$128.8 Million Sought in Third Frontier Pre-Seed/Seed Investments

28 Letters of Intent Seek More than Double the Amount of Funding Available

The Ohio Development Services Agency (DSA) has released a list of 28 Letters of Intent (LOIs) it received from potential applicants seeking funding from the Ohio Third Frontier’s Pre-Seed/Seed Plus Fund Capitalization Program. The program’s RFP has made available $60 million for awards between the two programs. The LOI requests total $128,850,000.

The 2015 Pre-Seed/Seed Plus Fund Capitalization Program will increase Ohio’s number of professionally managed Pre-Seed Funds, create additional support for developing, retaining and attracting technology companies, increase early-stage capital investments in tech-based Ohio companies, accelerate the growth of high-potential tech companies as well as high-paying tech jobs, and continue building a deal flow pipeline that attracts VC firm resources from both within and outside of Ohio. The program provides capital to new and proven existing Pre-Seed Funds for early-stage tech company investments and to existing and active Pre-Seed Funds providing capital to Seed Plus stage technology companies having received professional seed stage financing that are progressing towards an institutional venture round.

Of the LOIs submitted, only three of Ohio Third Frontier’s six geographical regions are represented by potential lead applicants. Northeast Ohio leads the way with 17 LOIs submitted, followed by Central Ohio with six and Southwest Ohio with 5. Lead applicants from Northwest Ohio, Southeast Ohio and West Central Ohio submitted zero LOIs. Cleveland-based JumpStart is responsible for submitting 3 of the 17 Northeast Ohio LOIs and Rev1Ventures is responsible for submitting 3 of the 6 Central Ohio LOIs.

Additionally, 21 entities have submitted an LOI for the Pre-Seed Fund Capitalization Program, while 7 entities have submitted an LOI for a combined Pre-Seed/Seed Plus Fund. Only one entity, JumpStart, has indicated it may submit for a Seed Plus Fund, in addition to its two Pre-Seed Funds LOIs.

Currently, Ohio Third Frontier has invested in 17 Pre-Seed Fund organizations: JumpStart, Cleveland Clinic, Lorain County Community College, North Coast Angel Fund, Bizdom, Case Western Reserve University and Impact Angel Fund in Northeast Ohio; Queen City Angels, CincyTech and Cincinnati Children’s in Southwest Ohio; Ohio Tech Angels, Rev1Ventures and NCT Ventures in Central Ohio; TechGROWTH Ohio and East Central Ohio Tech Angel Fund in Southeast Ohio; Rocket Ventures in Northwest Ohio; and, Accelerant in West Central Ohio.

Pre-Seed Fund loan awards will range from $500,000 to $5 million and must provide cash cost share match of at least $1 for every $1 of Third Frontier funds requested. Seed Plus Fund loan awards will range from $2.5 million to $5 million and must provide cash cost share match of at least $3 for every $1 of Third Frontier funds requested. Eligible lead applicants are Ohio-based Funds or those with an Ohio principal place of business. Funds are expected to distribute investment returns to cost share providers, whether they be for-profit or nonprofit entities or individual persons.

Applicants are expected to address key areas, including their geography and technology and market focus; investment structure, size, phase and use; ideal opportunity or company being targeted and why it will attract follow-on investment to move to the next commercialization phase; ongoing sources of deal flow; projected outcomes and exit timing; support network within the geographic area served by a lead applicant; and, outreach plans to women and minority entrepreneurs.

Applicants will also need to address prior performance on Third Frontier awards and other investment funds, including previous fund track records and material successes and failures. Key focus will also be placed on projected economic impacts and regional priorities for Pre-Seed and Seed Plus Funds, including new jobs and average salaries; follow-on investments and grants, licensing income and other revenue; active and new companies in Ohio and attracted to Ohio; new research institution spin-out companies; and, portfolio companies raising at least $1 million in follow-on investment capital.

Full Pre-Seed/Seed Plus Fund Capitalization Program applicant proposals are due by September 15, and evaluator reviews and awards are expected to be considered and announced by the Third Frontier Commission in December.

