

Higher Education in Science and Engineering

According to the National Science Board “Science and Engineering Indicators 2008,” undergraduate, graduate and doctoral science and engineering students are finding it more challenging than ever to complete their degrees. Science and engineering graduate enrollment in the United States peaked with 583,200 students in fall 2005 and has been declining. The report attributes this to declining foreign student enrollment. The number of science and engineering bachelor’s and master’s degrees also peaked in 2005 and has declined. The number of science and engineering doctorates awarded by United States academic institutions reach a new peak of almost 30,000 in 2005 with the largest growth in engineering and the biological and agricultural sciences.

Tuition is also a cause. In 2003-2004, the median level of debt was $19,300. Students are not getting government assistance either. Only 21% of full time science and engineering graduate students get their financial support from the government. Those that do get support are more likely to be in the physical sciences. Mathematics, computer science, social science and psychology are less likely to get support from the government.

With the facts above, it is no surprise that the number of science and engineering students are declining. With less money available to support students, and tighter visa standards, the numbers are on the decline. We should be encouraging students to pursue these fields. Intelligent, innovative science and engineering students are a large part of creating new, exciting business in the United States.

September 18, 2008

I found the following Executive Summary tips in an article in IP Marketing E-News, Tuesday September 16, 2008 edition.

Calling all angels: 11 tips for improving your executive summary

An executive summary is a great way to introduce a university start-up to potential angel investors, but not all of these documents are created equal -- and investors will quickly discard those that don't hit their hot buttons quickly. Here are 11 tips from Frank Peters, chairman of Tech Coast Angels, for getting the most out of your executive summary:

  1. Limit it to two pages. Keep the presentation short, and angels will be more likely to respond.
  2. Don’t use a fancy cover page or other "window dressing."
  3. Create a “footer” on each page with your contact information, but forget the confidentiality notice or NDA. "None of us sign non-disclosure agreements; we just see too many deals to be bound by your concerns about trust; get over it! If you really do have some secret sauce, keep it to yourself for now; we can agree on a NDA if we go into due diligence," Peters says.
  4. Make your audience feel they are getting a “sneak peek” for insiders.
  5. Use bullets: Busy angels may just glance at the summary. "I want to be able to scan the 2 pages and see the most important issues jump off the page," Peters advises.
  6. Get right to the point. Peters' advice: "Avoid the mistake of creating context; I don't need you to tell me how your opportunity fits into the history of the personal computer age. Tell me what this company is all about, quickly!"
  7. Cover all the bases: "What are you doing? What's the product or service? How will you market the product? Got competitors? How do you compare? Create paragraph headings (another form of eye candy) to delineate these topics," he says.
  8. Briefly describe your team, and your inventor. If you have an advisory board with top credentials, include that too. Recognizable names and institutions do impress investors.
  9. Provide financial projections -- a five-year estimate, if possible, using tables but no fancy graphs. Include revenue, units sold, cost of goods, "but keep it simple," Peters urges. And don't overstate the potential. "Avoid showing us projections with 70, 80 or 90% gross margins. You think we'll start drooling, right? Wrong! We see entrepreneur naivete. With margins like that you obviously have no idea what it costs to run a successful business."
  10. Specify the amount of money you are looking to raise, and make sure it's in the angel's range. "Like Goldilocks, not too much or too little," Peters says. "If you're asking for $6M then you're wasting my time, I'm an angel investor and our sweet spot is $1, $2 or maybe $3M; go to a Silicon Valley VC if you really need that much."
  11. Include a pre-money valuation if you have one. If you haven't gotten a good ballpark number from discussions with potential investors, Peters says, "leave it for a follow-up meeting where there will be some give and take. Many, many entrepreneurs overstate their valuation; it's a hot button and a huge turn-off for investors," he comments.

Go to: The Frank Peters Show

September 5, 2008

Early-Stage Venture Capital in the Midwest

According to Midwest Venture Partners, early-stage venture capital is investment after angels and seed money, but before expansion / later stage Venture Capital firms. There is a strong need for early-stage venture funding in the Midwest. This region has the raw materials and resources to build successful companies, but lacks this integral round of funding. Additionally, Angels and Seed funds are noting the quality and quantity of the deals coming out of the Midwest. Right now, technology start-up companies are typically able to raise $1-1.5 million from initial investors. To get to the next level and attract national Venture Capital firms and partners, they need $3-5 million. This is causing the best companies in the region to go elsewhere for funding. What is the reason for the gap?

Funds invest their money based on the amount of capital raised. For example, if a fund raises $20 million, it can invest in 10 companies at $2 million per company average. The fund has an accepted period of time to invest the money, usually 3 – 5 years. There are roughly three segments of funding available to start-up companies. Angels or seed funds are small and typically invest early in the business with small amounts of money, in the $500,000 to $2 million range. Once that round has been completed, early-stage venture capital ideally comes in with larger amounts of money, in the $3 million to $5 million range. Finally, after the company has proven their product in the marketplace, and is ready to ramp up, National Venture Capital firms take interest and invest large amounts in the multiple millions.

