Cleveland’s Innovation Economy Grows as Venture Capital Streams into the Region
Robert L. Smith, September 18, 2012 – In a former elevator factory near Cleveland’s burgeoning Health-Tech Corridor, scientists for a company called Juventas Therapeutics pursue Cleveland-style entrepreneurship.
They’re probing the impact of a drug that seems to rally the body’s healing cells to tissue damaged by, say, a heart attack, and hoping for profound results.
While advancing regenerative medicine, the young company illustrates a promising local path into the innovation economy. Juventas spun out of the Cleveland Clinic, brandishing technology discovered in local labs. It opened its doors with a boost from JumpStart and has since attracted $32 million in private investment, in addition to some top talent.
“Ten years ago, doing the same thing, I’d probably feel pretty alone here,” said Rahul Aras, the company’s 38-year-old president and chief executive. “The opportunity and the environment for what we do has really just grown exponentially.”
New evidence supports his observation. According to a study being released Monday, private companies in Greater Cleveland attracted nearly $1 billion in investment capital over the last five years, an infusion of cash that sparked unprecedented deal-making and lit up the region on radar screens of big-league investors.
The money and the attention are shaping an innovation ecosystem that can support cutting edge science and technology start-ups in ever-greater numbers, observers say. No one is comparing Northeast Ohio to Silicon Valley, but comparisons to the recent past are eye-opening.
“We’re light years ahead of where we were 10 years ago,” said Lynn-Ann Gries, the chief investment officer for JumpStart, a regional economic development agency that assists promising young companies with money and guidance. “There’s so much more buzz and activity around entrepreneurship. Plus, there’s actual dollars.”
The study by the region’s Venture Capital Advisory Task Force, a 35-member group representing venture capital and angel investors in Northeast Ohio, concludes that Cleveland-area businesses attracted $961 million from venture capitalists between 2007 and 2011. That’s 26 percent more than the previous five-year span.
Meanwhile, the region saw a 133 percent surge in the number of deals, or investments in area companies.
In a 21-county region once barren of venture capital, an entrepreneur with a good idea can now readily find $25,000 to $100,000 to get started, observes Gries. Often, “that can take you pretty far,” she said. “We’ve come an incredibly long way.”
There remains a long way to go.
A “non-player” no more
Ohio ranks somewhere between 13th to 16th nationally in terms of dollars attracted to its companies, Gries said. And that’s after an effort to collect and publicize investment data from Northeast Ohio, home of the state’s largest economy
Before the task force began issuing regular reports, she said, national ranking agencies typically overlooked Ohio as “a non-player” in the innovation economy.
JumpStart and another regional business accelerator, BioEnterprise, collect the investment information for the task force, which for the first time compiled a five-year snapshot.
The “Greater Cleveland Venture Capital Overview: 2007-2011” found that 65 percent of the region’s venture capital came from outside Ohio, often from investors on the east and west coasts, a fact that attests to growing confidence in the local product.
Greater Cleveland’s innovation economy now has national standing, albeit in the shadow of more robust centers of innovation, like Greater Boston, northern California and North Carolina’s Research Triangle.
“We’ve got a long way to go,” said task force member Bill Trainor, the co-founder and managing director of Mutual Capital Partners, a Cleveland venture capital firm.
“Do I think people on the coasts are sitting around strategizing about how to come to the Midwest? I don’t,” Trainor said. “But good companies will always attract investment. There’s a lot of positive momentum now.”
Trainor says much of the credit must go to the Ohio Third Frontier, the Ohio Capital Fund and other government efforts to jumpstart an innovation economy. The public investment sparked private investment and private investment groups, creating an ecosystem that supports entrepreneurs, people who start businesses.
Trainer also credits Greater Cleveland’s pool of expertise and companies that more and more often define the cutting edge.
Seeking the elusive homerun
According to the study, Northeast Ohio’s well-established medical industry captured the lion’s share of investment dollars, 61 percent. More than $580 million streamed into companies that research drugs, craft medical devices and provide healthcare services.
Information technology, or IT, attracted 17 percent of the total capital, or $166 million, while companies that build business and consumer products drew 16 percent, $65 million.
Interestingly, Northeast Ohio’s historic strength in industrial entrepreneurship may be making way for innovations that clean up the mess. Clean-tech companies attracted $143 million in investment, or about 15 percent of the total.
If the report reveals a diverse innovation economy, observers say, it also points to a regional strength that could produce that elusive homerun. From the health care sector may come the company that mushrooms into something spectacular; that is either bought or goes public — what venture capitalists call an exit — and creates massive wealth and jobs.
Juventas Therapeutics got its start at Cleveland Clinic Innovations, which sought to capitalize on research by Dr. Marc Penn, a cardiologist who discovered he could induce stem cells to flock to damaged tissue and potentially accelerate healing.
Aras, who had come from Boston to join the Clinic’s business incubator, teamed up with Penn to launch the company in 2007. Five months ago, Aras and his staff of 10 highly trained scientists and biomedical engineers moved into offices in the old Tyler elevator company, into a community of small businesses and start-ups known as Tyler Village.
The company’s drug technology is in its second clinical phase. It’s being tested nationwide, often on desperate patients who often have no other recourse for crippling heart disease.
Juventas received its latest burst of cash in July, another $10 million to keep the research going.
“There’s a lot of investors from Ohio who put money into us,” observed a confident Aras. “When we exit, they’ll make a lot of money. Success breads success. As a region, we need a home run.”
He thinks Juventas needs another four or five years to put a product on a pharmacy shelf. He also thinks that, thanks to the talent and support all around, they are going to get that big hit.