Ohio needs to attract venture capitalists‎

Coastal venture-capital firms are starting to learn of Ohio’s strengths in health care, information technology, logistics and consumer marketing, Mark Kvamme told readers ofThe Cincinnati Enquirer in an online chat last week.

Kvamme leads JobsOhio, the private agency handling the state’s economic-development efforts. He’s also a venture capitalist. Since 1999, he’s been a partner at Sequoia Capital in California, one of the largest investors in early-stage technology startups.

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Kvamme was involved in Sequoia’s investments in the networking site LinkedIn and Funny or Die, the comedy video site created by actor Will Ferrell and others.

Earlier this year, Sequoia took a stake in AssureRx Health of Mason, Ohio.

The Enquirer asked Kvamme to participate in the chat as a follow-up to the launch of EnterChange, a new effort to track the region’s progress in turning great ideas into new companies and jobs.

Kvamme also made news on Thursday after an ethics complaint filed by four Democratic state legislators highlighted his financial interest in a Chinese software company with clients such as IBM and Microsoft. Both have operations in Ohio.

The legislators questioned whether his economic-development efforts are helping him rather than the state.

The issue also sparked debate over whether Ohio’s chief job creator should be fueling a work force overseas.

A sampling of his responses to reader-generated questions:

AS A SERIAL entrepreneur, I find access to capital the tightest I’ve ever seen. The conventional sources are pretty much dried up. What sources do you see available here in the Midwest?

Access to capital is one of the biggest issues in the Midwest. Most equity investors have flocked to the coasts. California represents close to 35 percent of venture capital in the U.S. Last year, there was just $150 million invested in Ohio. We need to attract more experienced venture capitalists to Ohio. I just met with some folks from River Cities in Cincinnati. They have impressive returns. If you have a company with revenue, you might want to chat with them.

DO YOU THINK venture capitalists on the East and West coasts have an appetite for Midwest companies?

Venture capitalists want to go where the money is! We need to show them that we are building significant and profitable companies in the Midwest, and they will come.

WHAT HAS JOBsOHIO been doing to help draw more venture capitalists to the state?

We are touring the state and finding companies like Explorys in Cleveland, Bluemile in Columbus, Kent Displays in Akron and Intelligrated in Cincinnati. We’re letting venture capitalists know that these great companies are here, and they should take notice. The problem is that venture capitalists on the coasts think we are solely a heavy-manufacturing state, and they don’t see the opportunities we have in health care, IT and logistics.

A RECENT Wall Street Journal article posited that small businesses do not really create sustainable jobs, but in fact only large ones do. How would you respond to that?

I have not seen the article, but I believe that small business is the job and economic engine that drives our economy. For two reasons: companies with less than 50 employees are a significant percentage of our overall GNP and jobs. And, these are the companies that grow into large companies. For example, just eight years ago, LinkedIn had 10 people. They now have over 1,000 people.

MANY OF THE local Cincinnati VC organizations seem to highly prefer IT-oriented ventures. Will JobsOhio be reaching beyond the IT fads? If so, how are you doing this?

Actually, I would disagree with your analysis. I have found the majority of venture capitalists and the money they have made is in the medical sector. We have not had as many large IT successes for venture capitalists as we have had medical/health-care successes. VCs like IT because it is a large market that is very capital-efficient. One only has to invest a small amount of money and has the potential to return tens or hundreds of millions of dollars. It is also a high-growth market.

THE COMPANIES YOU have mentioned all sound like they are already in business. Will JobsOhio also have a focus on startups?

I have been working with the Third Frontier and the entrepreneurial signature programs on startups. For example, the Third Frontier Commission approved the “OneFund,” which invests $20,000 in startups and includes a 10-week course. The first was held this summer at Ohio State University and was a big success. Three of the companies were funded in excess of $1.2 million. The OneFund will be coming to Cincinnati. We needed to test it first, and OSU already had the infrastructure. The JobsOhio team has visited and worked with companies in Cincinnati a great deal over the past several months. I look forward to going there in the near future. I really like what is coming out of the Brandery and Cincinnati Children’s Hospital.


CHANGES are needed in Ohio to stimulate entrepreneurism?

If I could wave a magic wand, I would do three things. In California, it is OK to fail. The culture in the Midwest frowns on failure. Second, we need venture capitalists here. It would make it much easier to attract them if we had a capital-gains differential on our income tax. Third, we need to work with our great education institutions on commercialization. I think Cincinnati Children’s is doing a good job, but we need to create programs to stimulate commercialization.

AS YOU TALK with companies in Ohio, what are the most-common complaints? What do they ask the state for the most?

The most-common issues facing Ohio companies are little access to equity capital to start and grow their businesses and access to trained workers, especially in the higher-skill areas. Many of the companies growing rapidly are having a tough time finding the right space to meet their needs. I have heard this quite a bit in Cincinnati.