Historically, it has been shown the early/seed funds outperform investment alternatives. Over the course of 10 years, they return close to 35% compared to the S&P 500 return of 5% in the same timeframe. As a fund becomes larger by attracting more investors, it becomes harder to invest in early-stage businesses. The average investment size has to get bigger forcing the management to look to later in the business cycle, which have larger needs. Early-stage funds are making up a smaller segment on the investment arena as the investors put more money into the successful early stage funds, making them to big to bother with small investments. The management is more than willing to participate in larger funds with higher fees and potential payoffs for them. Why not create more small funds to maximize the return, and make money available to more companies in this critical stage of development? If we are truly interested in growing entrepreneurial firms, this issue has to become a priority.

August 16, 2008

It Works

It Works!

I received a call from a college senior who, with some friends, is planning to start an internet business when he graduates next year. Not a cause for celebration, or even unusual. What makes this conversation noteworthy are the answers to my questions.

This budding entrepreneur was looking for advice on the business model, help with writing the business plan and presentation, and sources of funding available in Northeast Ohio. This crew is representative of the community's definition of the target of the new entrepreneur. They are in just the right life-stage to take the risk of starting a business: no baggage such as a mortgage and family with many mouths to feed; already in the mode of living like a college student (i.e. Ramen for dinner, limited wardrobe, no sleep) because well, they are college students; no credit rating to damage (probably no credit available); and finally, fewer distractions from others in their network like aged parents, problem kids, that brother-in-law, and so on. They heard about the entrepreneurial support resources available in Northeast Ohio and sought them out. This in and of itself is very encouraging, and could be the end of the discussion, but it is not.

What really gets me amped is that the support groups he talked with all shared a similar message and all are following through with face-to-face meetings and real actions, not feeding them confusing, disparate and mis-leading information or empty promises of help.

I always ask a prospective entrepreneur who they have talked to up to that point. In this case, he had spoken with representatives from GLIDE, JumpStart, and TechLift. The company isn't ready for JumpStart's process. Yet, after evaluating their story, JumpStart made referrals to other groups in a better position to help a pre-company, company. The entrepreneur has meetings scheduled with TechLift's appropriate Entrepreneur-in-Residence and with GLIDE. The entrepreneur was able to relay the advice to date was consistent between each source and he had what he believes to be a clear course of action, which he didn't have when he started. There wasn't the usual story of confusion, frustration, wasted time, effort and in many cases money that is a prefix to most of the conversations I have with entrepreneurs.

We, the organizations dedicated to the support and nurturing of the people that are helping to build the new Northeast Ohio economy, are talking. We are sharing stories, identifying the best sources of help, creating and building the processes and methods that can shorten the learning curve and make the connections to get the ideas to commercialization and into the market faster, and in some cases getting them to failure quicker. This is great news! We should celebrate with a tall cold RooBrew. (More on that later)

August 8, 2008

The missing link

Whether we’re referring to evolution or ecosystems or experiments, most in the science community have come to understand that things don’t simply happen: they result. Changes in climate cause adaptation in animals or the addition of a catalyst to an experimental system results in a faster reaction. Yet, when it comes to technology transfer, to actually commercializing the patented products in which we have invested years of research and millions of dollars, we are too often content to wait for an industry opportunity to present itself. We assume, despite myriad evidence to the contrary, that tech transfer happens, rather than results.

In a 2007 paper on “University Licensing,” Georgia Tech University’s Marie Thursby and Emory University’s Jerry Thursby concluded that the recent growth in licensing creates a misleading picture, ignoring vast variations in licensing success among universities, scientific fields and technologies. Many universities do not make money on technology transfer, the authors asserted, explaining that the bottom 25 percent of universities reporting to the Association of University Technology Managers bring in less than $360,000 per year in licensing, while spending as much as $213,000 on legal fees alone.

According to the National Science Board’s Science & Engineering Indicators, within the United States:
  • Universities account for about 75 percent of basic research, but complete only a fractional percentage of development
  • Industry is responsible for about 90 percent technology development
  • Universities derive 63 percent of their research budgets from government and only 5 percent from industry
  • Overall, industry funds 62 percent of research compared to government’s 30 percent

Universities expect that licensing deals and successful commercial products will simply happen if they conduct careful and useful research. However, the widening gulf between universities and industry, which has resulted from mutual misunderstanding more than federal patent laws, can only hamper the transfer of technology from university labs.

To achieve the result of successful tech transfer, universities need to address industry needs, set up professional points of contact to carefully market their technologies and be a partner, rather than an adversary, in industry research. Universities also must work to combat misunderstandings about their ability to develop technology for industry and get creative in guaranteeing reasonable license rates for those that sponsor research.

If universities and industry become catalysts for moving technology from the lab to the marketplace, both will benefit by combining the power of universities to conduct efficient cutting-edge research as part of their educational missions and the strength of industry to access consumers and introduce functional products.