The program RFP is available for review at http://development.ohio.gov/bs_thirdfrontier/pfcp.htm.

To discuss your organization’s interest in the Pre-Seed/Seed Fund Capitalization Program and how The Montrose Group can assist, please feel free to contact David Robinson (614-738-2109; drobinson@montrosegroupllc.com), Nate Green (740-497-1893; ngreen@montrosegroupllc.com) or Jon Dudley (660-864-5731; jdudley@montrosegroupllc.com).

U.S. EDA Seeks Regional Innovation Strategies Program Funding Opportunities

The U.S. Department of Commerce’s Economic Development Administration (EDA) has released a Request for Proposals (RFP) for the Regional Innovation Strategies (RIS) Program. This program is meant to promote regional economic vitality through multi-stakeholder partnerships and collaborations comprised of public, corporate, university, nonprofit, and philanthropic resources. Regional innovation and entrepreneurial ecosystems – which have a culture of idea generation, leadership, trust, openness to new partnerships, entrepreneurial development, investment capital, and a large pool of accomplished managers – often fuel these partnerships and collaborations.

Funding is available for capacity-building activities that include Proof of Concept Centers and Commercialization Centers (as well as scaling of existing commercialization programs and centers) and for operational support for organizations that provide essential early-stage funding to startups.

Under the RIS Program, EDA is soliciting applications for two separate competitions: (1) the 2015 i6 Challenge and (2) Seed Fund Support (SFS) Grants. i6 is a national competition that makes small, targeted, high-impact investments to support startup creation, innovation, and commercialization. Investments will go toward new centers and expanding existing centers and in later-stage Commercialization Centers, which help innovators fine tune and scale their innovations to bring new products and services to the market. Grants for Seed Capital Funds provide technical assistance funding to support the feasibility, planning, formation, or launch of cluster-based seed capital funds, which will help improve access to capital for entrepreneurs across the United States.

Applicants may, but are not required to, submit proposals for more than one competition under the RIS Program. The FFA is available on their website.

2014 EDA i6 Challenge winners include:

  • Albany Medical College (Albany, NY) – $399,585 for the Biomedical Acceleration and Commercialization Center
  • BioAccel (Phoenix, AZ) – $499,764 for the Southwest Proof of Concept Commercialization Center
  • BioSTL (St. Louis, MO) – $500,000 for Advancing regional prosperity in St. Louis by accelerating the transition of bioscience innovation
  • City and County of San Francisco (San Francisco, CA) – $474,453 for Startup in Residence
  • Cornell University (Ithaca, NY) – $500,000 for The Southern Tier Innovation Hot Spot
  • Curators of the University of Missouri on behalf of UMKC, Kansas City, MO – $500,000 for the Digital Sandbox KC: Expanding Kansas City’s Proof-of-Concept Center
  • Georgia Tech Research Corporation (Atlanta, GA) – $500,000 to provide education, support and programs to develop the entrepreneurial community in Georgia
  • Louisiana Tech University (Ruston, LA) – $499,959 for the I 20 Corridor Maker Space Innovation Network
  • Maryland Technology Development Corporation (Columbia, MD) – $499,822 for the mdSTEPP Program
  • Montana Economic Revitalization and Development Institute (Butte, MT) – $148,600 for the Manufacturing Consortium of Montana Mansfield Prototyping Center
  • New Orleans BioInnovation Center Inc. (New Orleans, LA) – $500,000 for the Louisiana Life Sciences Technology Commercialization Center
  • Ohio Energy and Advanced Manufacturing Center, Inc. (Lima, OH) – $449,950 for the Development of High Strain Rate Metal Forming Commercialization Center
  • The Pennsylvania State University (University Park, PA) – $500,000 for TechCelerator: Catalyzing a Regional Innovation Strategy to Accelerate New Company Formations through Technology Commercialization
  • The University of North Carolina at Chapel Hill (Chapel Hill, NC) – $499,826 for Technology Commercialization Carolina (TCC)
  • University of Alaska Fairbanks (Fairbanks, AK) – $499,064 for the Alaska Center for Microgrid Technologies Commercialization
  • University of Central Florida (Orlando, FL) – $500,000 for the Maker Spaces I-Corps Proof of Concept Center
  • University of South Florida (Tampa, FL) – $500,000 for the FirstWaVE Venture Center Program Expansion

