[MUSIC] Hello, and welcome back to Beyond Silicon Valley. I'm Michael Goldberg. In the previous lectures, we learned about the important role that government and donors can play in the formation of new, high growth companies. In Cleveland, government and donors committed significant resources to back entrepreneurs. But leaders quickly realized that an organization was needed to appropriately and wisely deploy this investment into private companies. Modeled on a program called Innovation Works in Pittsburgh, JumpStart was created in 2004. As a venture development, nonprofit organization to support innovative startup companies. By providing pre-seed funding, developing networks of angel investors. And making connections for follow-on funding for venture capital firms. JumpStart also provides technical assistance and support to help entrepreneurs develop their business plans, connect to mentors. And attract the necessary talent to manage and grow their companies. But creating and staffing an intermediary organization with talented leaders from the private sector would take significant resources. To date, JumpStart has received over $75 million in funds to deliver its programs. In this lecture, you will learn, why Cleveland created an organization like JumpStart to support entrepreneurship. How an intermediary organization measures success. And what challenges it faces. Laura Bennett the founder of Embrace Pet Insurance was the first entrepreneur to receive an investment from JumpStart. >> What we do is we do, we sell and, we design, sell pet health insurance for cats and dogs across the United States. And, in the, a product covers the unexpected bills like anything from an ear infection through to cancer treatments. Which will, can be very, very expensive. To, unex, you know, the usual stuff like regular vet visits and so on. We started off with two people with a business plan. We're now very close to 58 people. So when I first moved to Cleveland which was back in 2004, there was nothing. Nothing here for entrepreneurs, or at least it was very minimal. And in fact when we first spoke to JumpStart, was literally they were first forming. We met in a coffee shop because they didn't have any offices. And, so the entrepreneurship environment has developed since, since then. Back then there were no angel funds, now there are at least, there's at least one. There were no accelerators, those have only occurred in the last couple of years. So it was really, forming at that time. There was, there was nothing. So over, over that time, over the last ten, ten years, a lot has changed. >> While there were resources available from government and donor sources in Cleveland to support entrepreneurship. Funders believed that it was necessary to create an intermediary not for profit organization. Jackie Acho and Dorothy Baunach were two leaders in Cleveland that advocated for the creation of JumpStart. >> When you have got an economy that doesn't really have a market at the early stage. And you are trying to create a market. When there's not a market, private money's not going to flow in. Nor will private services and you know, the things that would need to support those kinds of businesses. The government could try to directly invest, but they're not really well suited to do that. A lot of it was an experiment. And so we had to create intermediaries that were capable of innovating. The way that the support and the money would flow to companies. >> Well, if you look at intermediary organizations, they are really the intermediaries between the research base or the idea generation base. And the marketplace. And you put them in place because the market system isn't working. There's not a natural way for these ideas to get to market. So when you have lost the natural pathways for that, you put it in an intervention, an intermediary. And we did that for entrepreneurship. We did that for specific industries like biomedical, or materials. Or even manufacturing. Because manufacturing was changing overnight in the midst of all of this. >> Since its founding in 2004. JumpStart has evolved to respond to what it perceives as the needs of the local entrepreneurs and the demands of its funders. Including the third frontier and philanthropic donors, like the Fund for our Economic Future. Ray Leach is JumpStart's CEO. >> So one of the things I think that's really neat and what's very unusual ten years ago, it's a little less unusual now. Is that JumpStart was created a not for profit organization, an NGO. Whose principle focus was leveraging, kind of a venture capital expertise model. But doing it for economic development outcomes. So all of our activity from day one, wasn't to maximize profits for the institution, or even for our supporters. It was to create a wave of momentum And create acceleration around company formation and the ability of those companies to be able to attract capital. >> Anthony Hughes runs JumpStart's mentoring program. >> You know, Northeast Ohio was a very vibrant ecosystem in the early 1900s. We unfortunately took a real hit and, you know, with globalization, and in the decline of manufacturing in North America. And so our ecosystem was fairly barren. Now, the notion, or, the, the, the analogy that I think is most appropriate for a place like northeast Ohio, is this notion of an artificial reef. The ecosystem didn't really exist when, when we started to focus heavily on how to build an ecosystem or rebuild an ecosystem. And so in some capacity JumpStart with part, is like an artificial reef. It's an artificial construct on which an ecosystem can rebuild itself. >> In ten years, Jumpstart has invested nearly $30 million directly into its 76 startup companies through its investment