August 1, 2008

Patents and prosperity

I recently attended the Association of University Technology Managers (AUTM) Central Region Meeting in Cleveland and was particularly struck by an early panel on guiding faculty entrepreneurs to resources and success.

Robert Schmidt, founder and president of Cleveland Medical Devices Inc. and Orbital Research Inc., spoke in strong support of the intrinsic need for university support of small businesses as logical partners in the technology commercialization and wealth creation process. Schmidt stated that it is hard to get large multinational corporations to take technology directly from universities, a sentiment echoed by many in the university community. He also spoke of the strength of universities and small businesses as a team, saying that 38 percent of scientists are in small businesses and 19 percent are at universities.

Through the SBIR program, small businesses receive about 4.3 percent of federal research funding. With the help of this funding, smaller companies produce 5 times more patents per employee than large corporations and 20 times more than universities. While it is important to note that small companies can employ a higher concentration of researchers, because they often lack sales or support staffs and do not have additional responsibilities, such as education, in their core missions, the ability of small businesses to quickly develop patentable technology makes them an incredible asset to their surrounding communities. This fact becomes especially relevant when one considers the importance of patents to the wealth of communities.

Studying data from 1939 to 2004, Paul Bauer, Mark Schweitzer and Scott Shane cataloged eight measurable determinants of per capita income growth in the 48 contiguous U.S. states, including tax burdens, public infrastructure, business failure rates, climate and knowledge stocks. They found that “knowledge stocks,” in particular the number of patents per capita, overwhelmingly held the strongest correlation with income growth, even outpacing levels of educational attainment. At the time, Ohio fell squarely in the middle of the pack at 25th overall with an above average patent portfolio and existing industry structure.

Support of entrepreneurs, whether they come from inside our universities’ ranks or outside in the greater community, is a crucial way universities can advance their region and state. Schmidt’s advocacy sheds light on this fact, but he is certainly not the only individual putting forth the importance of engagement from university researchers.

Read more about Bauer, Schweitzer and Shane's research on "knowledge stocks."

June 26, 2008

Science + inspiration = ?

Efforts to recruit more students to science, technology, engineering and mathematics (now referred to as the STEM disciplines) might lead teachers to change the equation for educating young people. Though they work in fields dominated by theories, proofs and methods, practitioners are increasingly advocating for a heavy dose of inspiration.

In a June 1 New York Times op-ed piece called “Put a Little Science in Your Life,”
Columbia physics professor Brain Greene laments that most science classes focus on mastery of skills without offering students the motivation of an overarching story, a method akin to forcing music students to endlessly practice scales before they are allowed to even listen to a great symphony. “We rob science education of life when we focus solely on results and seek to train students to solve problems and recite facts without a commensurate emphasis on transporting them out beyond the stars,” Greene writes.

A similar article in the June 16 issue of Newsweek, titled “Lessons in Life (Science),” recounts the experiences of City University of New York biology professor Sally G. Hoskins, who switched her perspective to teach a required course for non-majors. “I’ve tried to look at biology as an outsider, as someone who experiences my field only on TV, where female scientists apparently spend a lot of time blow drying their hair and shopping for push-up bras between blood-sample-scraping expeditions,” Hoskins writes.

She then recounts how she uses stories on development of the polio vaccine to teach students the necessity of animal testing and how she shows videos on seahorses simply because classes find them interesting. Rather than trying to teach students only the basics of scientific laws and principles, Hoskins would “be happy if (students) leave with the idea that, just like music and art, science is a creative process.”

According to Hoskins, Greene and others, more unites science and liberal arts than divides them. Science and art offer new paradigms through which students can view the world. Both have long, rich histories that can stand in the way of their relevance to the present. They take practice and study that may dissuade students from taking interest, while inspiring others to diligent study.

Even with exceptional teachers offering constant encouragement, not all students will show a strong aptitude for science and math, nor will all students fall in love with quantum physics or advanced calculus. Not every student appreciates Bach, Chaucer or Caravaggio, but access to these masterpieces engages many through a method few science courses attempt. Curious students will always seek to understand and aspire to add to the canon of brilliant work that comes before them. Learning one’s place in history, both through historical study and through an understanding of unfolding developments is far less discouraging than some instructors would believe.

June 20, 2008

Just an indication

Ohio is a great place to find doctors and engineers, but struggles to support entrepreneurs and the growth of high tech industries, according to a report the Milken Institute issued yesterday. The 2008 State Technology and Science Index compiles 77 indicators ranking a state’s ability to leverage regional resources, an effort the institute claims is “one of the most comprehensive examinations of state technology and science assets ever compiled.”

Naturally, I was dismayed to see Ohio falling toward the bottom of the list, ranking 36 with an index score of 45.25, presumably out of a perfect 100. Ohio was far below Massachusetts, Maryland and Colorado, which all had scores above 75. However, even more troubling than the current ranking is the fall from grace it indicates. In 2002, Ohio ranked 27th on Milken’s index and in 2004, the state was 24th.

