Ohio Addressing the Capital Crunch Spurs Company Growth

Before the financial services crisis of 2008-09, money for growing companies was cheap and easy to access. Private banking options were many and those banks were generally aggressive in competing for loaning money to growing companies. Times have changed. Banks hold 117% more cash and 493% more securities in 2015 than in 2010 based upon regulatory requirements tied to the liquidity coverage ratio which creates a minimum deposit requirement according to the Federal Reserve Bank of Cleveland Fourth District Federal Reserve. Also, banks held $69.5B in cash and $79.5B in securities in 2015 compared to $32.1 B in cash and $79.5B in securities 2010 according to the Cleveland Fed. More troubling, private loan growth is up only 25% in the current economic recovery compared to 64%, 30%, and 87% in 2001, 1990-91 and 1981-82 recession recoveries according to the Treasury Department. Growing companies are facing a cash crunch as a result of federal regulations requiring American banks to keep substantial funding in reserve.

States like Ohio have an answer for this capital crunch. That answer differs based upon the stage and industry of the company seeking capital.

All companies start with an idea. Most likely early company funding starts with the owners, their friends, family and whatever fools they can find. If the idea is technology related, Ohio offers an important source of funding through the Third Frontier program. The Ohio Third Frontier Technology Validation and Start-up Fund’s goal is to create greater economic growth in Ohio based on start-up companies that commercialize technologies developed by Ohio institutions of higher education and other Ohio not-for-profit research institutions. The Technology Validation and Start-Up Fund has been designed to: support protected technologies developed at Ohio research institutions that need known validation/proof that will directly impact and enhance both their commercial viability and ability to support a start-up company, and support Ohio start-up and Ohio young companies that license validated/proven technologies from research institutions. The next round of funding through this program is in the middle of December and having a university partner is essential.

Moving into beyond the idea stage into the incubation stage offers these companies access to a wide range of Ohio regional venture capital firms. While not Silicon Valley, Ohio offers a range of venture capital firms serving all corners of the state for a diverse industry base as listed below.

  • JumpStart– focuses on an array of technology sectors, including companies founded and led by women and minority entrepreneurs;
  • Cleveland Clinic– focuses on medical devices, products and companies spun out from the institution’s researchers;
  • Lorain County Community College– focuses on tech-based companies that are in the imaging or incubating phase of development with special focus in the Northeast Ohio region;
  • LaunchDen Capital Fund– primary focus on orthopedic companies;
  • Bizdom– focuses on web- and tech-based start-up companies- Dan Gilbert, Detroit based fund;
  • Case Western Reserve University– focuses on medical technology, business software, advanced materials, fuel cells, and energy storage;
  • Mutual Capital Partners– focuses on healthcare (medical devices and diagnostics) and information technology (business-to-business and mobility software) sectors;
  • North Coast Venture Fund– focuses on biomedical, pharmaceutical, and software sectors;
  • Valley Growth Ventures– Y-town, focuses on software, energy, advanced materials, and additive manufacturing sectors;
  • Rocket Ventures– focuses on medical technologies and software applications which include imaging, surgical instruments/equipment, implant devices, regenerative medicine, and software applications developed for business and healthcare;
  • NCT Ventures– focuses on adtech, big data, enterprise software, heath information technology, logistics, and marketplace and retail technology sectors;
  • Rev1Ventures– focuses on life sciences (specifically in the areas of pharmaceutical, biological and gene therapies and spin-out companies from Nationwide Children’s Hospital’s Research Institute), software, information technology, additive manufacturing, alternative energy, and other sectors;
  • TechGROWTH Ohio– focuses on digital interactive media, biosciences, bio-agriculture, and advanced energy sectors;
  • CincyTech– focuses on a variety of Ohio Third Frontier targeted industries, including software, medical technology, life sciences, consumer digital, and other aligned sectorsin the region;
  • Cincinnati Children’s– focuses on the biomedical sector; and
  • Accelerant– focuses on advanced materials, advanced manufacturing, sensors, healthcare, information technology, aerospace, situational awareness, and surveillance systems sectors.

Companies graduating on to having an actual product or service ready to offer customers will often look to angel investors for their next round of financing. Ohio again has a diverse group of angel investor groups that operate all over the state that include:

  • North Coast Angel Fund– focuses on healthcare (medical devices and diagnostics), biotechnology and software sectors;
  • Queen City Angels– focuses on advanced materials, aeropropulsion power management, fuel cells and energy storage, medical technology, business and healthcare software, sensing and automation technologies, solar photovoltaics, situational awareness, and surveillance systems sectors;
  • East Central Ohio Tech Angel Fund– focuses on companies in rural Southeast Ohio with new proprietary, barrier-to-entry technologies;
  • Ohio Tech Angels – focuses on information technology, advanced materials and life sciences sectors; and
  • Impact Angel Fund– focuses on bioscience/medical, advanced materials, automation, energy and power management, surveillance, and information technology sectors.

Companies ready to grow in the marketplace that are beginning to produce jobs are primed for a conversation with JobsOhio. The state’s private sector economic development organization offers a wide range of economic development loan programs tied to job creation and capital investment. JobsOhio focused on industries such as biohealth, IT, advanced manufacturing and aerospace and aviation with established or expansion stage companies generating revenues. JobsOhio wants more than half of the company revenue to come from other private capital sources and they will require job creation and retention, efficiencies gained, additional payroll, fixed-asset investment commitment, project return on investment, project location, within a three year timeframe. JobsOhio Growth Loans range from $500,000 to $5,000,000 for fixed-asset investment.

For companies moving beyond the start of the marketplace and shifting into full-fledged sustainability, the state of Ohio offer the Innovation Ohio Loan Fund. The Innovation Ohio Loan Fund provides capital-funding for Ohio companies with limited access to capital and funds from conventional financing sources due to technical and commercial risk factors associated with the development of new products or services in targeted industries. They finance up to 75% of allowable project costs with loans typically ranging in size from $500,000 to $1,500,000 with a job creation and capital investment required. Again, targeted industry sectors include: Advanced Materials; Instruments, Controls and Electronics; Power and Propulsion; Biosciences; and Information Technology. Innovation Ohio Loans are focused on established Ohio companies with a minimum of two years of operating history and revenues generated developed a proven product for a proven market have customer orders and reasonable prospects for rapid sales growth have attracted third party capital and has reasonable prospects of continued backing from such investors. Allowable costs are defined as costs that can be capitalized under applicable generally accepted accounting principles (GAAP) and a 5 – 7 year loan term at a fixed rate up to 25% of the allowable project costs.

Ohio is blessed with many public financing options for growing companies facing a cash crunch. Understanding which source to gain the funding from and how to negotiate is the only challenge.

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