 

2014 EDA Seed Capital Funds winners include:

 

  • Albany Medical College (Albany, NY) – $124,910 for the Biomedical Acceleration & Commercialization Center at Albany Medical College (BACC)SEED Fund
  • Milwaukee Water Council, Inc. (Milwaukee, WI) – $71,625 for the Wisconsin Water Cluster Seed Capital Fund Grant
  • Clean Energy Trust (Chicago, IL) – $250,000 for the Clean Energy Prize Fund
  • Greater Phoenix Economic Council (Phoenix, AZ) – $221,467 for the Greater Phoenix Seed Fund Feasibility Study
  • Quatere (Salt Lake City, UT) – $250,000 for the creation and implementation of Next Generation Early Stage Umbrella Fund
  • Regional Development Corporation (Espanola, NM) – $248,946 for the Venture Acceleration Fund Enhancement Project NM
  • Technology 2020 (Oak Ridge, TN) – $250,000 for TennesSeed
  • University of Central Florida (Orlando, FL) – $249,933 for the StarterCorps Seed Fund
  • University of North Dakota (Grand Forks, ND) – $250,000 for the Cluster Grants for Seed Funds in North Dakota

The U.S. EDA’s RIS applications are due in early October and organizations can gain up to $500,000 for the i6 Challenge and up to $250,000 for the Seed Fund Support from this federal opportunity.

To discuss your organization’s interest in these U.S. EDA RIS programs and how The Montrose Group can assist, please feel free to contact David Robinson (614-738-2109; drobinson@montrosegroupllc.com), Nate Green (740-497-1893; ngreen@montrosegroupllc.com) or Jon Dudley (660-864-5731; jdudley@montrosegroupllc.com).

The Ohio Development Services Agency Opens Energy Loan Fund Application Round

The Ohio Development Services Agency opened a new round of funding for the Energy Loan Fund on July 15, 2015. The Fund provides financing for energy efficiency and advanced energy projects to Ohio businesses, manufacturers, non-profits, schools, colleges and universities, and public entities for energy improvements that reduce energy usage and associated costs, reduce fossil fuel emissions, and/or create or retain jobs. Eligible activities include energy retrofits, energy distribution technologies and renewable energy technologies. A total of $11.25 million in funding is available for Fiscal Year 2016, which runs through June 31, 2016.

The Energy Loan Fund guidelines and application process have been updated for the new round of funding. A few important updates from previous rounds:

  • All applicants must submit a Letter of Intent. A prospective applicant cannot submit a formal application without having first submitted a Letter of Intent. Letters of Intent will be accepted only from July 15 – August 12, 2015.
  • Projects must have a minimum 15% energy reduction, but with the new competitive nature of the program, higher energy savings will be most desirable.
  • Rates and terms: typically 3% for 15 years
  • Loan amounts will range between a minimum of $250,000 to a maximum of $1,250,000.
  • All applicants must attend the Bidder’s Conference on August 26, 2015.
  • A second round of funding is likely to occur later this year.
  • Eligible borrowers can be corporations, limited liability companies, limited partnerships, nonprofits, school districts, colleges and universities, local units of government or any combination thereof. All applicants must be registered with the Ohio Secretary of State either as an Ohio entity or as a foreign (non-Ohio) entity qualified to do business in the state of Ohio.
  • Each applicant must provide a documented cost share for a proposed project. Cost share for for-profit entities must be a minimum of 20 percent of total project costs. Cost share for non-profit and local units of government must be a minimum of 10 percent of total project costs.