I struggle to believe in the real world accuracy of a 77-point indicator that varies vastly in its placement of states over just a four-year period. I’m not sure that even science and technology move quickly enough to necessitate biannual measurement. That said, I was intrigued to see what Ohio’s rankings could illustrate about economic development.

The 77 indicators were broken into five major categories, including R&D input and size of science and technology workforce, areas in which Ohio ranked about average, and human capital investment, risk capital and entrepreneurial infrastructure, and technology concentration and dynamism, categories where Ohio lagged behind others.

A few indicators of interest:
  • In terms of workforce, Ohio was among the top ten nationwide in percentage of its workers engaged as computer and information scientists, engineers, and physicists and among the top 20 in percentage of biochemists, biophysicists and medical scientists (a good sign for Northeast Ohio’s biomedical corridor).
  • In the R&D input section, the state excelled in number of SBIR and STTR awards received and in R&D expenditures on biomedical science and engineering.
  • Ohio’s education excellence was rewarded with high marks in number of doctoral engineering students per capita, state spending on student aid, average ACT scores, and percentage of science and engineering Ph.D.s among people ages 25-34.
  • Unfortunately, Ohio’s entrepreneurship support components did not receive such favorable rankings. Ohio was among the bottom 20 states in SBIC funds disbursed, venture capital investment as a percentage of gross state product and total venture capital investment growth.
  • Ohio ranked 49th in both number of startups per 100,000 people and average yearly growth of high tech industries.
Hopefully, the report will be seen as constructive analysis and effective benchmarking, leading to an impressive change in the next two years. Let’s shoot for top 10 in 2010.

June 12, 2008

Filling the pipes

Economic development professionals call it the "innovation pipeline”, investment professionals “deal flow,” a constantly moving source of growing companies commercializing good ideas to keep regional economies on the cutting-edge of technology. While the theory is that ideas stream easily from their sources to commercial success, the reality is the majority of start-up companies don’t ever make it to market. Northeast Ohio's pipeline is no different.

Perhaps, it is the availability of financial support in the very beginning of the business development continuum that is the primary cause of this phenomenon. In the early stages where banks cannot loan money without security and revenues are slim, Northeast Ohio entrepreneurs too often find themselves in a funding crisis with support almost impossible to come by.

As an example, the Lorain County Community College Foundation's Innovation Fund, which offers financial support to early stage companies, has received 684 inquiries and 58 formal applications since they started in October of last year. With its current levels of state and individual support, the Fund was able to award grants to 10 companies, or about 17 percent of its applicants and 1.5 percent of inquiring companies.

Similarly, the Akron Regional Change Angels (ARCHAngels) Network estimates more than 2,000 companies have made inquiries in its first 2-1/2 years. The ARCHAngels Deal Flow Committee reviewed 205 business plans and viewed 82 presentations to select the 41 companies that presented before potential investors. Although the majority of ARCHAngels presenters, 22 of the 30 that responded to a recent survey, received some funding following their presentation, as many as 45 percent have remained unfunded.

Public reports point to a serious lack of angel, venture capital and foundation funding for early stage companies, even though many of the funding organizations, the state included, list in their target investment “pre-seed” and “seed” companies. In today's environment, entrepreneurs must struggle through a funnel-like process that funds a very small number of ideas so well vetted that success is all but inevitable. The greatest tragedy is that Northeast Ohio misses out on some great opportunities that could keep the innovation pipeline moving.

June 4, 2008

Best bets for startup success

You’re absolutely convinced you want to start your own business. You can’t be talked out of it. You have an endless supply of money to develop your product and provide working capital and you are about to embark on the single most difficult thing project will ever tackle. Now that you’ve decided, how do you avoid being among of the 80 percent of startups that fail?

A recently posted Business Week article offered ten tips for would-be entrepreneurs. With the help of The Illusions of Entrepreneurship author Scott Shane, “A Better Way to Start a Business” outlined some odds-increasing strategies for new venture creation, paraphrased below.
  • Pick an industry with a high rate of success, even if this moves you outside of the industry in which you traditionally worked.
  • Evaluate several ideas and pick the best. Don’t be among the 42 percent of business founders Shane says decide to start a company before they develop a product idea.
  • Be a team player. Don’t try to start your business alone.
  • Sell to other businesses, a process far easier than the multi-million dollar undertaking to break into consumer markets.
  • Start your marketing efforts early to line up buyers and get feedback from customers while developing your first product.
  • Focus on a single product and market. You’ll wear yourself out trying to sell every invention you’ve ever had to every customer who might ever buy.
Read the full list with Shane’s comments at BusinessWeek.com.

