Technology startups need capital to launch, grow and transform markets. For decades, venture capital has been plentiful, but not necessarily in Northeast Ohio. Most VC dollars are concentrated in a handful of markets that have grown over the years by recirculating investment returns to create wealth, establishing tech ecosystems. According to PitchBook, in the past two years, U.S. venture capital funds raised over $300 billion; more than half of these funds were based in the Bay Area or New York City. In 2022 alone, nearly three-quarters of new capital commitments were secured by funds in these two markets. As a result, these ecosystems have become geographically self-contained, attracting top talent and technologies from across the globe, and investors have yet to be incentivized to find compelling startups beyond their backyards that generate big returns.
However, an encouraging shift in venture activity is pointing to new opportunities for Midwest startups. Prior to 2019, the median distance between a company’s headquarters and the location of the lead seed-stage investor was less than 100 miles. By 2022, however, that distance exploded to 591 miles. PitchBook notes a similar trend for Series A and B deals, which rose from 300 miles median to more than 600 miles. This trend is likely enabled by the rapid adoption of virtual communications prompted by the COVID-19 pandemic. By removing geography as a barrier, VCs can now more easily consider and manage investments well outside their region.
Ohio startups have a lot to offer to outside investors. Emerging technologies align well with Ohio’s core market strengths, including health care, fintech, manufacturing and logistics, providing a foundation for entrepreneurial ecosystem building that includes world-class corporations and research institutions. Furthermore, Midwest ethics are an increasingly desirable trait for investors. Regional founders have learned to succeed with less available capital by leaning on grit, efficiency and strong cash flow management. These characteristics are more valuable than ever as VCs search for companies prepared to weather economic uncertainty.
To some degree, we’re already seeing an increase in capital attraction play out on the ground at JumpStart Ventures. Seventy five percent of the companies we invested in through our NEXT Funds have received co-investment or follow-on investment from VC firms outside of Ohio. The flow of capital into our region is crucial to starting the flywheel effect that enables venture capital ecosystems to spin up.
So, how can Ohio startups continue to leverage an increasing share of dollars flowing from the major VC hubs? With a lot of support. Ecosystem building and collaboration have become crucial to ensure economic growth across the state.
JumpStart Ventures has worked to build a network of national (and in-state) corporate and institutional investing partners to attract growth capital for our most promising startup companies. Ohio’s active seed and angel investing community has also helped focus dollars within our ecosystem to help new startups scale. Increased access to early-stage capital and local corporations that offer customer engagements can also address a vital need for our region’s startups.
Leaders across Northeast Ohio can work together to engage more with research institutions and local technology startups, helping them connect with resources, customer leads and new capital opportunities. Regional collaborations would be the key driver to amplify our success stories across national networks to keep our market top-of-mind. With record amounts of VC dollars available outside Ohio, we all need to work together to draw those dollars here. ●
Jerry Frantz is President of JumpStart Ventures