A list of past recipients includes:

Recipient Location Loan Amount
1544 Central Parkway LLC Brown County $269,545
Greenon Local Schools Clark County $526,182
Waverly City Schools Pike County $1,574,803
Marconi Energy Partners Franklin County $930,400
North Central State College Richland County $1,000,000
Heidelberg College Seneca County $493,962
Drury Cleveland Cuyahoga County $3,000,000
Kraton Polymers Washington County $7,781,699

All applicants must submit a Letter of Intent to the Ohio Development Services Agency by Wednesday, August 12, 2015.  Once an applicant has submitted a Letter of Intent, applicants will receive communication from ODSA to submit a formal application.

Top 10 Tax Incentive Deals of June and July 2015

Top 10 Tax Incentive Deals

  1. Investimus Foris to invest $265 million and create 85 jobs in Louisiana ammonia manufacturing plant: http://www.areadevelopment.com/newsItems/7-22-2015/investimus-foris-ammonia-manufacturing-pollock-louisiana675457.shtml
  2. Union Tank Car to add 200 jobs in Marion, OH: http://www.marionstar.com/story/news/local/2015/06/01/union-tank-adding-new-site-jobs-marion/28300627/
  3. Kroger adding 650 jobs, $45 million investment in Blue Ash, Ohio: http://www.bizjournals.com/cincinnati/news/2015/06/01/kroger-making-huge-investment-in-greater.html?ana=lnk
  4. Brown and Root to locate Corporate HQ in Baton Rouge, LA: http://www.nola.com/business/baton-rouge/index.ssf/2015/07/brown_root_building_new_baton.html
  5. GM to invest $1.4 billion in Arlington, TX plant upgrades: http://businessfacilities.com/2015/07/general-m-invests-1-4-billion-for-arlington-plant-upgrades/
  6. USA 800 to add 300 jobs in Lawrence, KS: http://www.kshb.com/thenow/kansas-city-call-center-expanding-adding-300-jobs-in-lawrence-kan
  7. Yanfeng Automotive to invest $55 million and add 325 jobs in Chattanooga, TN: http://www.timesfreepress.com/news/business/aroundregion/story/2015/jul/07/auto-supplier-yanfeng-invest-55-million-chattanooga/313336/
  8. Google to invest $600 million in Alabama Data Center: http://www.al.com/news/index.ssf/2015/06/google_building_600_million_da.html
  9. Gestamp Chattanooga to add 500 jobs in Hamilton County, TN: http://businessfacilities.com/2015/06/gestamp-chattanooga-to-expand-build-new-facility-in-hamilton-county-tn/
  10. Thornton’s to add 110 jobs at Louisville, Kentucky HQ: http://www.areadevelopment.com/newsitems/7-30-2015/thorntons-headqaurters-expansion-louisville-kentucky890127.shtml

Economic Cluster Analysis Capitalizes on Local Assets in Growing Markets

A foundation for any strategic economic development plan is the creation of an economic development cluster analysis.  Substantial economic benefits exist for the location of common firms—the trading of workforce, common supply chain, infrastructure needs, common tax and other policy needs and other economic efficiencies bring companies in the same industry together.  Hollywood and Wall Street as global entertainment and financial services clusters respectively are easy to identify economic development clusters.  But, all regions have common economic clusters, whether it is Detroit and automobile or Wichita and the aircraft industry.  Understanding what a region’s core industry cluster is permits the region to better serve that industry to retain and attract other companies in that region, but also to recruit companies within that industry’s essential supply chain.  That measure of “core industries” is accomplished through the development of a “location quotient” using federal government NAICS codes that identify industry workforce in a particular area.

The economic development value of understanding what industry cluster a region has, is only gained if the strategic planning process also includes a review of what industry is growing.  Being the biggest manufacturer of buggies when Henry Ford is booming with making the Model T may appear good in the short term but ends in disaster for a region.  Economic development cluster analysis also includes a review of the economic viability of particular industries and what other outside influences in the region, state and nation make the future success of that industry likely.  Economic development cluster analysis requires a community to “gamble” by creating a targeted focus that may demand business and policy decisions in favor of that industry over others.  That “gamble” needs to be based upon sound business principles and not just the political will of local companies.