May 14, 2008

The not-so-young and the restless

Perhaps, the bright-eyed, geeky, 20-something entrepreneur living in his parents’ basement is not the norm. Steve Jobs and Bill Gates notwithstanding, we may have misjudged the tech entrepreneur altogether, Harvard Law School Fellow and entrepreneur Vivek Wadhwa says. In an April 30 Business Week article, “How to Foster Tech Entrepreneurship,” Wadhwa reveals a recent survey showing that tech entrepreneurs are middle-aged college graduates from an assortment of universities and regions.

Wadhwa’s study, which was originally intended to explore entrepreneurship among immigrants, began with a survey of 652 U.S.-born CEOs and heads of product development from 502 engineering and technology companies established between 1995 and 2005. The average company surveyed had 42 employees and $5.7 million in annual sales. The surprising survey results showed:
  • The average and median age of tech start-up founders was far older than expected: 39. In fact, twice as many tech entrepreneurs were older than 50 than were younger than 25.
  • Most entrepreneurs were degree holders: 92 percent held bachelor's degrees, 31 percent held master's degrees and 10 percent were PhDs.
  • Depending on type of degree, the average entrepreneur surveyed founded his company 13 to 21 years after graduation.
  • While Ivy League graduates were more likely to start companies than any other group, only 8 percent of the entrepreneurs surveyed were from Ivy League schools and nearly every major U.S. university had tech entrepreneurs among its alumni.
In addition to bringing into question our stereotypes about the average tech entrepreneur, the survey data suggests that fostering entrepreneurship means providing assistance for a previously overlooked source of new business ideas. Rather than catering only to young MBA and engineering hotshots, economic development groups should focus much of their effort on meeting the needs of middle-aged businesspeople with the necessary experience to start a successful company. Often, concerns among this group center on other financial obligations, like paying for family health insurance or saving for children’s college tuition.

Wadhwa adds that when looking for entrepreneurs, we should focus on the workplace, not the campus. Providing today’s students with necessary skills to start a business is still important, but training should be available for middle-aged employees who want to become versed in entrepreneurship. In economic development, as well as entertainment, it is important to know one’s audience.

Read Wadhwa’s full article.

May 1, 2008

A fresh start

Commercializing university technology has become a big business. Ever since the 1980 Bayh Dole Act gave universities ownership of patents from technology developed in their labs, interested parties ranging from parents to government policy makers have called on universities to use their new found strength to transfer technology to industry and provide a tidy return on investment.

Yet the challenge of convincing risk-averse corporations to pay for patents that may not become products has led to the now common university start-up, a company created with the aim of commercializing one or more university patents.

Few professors have the time, experience, or knowledge to drive a business by themselves. Some leave their ivy-covered campuses for the business world, like Akron Polymer Systems' Frank Harris who has lessened his course load to pursue greater success for his start-up. But often the graduate students step up to drive the business. As the job market continues to tighten and life in a lab or cube seems less inviting, this option is looking better and better for students with advanced degrees.

An exemplary venture is LaunchTown entrepreneurship competition winner and University of Akron start-up PureBalance Polymeric Solutions, which seeks to commercialize biodegradable polymer capsules that time-release drugs. Co-owner and interim CEO Parth Shah, a UA doctoral candidate in chemical and biomolecular engineering, leads the company.

According to an Akron Beacon Journal article, Shah filed a provisional patent through the university and enlisted the help of fellow biomedical engineering graduate student Anand Parikh and MBA students Tim Johnson and Shana Horonetz. The team's cross-disciplinary structure supplements its technology know-how with expertise in finance, marketing and business.

The company received $5,000 in cash and $10,000 in professional services through the Northeast Ohio LaunchTown competition, a showcase of winners from individual business plan competitions at six universities: UA, Cleveland State University, Kent State University, Baldwin Wallace College, John Carroll University and Ashland University.

PureBalance's future plans are still uncertain and more work is necessary to create a functioning commercial venture from its technology. The company has proven that cross-disciplinary teams of students can drive successful ventures on paper. The next step is to find a way for universities to provide financial and business development support for these companies as they execute their well-laid plans.

April 24, 2008

Shopping for a cause

Art brokers that use abandoned office buildings as their galleries; a winery that started moving bottles after promising to donate part of its proceeds to breast cancer research; Bono’s highly publicized (PRODUCT)RED line, which has licensed to multinational corporations like Gap, Apple and Motorola: all of these have become accepted examples of social entrepreneurship.

While most people think of nonprofits, like the United Way, Red Cross or local children’s hospitals, as social entrepreneurship, the social sector is increasingly embracing commercial enterprises as exemplary ventures.

Since 2003, Cleveland’s Civic Innovation Lab has given $1 million to 37 companies and entrepreneurs to seed their social businesses. These ventures all have a component that will contribute directly to social welfare. However, funded companies, which include the art broker example above, as well as a beautification company that plants flowers with money from corporate sponsors, must be potentially successful for-profit ventures.

The idea that making money (or as many would justify, improving the economy) is not at odds with socially conscious ventures is not entirely new. Civic Innovation Lab borrowed its model, in part, from the 28-year-old Ashoka organization, which seeds social entrepreneurs, promotes group enterprises and networking, and builds infrastructure aimed at making businesses successful. In 2006, Ashoka had 160 employees working in 60 countries on a $30 million budget.

