Venture capital opportunities in the Midwest and Ohio, particularly the Columbus region, are increasing rapidly. According to Brookings, the Midwest produces one-quarter to one-third of the nation’s R&D, new patents and talent. Forbes listed Columbus as a top rising city for startup companies and the Kauffman Foundation reported Columbus is the top U.S. metro for scaling new companies. Adding to the excitement — and pressure — Brookings also contends that the Midwest’s economic performance could decide the 2020 presidential and congressional races.
WELD asked Falon Donohue, CEO of VentureOhio, to help us understand VC and keys to success for rising entrepreneurs. The nonprofit facilitates a collaborative statewide ecosystem to create access to angel and venture capital to accelerate innovation, job creation and wealth generation.
Failure more common than not
“Venture-backed startups are the most disruptive and innovative companies of our generation,” according to Donohue. “From social networks to artificial intelligence to on-demand access to content and delivery of nearly everything, our world will never be the same. Over the coming decades, venture-backed entrepreneurs will create entire new industries that are unfathomable to us in 2019.”
Donohue agrees with finance expert Alex Graham that “every investment you make needs to have the potential to be a home run,” although she provides more clarity, saying “every investment that you make must have the potential to at least return the entire fund.”
She reports the disarming statistic that 75 percent of startups fail — that’s three of four new businesses. Moreover, 50 percent of all companies fail within five years. Venture capitalists understand those sobering statistics. Consequently, many VC firms have developed their investment thesis around the power law: most of the fund’s returns are earned from a small minority of the companies.
Investing strategy
The keys to a VC’s success vary by their investment stage, thesis and skill set, Donohue says. Pre-seed and seed-stage investors, who are typically first money in, are people-readers. In those early stages, before the model has been proven, the skill set, experience and determination of the founders are critical.
As companies grow, later-stage VC’s may be more reliant on quantitative data. The bottom line: the best entrepreneurs work diligently to find product-market fit by testing and iterating daily.
Although it’s important for a product to solve a problem in a unique way, it’s only the tip of the iceberg, Donohue contends.
“Successful entrepreneurs solve challenges in markets where they have a distinct competitive advantage and an opportunity for a creative monopoly by building a product that the market does not yet know that they need.” she says.
Doing its part
Each year, VentureOhio publishes a deal-flow apparatus, Watchlist, watchlist.ventureohio.org. The list identifies the top 50 Ohio startups to watch. Additionally, each month, over 80 VC funds participate in a monthly deal-flow call led by VentureOhio’s NextGen group. This monthly call encourages collaboration and co-investment and allows Ohio entrepreneurs to reach a wider audience at once.
Falon Donohue is chair of the state’s InnovateOhio Advisory Board. The board advises Lt. Gov. Jon Husted and the InnovateOhio Team on ways Ohio can implement new and creative solutions to improve services and cut costs in state government.
Becky S. Cornett is a member of the WELD Impact Committee. Barb Smoot is the president and CEO of WELD. Women for Economic and Leadership Development desires to increase the number of women in business and government leadership in Central Ohio.
