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.