Ashoka, the Civic Innovation Lab and similar organizations are well positioned to raise funding for their efforts. The social component each funded company makes investments more acceptable, often allowing for contributions from nonprofit foundations. Ashoka received part of its funding from the Knight Foundation.

Yet, the effort is not without critics. Advertising Age alleged that companies licensing the (PRODUCT)RED name spent more than $100 million advertising their associated gear and donated only $18 million to the (PRODUCT)RED charity. Surely, nonprofits waste millions of dollars of corporate and personal donations on individual salaries and unsuccessful projects, but much of the contributed money goes directly to aid those in need.

While the new face of social entrepreneurship has opponents, its innovation could drive greater availability of funding for the organizations that need it most, as well as recognition that economic growth has tremendous social benefits.

April 21, 2008

Problem solving at sea

As an attendee of yesterday’s Research ShowCASE at Case Western Reserve University, I was confronted with the best and most promising study the university had to offer: hundreds of student research posters, panels on cutting-edge industries and dozens of university faculty. Yet out of the hundreds of research projects presented at the ShowCASE, I seriously questioned whether more than a few could ever move beyond the research lab and enter the marketplace.

In evaluating the challenges in encouraging university researchers to tackle real world problems, I was particularly struck by a comment made by Case Associate Professor of Radiology and Biomedical Engineering James Basilion, who spoke on a panel about translational research. When asked to compare basic and translational research, Basilion used an analogy about surfers. He equated basic research with the surfer out at sea, riding a wave, steering the board gently left and right, but aiming only to make it safely to the beach. Translational research, he said, is having to meet someone on the beach by the palm tree at exactly 3 p.m.

This intense difference explains why many university basic researchers have exceptional difficulty transitioning to a translational field. They are used to using exacting lab conditions to test hypotheses and safely reach a previously unknown conclusion that can be tested and reproduced in other labs. Translational research, on the other hand, aims for a specific application that must be proven at specific times, meet predetermined milestones and be reproduced anywhere with similar results. In this case, a successful experiment is more than just hitting the beach.

All of the translational research panelists argued that the research community probably demands some of each kind of surfer from universities. Basic research that furthers the canon of scientific knowledge through unpredictable discovery has been a key role of American universities since the industrial revolution. However, industrial and public officials have complained that universities are miles out of touch with the real world or as Basilion would argue showing up at a different end of the beach three hours after the meeting time. When industry demands solutions to a known market need and university researchers have expertise that can meet that need, it is often a struggle to make former wave riders conform to the norms of the business world.

Frustratingly, there may be no perfect solution to creating university-industry partnerships. Available funding for research is shrinking at universities statewide, and demands are being made in Columbus and Washington for return on investment of research dollars. It is imperative that we find a process that works, a solution that allows the free spirited research faculty at universities to create and tinker, but at the same time provides direct monetary benefit to the institutions for their survival as independent platforms for such thought. Maybe you have a suggestion?

April 8, 2008

If you build it...

According to a recent census report, Ohio led the nation in county population decreases as home to seven of the 34 counties with the biggest population declines in 2007.

Cuyahoga County (which includes Cleveland) reported the third biggest population decline nationally, losing 13,304 residents in the last year alone. And Mark Salling, director of Cleveland State University’s Northern Ohio Data and Information Service, said that since 2000, Cuyahoga County has lost more population than any other county in the country, approximately 98,000 people.

Other Ohio counties experiencing high population loss were Hamilton (Cincinnati), Montgomery (Dayton), Mahoning (Youngstown), Lucas (Toledo), Trumbull (Warren) and Summit (Akron).

Most commentators take one of two paths in addressing this situation. While some lament irreparable doom and gloom, others claim Northeast Ohio’s economy has finally hit rock bottom, an ironic silver lining to a six percent unemployment rate. However, a few mavericks have tried to analyze the cultural elements that ail troubled economies and offer advice on how a struggling city can turn things around.

As a recent college graduate and returning Akron resident, I was particularly struck by the research of one such non-traditionalist, Next Generation Counseling founder Rebecca Ryan. Nearly three years ago, Ryan offered her services (at a substantial charge) to Akron claiming that by implementing a few small initiatives the city could “broaden and strengthen its economy in the coming 2-4 years.”

Ryan’s argument was simple, though subject to many column inches of debate. She said that while workers of previous generations found a job and moved accordingly, today’s young, well-educated, talented workers chose where to live and then found a job in that community.

Thus, Ryan advocated an approach to economic development that is more rooted in Field of Dreams than in classic business theory. Build a community that talented young folks would like and they will come to live there. Build a city of talented young people and companies will come to where the workers are.