CoreCompanies_GrowingIndustries_Graphic

A Strengths, Weakness, Opportunities and Threats (SWOT Analysis) is performed to identify where a region’s industry strengths match up with potentially growing markets using a “shift-share” analysis that measures local industry strength compared to national industry growth.  A SWOT analysis is essential for a community when it comes to setting an overall goal for their economic development strategic plan.  Based upon global benchmarks, a community or state must make an honest assessment of how they compare to their real competition.  A true SWOT analysis compares this community or state to who they want to be.  If they want to be a global leader in technology based economic development, models for comparison are the Research Triangle Park and not the community ten miles down that road.  Finally, a cluster team of industry leaders is formed to implement the planned growth of the identified industry clusters of greater growth potential.

Economic cluster strategies identify a region’s business strengths in a targeted geographic region within particular industries.  The definition of “industry” is broad as it includes core firms and other organizations who support the industry’s competitive success. A cluster includes economic development staff, supplier firms, university researchers, consultants, lawyers, accountants and other organizations. They support a particular industry who provides the essential professional services that make an industry cluster succeed. Next a supply chain analysis is conducted of the potential cluster members to expand the cluster participants list and to create a retention and attraction list.  Company surveys and national reporting services again help in the formation of the supply chain list.

Successful economic clusters require more than a broad definition of industry, but demand joint action of the impacted organizations—a common geographic district and an analysis to define the core industries of that district.  Generally, national data from the U.S. Census Bureau and organizations such as Dunn & Bradstreet are utilized to identify which industry is located in a particular region.  Often direct surveys with local businesses are used to confirm national data reports.

Successful economic development cluster initiatives have several common characteristics including:

  • A shared understanding of the role of clusters in competitive advantage
  • A focus on removing obstacles and easing constraints to cluster growth
  • A structure that embraces all clusters
  • Clear definition of cluster boundaries
  • Comprehensive involvement of cluster participants and related institutions
  • Private sector business leadership
  • Focus on the personal relationship among the cluster participants
  • A belief in action focused on results
  • Creation of the cluster as an institution in the region or state

Economic cluster strategy permits regions to focus on high wage jobs in which the region has strengths in a growing industry.  However, economic development cluster analysis should not be used to only develop companies in a specific industry.  Booming success in only one industry leads to the boom as well as the bust—ask Detroit.  Performing an economic development strategic plan that focuses on economic diversity as well as an industry cluster analysis is essential.

Venture Capital Update: Software and Expansion Dominate, Midwest Struggles

Tech start-up companies often measure success not just through product development, but by the amount of capital they are able to raise.  Due to the unique nature of many of these tech start-up companies that require substantial early stage capital before any customer is even approached, tech start-up companies focus on investments from venture capital funds and angel investors.

The stages of venture capital are pre-seed, seed-stage, start-up stage and expansion stage.  Pre-seed stage is the earliest stage in the development of a business with the development of a business plan, but no product has been completed.  Seed stage is the development phase prior to start-up when research, products, and market potential are all explored without the creation of commercial operations.  Start-up stage is when a firm has operations and is ready to bring products or services to market—this stage requires an increase in capital.  Finally, expansion stage requires capital to finance growth and meet customer demand.  The expansion stage dominates with the most investments according the 1st Quarter, 2015 MoneyTree report.

1Q_VC_2015_chart

Venture capital tends to concentrate in select industry groups.  Software constitutes nearly half of the most recent venture capital investments with biotechnology, industrial/energy, media and IT following in the rankings of industry investments made by venture capital in the first quarter of 2015.  The West and East Coast dominate the venture capital marketplace—Silicon Valley is the clear leader with venture capital investments, with the region registering over $6B in venture capital investments in the first quarter of 2015.  Far outperforming the second leading region of Southern California, which reached just over $1B during the same timeframe according to the MoneyTree report.  The top states for venture capital investments during the first quarter as usual were dominated by California.