fund. JumpStart provides funding at the seed capital stage, when it is extremely critical for capital to be locally available. JumpStart's fund is structured as what is known as an evergreen. Which means any investment gains that it makes on its portfolio companies, gets put back into the fund to be invested in new companies. >> So one of the philosophies that we have at JumpStart that I think is true everywhere, is that you need a balance of both capital and technical assistance. Or mentoring and coaching. And one of the most important vehicles that JumpStart was able to create in the early days, is what we call our evergreen fund. Which was, ultimately has ended up being a pool of $30 million. About 60% of that has come from the state and public sector entities. And 40% has come from private foundations and community leaders that enable us to take the dollars in as philanthropy. And then with those dollars make very, very risk friendly and yet still high risk investments in entrepreneurs who've never raised capital before. >> Ray references JumpStart's fund beginning to see some initial returns on its investment. Which occur when a company is sold or has an initial public offering. It has been difficult, not just in Cleveland but worldwide for any early stage company to make an exit. And as a result, the returns for venture capital as an asset class over the past decade have been weak. JumpStart is still waiting for a sizeable exit from their portfolio. Jackie Acho serves on JumpStart's Board of Directors. >> I think JumpStart has to have exits to be a success. But I don't think it needs a Groupon like exit. In fact, I don't think that's the way economies are built. I think it's built on many more smaller exits and successes. And I think those are in the coming. You know, it's been seven years or so since it started. So it does take time for these things to mature. >> While exits are a key metric JumpStart's funders use to measure their effectiveness, other measurements of success include the ability of Jumpstart's portfolio to raise capital. To generate revenue and to create jobs. Cleveland's entrepreneurs have come to depend on JumpStart for support during this challenging start-up phase of their businesses. >> Without JumpStart there would be no embrace, we wouldn't be here today. We had nothing to start with. We weren't, so my business partner Alex Krooglik and I, we're not from around here. In fact you might be able to tell, we're not from around the US at all. And so we didn't have connections here. We'd never done pet insurance before. And we were not even insurance brokers. We even had JumpStart come to London to help negotiate our arrangement with Lloyd's of London. So Lloyd's of London was our first insurance partner. We're not an insurance company, we need an insurance partner. So JumpStart's Mark Smith, came with us to help, to help Lloyd see that it wasn't just two people with a business plan. That it was the whole of northeast Ohio behind us. >> Wireless Environment's David Levine credits JumpStart for pushing him to recruit a more dynamic board of directors. >> Besides the, the cash infusion which JumpStart provided to us. And the kind of, the credibility hit that it gave us. An increasing credibility. We benefited from JumpStart's ability to, explain to us the, the various stages of, of forming and growing a company. And the important milestones and, and actions that needed to be taken. >> There are intermediary organizations like JumpStart working in markets all over the world. Like JumpStart they are typically structured as non-governmental organizations. Let's take a look at a couple. Endeavor is an NGO focused on mentoring and accelerating the best high impact entrepreneurs around the world. Gabriela Macagni, is the Managing Director of Endeavor Argentina. >> Endeavor Argentina as every single office as in Endeavor worldwide. We are, our focus is on searching and selecting entrepreneurs, high impact entrepreneurs. And mentoring them after they have been selected in an international panel. That's basically the one single model that we have in every single country. Now on, on top of that, we do a lot of inspiring new entrepreneurship or creating the entrepreneurship culture. So we do some massive events in eight different provinces of the country. is more like a TEDx Dynamic. Where we have entrepreneurs, our, our role models, our Endeavor role models tell their story to many people so they get inspired. And we provide some additional technical support with classes or debates on a specific technique or subjects for entrepreneurs. >> The jobs at companies like Embrace Pet Insurance, CardioInsight, and Wireless Environment, represent the type of employment that communities around the world are looking to create. Job growth at these companies is steady. But no company in JumpStart's portfolio is yet employing thousands of people. The challenge for Jumpstart and many other intermediary organizations supporting entrepreneurship around the world, is to convince governments and donors to continue with their funding over the long term. So investments have a chance to bear fruit, in terms of job creation and profit. As a result, JumpStart is being asked by it's funders to explore new ways to become self sustainable. Including consulting other communities on venture development and setting up a new for profit investment fund. The other question that looms for intermediary organizations like JumpStart, is when they have accomplished enough in support of entrepreneurship, do they still have a reason to exist? In our next lecture we will look at the role that anchor institutions such as universities, play in driving entrepreneurship in a community. See you next time. [MUSIC]