While I could spend many blogs debating the validity of this theory, especially in light of times of higher unemployment, today I merely want to give consideration to Ms. Ryan’s thoughts and ask what the Greater Akron community has done with her research. While some of Ryan’s suggested efforts, including the development of Lock 3 and the completion of the Towpath, have been addressed, others including greater connectivity between parks, al fresco dining areas and a marketing campaign to encourage former Akronites to return home are still awaiting attention.

A $1.2 million effort to make Akron cooler may not top my list of best economic investments, but I can’t dispute the importance of a talented workforce, an engaged government, and a scenic and culturally aware downtown in helping cities succeed.

Our ability to build such a community may be as much the result of young execs as it is the cause. But any steps we can take to improve our community will surely be viewed as efforts of good faith and interest in our future.

View a pdf of Ryan's full report.

March 21, 2008

Can state and local governments sow the seed?

Entrepreneurs and small business owners nationwide are feeling the effects of a lack of early-stage (or seed) business funding. The gap for seed funding in Northeast Ohio alone is about $50 million annually, according to an oft-cited 2005 NorTech report.

This means that entrepreneurs may have increasing difficulty in finding necessary money to finish developing and testing products, obtain patents and certifications, prototype commercial products, conduct market testing, hire critical staff and services, purchase capital equipment, and build-out facilities.

Angel investors and venture capital firms rarely invest in very early-stage companies, because investments are too risky. However, state and county governments are coming to the aid of entrepreneurs, implementing investment, grant and low-interest loan programs using both governmental and private contributions.

In response to a study, which showed that less than 2 percent of Indiana investment went to seed funding, the state created its own fund to take equity in and provide oversight to emerging companies while offering investments of $50,000 to $500,000.

The Michigan Pre-Seed Capital Fund, founded in February 2007, has screened 58 technology-based companies in the past 10 months, investing $4 million in 18 of the applicants. According to the fund's website, sponsored companies have attracted $6.5 million in matching funds and retained 87 jobs thus far.

Northeast Ohio counties, including Lorain and Cuyahoga, have also started innovation and small business development funds. The Innovation Fund of the Lorain County Community College Foundation offers technology and business validation grants of up to $100,000 to companies throughout the region. In the first round of funding, Innovation Fund committee members reviewed 15 applications, recommending three for funding.

In addition to a Commercial Redevelopment Fund that supports companies in renovating abandoned or underutilized commercial space, Cuyahoga County's New Product Development and Entrepreneurship Loan Fund offers $10,000 to $100,000 loans to county manufacturing companies on a seven-year repayment schedule. In operation since 2004, the new product fund has awarded $2 million of its $3.3 million budget, approved funding for 75 of its 450 applicants, created 117 jobs, and attracted $12.5 million in follow-on funding.

However, most counties are struggling to find ways to provide this kind of support. Investing public money in for-profit companies is a tricky business. If it works, the officials are heroes. But it is unlikely to provide high returns, which can hurt politicians who need to justify their actions to get re-elected.

March 13, 2008

What does an Angel look like?

Angel investors are affluent individuals who offer money to start-up companies in exchange for equity, repayment with interest or the option to buy stock later at a reduced rate. Unlike venture capitalists who manage the pooled money of others, angels generally invest their own funds. Angel groups, which typically have about 50 members offer a social network for individual investors, holding regular events at which carefully screened companies give presentations and request money.

From the Angel Capital Association’s 2008 Angel Group Confidence Report, here are some enlightening statistics on the nature of nationwide angel investment:
  • Angel groups invest early with 82 percent saying they invest in seed and start-up companies and 85 percent investing in early stage companies. Only 45 percent invest in expanding or later stage companies.
  • The average angel group invested a total of $1.9 million in 4.5 new companies and 3 existing portfolio companies in 2007. They invested an average of $150,000 per funding round.
  • Angels invest alone, as 77 percent of groups allow individuals to choose whether they will invest.
  • Angels put money in hot industries. Software, medical devices and equipment, business products and services, industrial and energy, IT services, and biotechnology were among the most invested in industries with more than 50 percent of groups saying they have an interest in each category.
  • Community counts for angels with nearly 30 percent saying they prefer to invest within two hours of their metro area.
  • Angel groups are picky. The average angel group screened fewer than 180 companies and presented fewer than 20 for investment in 2007.
  • Angel investing is a tough bet. Only ¼ of angel groups had at least one investment that exited through a merger, acquisition, initial public offering (IPO) or positive exit in 2007.
  • Angel groups are growing. Sixty-eight percent of responding angel groups were formed since 2002 and almost 50 percent said they grew slightly or significantly in number of participating accredited investors. Only 13 percent said their membership decreased.
  • Things are looking up for angel investors. About 45 percent of angel groups said that both quantity and quality of applying companies increased. Responding angel groups also said that they expect to see continued increases in number of investments and total dollars invested (55 percent), quantity and quality of presenting companies (48 percent), and number of individual member investors (36 percent).
  • Big money-makers are unlikely. More than 60 percent of angel groups think that fewer than 5 percent of their investments will exit in 2008.
  • Angels are all around. The Midwest leads North American regions in number of angel groups with 24 percent of respondents located there. Other high concentration areas include California (18 percent), the Northeast (17 percent) and the Southeast (15 percent).
See the full report on the Angel Capital Association’s website.