Top Five States for Venture Capital Investment, 1st Quarter, 2015, MoneyTree Report

State Venture Capital National percentage
California $8.0B 60%
Massachusetts $1.3B 10%
New York $1.3B 10%
Texas $426M 3%
Washington $299M 2%

Regional venture capital firms are often a strong source of financing for tech startup companies.  While dollar totals in the Midwest fail to meet the boom in tech funding on the coasts, many regional venture capital firms operate in the Midwest.  The Montrose Group, LLC plans to highlight these successful regional venture capital firms in an effort to encourage high-tech company growth and successful economic development.

Advantage Capital Invests in Wide Industry Array. Advantage Capital utilizes public-private partnerships to raise venture capital and small business capital for investments and loans in underserved areas. Founded in 1992, the firm has grown to include offices in Missouri, Louisiana, New York, Texas, California, Illinois, Florida, Mississippi and Washington, D.C., with co-managers in Alabama, Colorado, Connecticut and Wisconsin and has raised more than $1.9B in institutional capital.  Advantage Capital focuses on agribusiness, business services, cleantech, communications, energy, IT, life sciences, and manufacturing companies.

Drive Capital Invests in Healthcare and IT Focuses on Midwest Market.  Founded by former JobsOhio Director and Silicon Valley veteran Mark Kvamme, Drive Capital invests in innovate technology, health care and consumer companies located in the Midwestern United States.  Drive Capital is a newly formed venture capital fund but has a $250M round of funding closed and is actively making investments.

Glengary Invests in Healthcare and Services. Glengary concentrates on investments in healthcare products and services, IT, applied technology, and business services.  This Cleveland based venture capital firm brings substantial experience in clearing regulatory pathways based upon tech development started at the Cleveland Clinic, Case Western Reserve University and University Hospital.

Mercury Focuses on IT, Drugs and Energy.  Mercury invests in companies associate with regional startup development organizations, such as seed accelerators, incubators and university tech transfer offices with $50,000 to $500,000 in a seed round, or $1 million to $2 million in larger Series A opportunities and a total investment $4M-$5M.  Mercury invests in companies in the Midwest, Southwest and Mountain states and focuses on IT, life sciences and industrial physical sciences including therapeutic drugs and energy industries.

NCT Ventures Focuses on Disruptive Technologies.  Founded in 2000 by Columbus entrepreneurs Rich Langdale and Bill Frank, NCT Venture recently launched a $50M early stage VC fund making investments on technology start-ups with disruptive models, marketplaces, and brand marketing all focused on creating business efficiencies.  NCT Ventures invests in either early stage companies (with current revenue, requiring $100K to $250K in capital) or early-growth companies (2MM-$5MM of current revenue, requiring $1MM to $3MM in capital) based in Ohio, but NCT recently formed a new partnership with Dan Gilbert focused on Detroit investments.

Open Prairie Fills Midwest Private Equity Gap.  Drawing upon decades of operational experience in his family’s industrial, banking and agriculture businesses, Jim Schultz founded Open Prairie in 1997 to address the lack of innovation-focused private equity in the Midwest. Since then, Open Prairie managed over $100M in fund commitments and provided private equity services to clients focusing on specialty industries including agricultural, life science, medical device, software, information technology, energy, manufacturing, and real estate.

River Cities Capital Funds Focuses on Healthcare and IT. Founded in 1994, River Cities Capital Funds focuses healthcare and information technology (IT) investments, has $500M under management and more than 100 investments made.  Specifically, Rivers Cities Capital Funds invests in software as a service, tech enabled business services, healthcare IT, medical devices and healthcare services.

TGP Capital Partners Invests in Middle Market Companies.  TGP Capital Partners is a Kansas City based private equity investment fund formed to make middle-market investments to provide growth capital for acquisitions, internal growth, and to facilitate liquidity or a sale event for existing shareholders.  TGP Capital Partners makes both control and minority equity investments in partnership with proven managers in manufacturing and business services companies with revenues generally between $15M-$50M investing $3M- $10M.

OH_Third_Frontier_2015_Key_Dates