March 6, 2008

The Big Idea

While flipping through TV channels the other evening, I watched a program called "The Big Idea," yet another media vehicle propagating the idea that someone can make millions off of an idea alone. (Billy Bob Teeth and Worm Poop Spray Fertilizer come to mind as examples.) The behind the scenes work of raising money to develop, test, refine, pilot produce and test market a product to make it into something an investor will financially support was ignored altogether. The show also failed to point out the trade-off of equity in the company for that investment.

The reality is that investment in an idea is extraordinarily rare. Investors, licensees and big business are unlikely to throw millions at a thought (or even a patent) that has not been developed into a product or service, much less a viable business. Even if products "work" in a laboratory, this is no promise of commercial success. After all, if an inventor won't create a commercial product from his idea, who would?

For an idea or patent to truly have value, it must be developed, proven and introduced to the market. It can take millions in development and market testing before an idea is worth investing in. The media generally glosses over the outside funding process, where inventors often must pitch their product, give up part of their company and subject themselves to stringent benchmarking schedules to secure funding from investors expecting high returns through the sale of the company within five years of investment.

Realistically, a big idea needs to be a bit more comprehensive, a bit more complete, a bit well … bigger than a fleeting notion on a piece of paper. Big ideas must have as components plans for commercialization of products, business creation and securing funding. Entrepreneurs pursuing big ideas should work through a plan with milestones to focus their efforts, as well as the realistic understanding that they might need lots of their own money to get an idea off the ground.

Tune in next week. We'll be gunning for Oprah. I hear she's giving big.

February 28, 2008

How to start a business … and be successful

Starting a business in the state of Ohio is a relatively simple process:
  • Have a unique and/or patented idea for a marketable product or service
  • Decide the structure of the business (LLC, S-Corp, Partnership, Sole Proprietorship) with the help of a professional, such as those available at a reduced-charge through the UA New Business Legal Clinic
  • Pick a name and make sure it is not in use by searching the Ohio Secretary of State’s site, U.S. trademark database and Internet domain name listing
  • File the appropriate paperwork and pay the assigned state filing fee (generally $125)
  • Get ready to fail
The last point is less a joke than reality check for would-be entrepreneurs. Many don’t realize the sacrifices they will need to make to start a company. Nor do they realize that the risk of failure (as high as 80 percent by some estimates) means that they, personally, are unlikely to achieve success with even the best business idea. As a resource for entrepreneurs, I spend a substantial amount of my time trying to talk people out of starting their own businesses.

To start a successful business, one must have two important skills: the ability to innovate and the ability to raise money. By my definition, innovation is the ability to turn an idea into money. Many economic development professionals refer to this process as crossing the “Valley of Death.” In fact, it often takes a shocking amount of money to commercialize an idea, frequently $1 million to prototype and develop a commercial product. This means that entrepreneurs often must raise money without having a product to sell.

This brings me to the second skill. Entrepreneurship is raising money. It is getting people to invest in you, without any real assurance that your innovation will work or that your company model will succeed.

Investment generally comes from the 3 F’s:
  • Family
  • Friends
  • Fools
Most entrepreneurs wind up selling their cars, mortgaging their houses, taking out substantial loans, maxing out credit cards and begging friends for money before they are even close to being ready to approach the investment community (the fools at the bottom of my list). I call those that complete strangers would be willing to invest in “fundable entrepreneurs.” To be fundable, you must have skills in innovation and business leadership, but you also must be willing to work with investors, to compromise, to accept advice and to even give up part of your business.

So, how can you acquire those critical skills for success? If you must start a business, how can you increase your chances of landing in the 20 percent that don’t fail? As with most skills, experience helps. Think about engaging in entrepreneurial activities, starting clubs at work or on-campus, commercializing an original idea through your current place of employment or enrolling in public speaking and small business ownership classes. Unfortunately, most universities don’t teach practical entrepreneurship particularly well, so you might need to talk to your university or community college about putting classes in place that will teach the practical skills necessary for business creation.

February 18, 2008

Welcome to University ED

The concepts of innovation, collaboration, growth and leadership are central to The University of Akron’s mission as an institution of higher education, but they are just as important to UA’s relationship to the community and the region, tackling local challenges, driving economic advancement and promoting the growth of technologies, businesses and industries that will shape the future of Akron and of Ohio.

Economic development opens the door for existing businesses and emerging startups to create new jobs and new industries through engagement with their communities. This blog’s mission is to provide information, spark discussion and offer a forum for addressing the most relevant and significant issues in today’s economic development landscape.

With weekly installments, UA news updates and special columns from expert sources, University Economic Development will keep you apprised of progress in Northeast Ohio’s wealth creation mission and how you can learn and benefit from engagement with The University of Akron and the greater Akron community.