1Mby1M Virtual Accelerator Investor Forum: With Bill Baumel, Managing Director of Ohio Innovation Fund (Part 3)

Sramana Mitra: It’s great to hear about all these activities. We have seen many ecosystems come up through our work. We try to cover a lot of these companies. Utah is a very good example. They’re a bit ahead of you, because they’ve had sizable exits. That has created angels and seed money. Ohio probably has better bridges with New York than with Silicon Valley.

Also now, things have changed in Silicon Valley. As you know, people used to only want to invest in local companies. That is not the case now. Investors are happy to invest in companies as long as the business models are proven and are venture-scale business models. The globalization of entrepreneurship is in full swing right now. It’s wonderful.

The capital-efficient ethos is very much in sync with how we think about entrepreneurship. Especially at the beginning of an ecosystem, capital efficiency is very important. When there is not much money in the ecosystem, it’s by bootstrapping that you start bringing companies up. Then you start attracting funding. Then exits happen.

Bill Baumel: I’d like to add one thing in terms of the willingness of those in Silicon Valley and Boston to invest in Ohio. We find that there needs to be a balance in that. You need a strong local partner to work the day-to-day things. It’s a balance there when you bring those funds in.

When the company is not at that point of proven scalability, that can be difficult. There’s still a lot of work to be done. You’ve established some initial product-market fit. You’re still on the messaging side and expansion side.

Let’s say we had one company that had raised $10 million to $15 million and had a multi-hundred million exit opportunity. The entrepreneurs chose to go forward with another round to achieve more. We had to, very clearly, articulate and make people understand that if you’re going to take another round of $30 million, you need to create at least $300 million incremental value to justify that round. There are a lot of people celebrating a $25 million fundraise. You can’t talk about a $50 million exit anymore. What does that mean operationally? That’s a shift.

Sramana Mitra: How many funds are operating at the seed stage? At Series A?

Bill Baumel: We’re probably the largest and most focused on the Series A stage. Each location will have an angel group or a couple of angel groups. There are a few in Cleveland, a few in Cincinnati, and a few in Athens. There’s one other, Drive Capital, but they invest all over.

We’re pretty much the one focused here in this area. We are seeing strategic partners investing with us. We’re seeing more and more people joining us in Series A. They like what we’ve done and they trust us as their day-to-day partner. That was the case with DatAnchor where we had some investors from Silicon Valley and the Salt Lake city-type of areas you talked about.

Sramana Mitra: How many entrepreneurs are we talking?

Bill Baumel: In our investments, almost everyone is a new entrepreneur. The founders are very mission-focused and have a lot of fortitude. Jeff Schumann at Aware is rolling out Microsoft Yammer. There are all sorts of compliance. So he set out to create a cyber security, compliance, and risk management SaaS platform. That’s usually how entrepreneurs are born. As for the deal flow, that has increased dramatically, particularly in terms of the quality of deal flow.

Sramana Mitra: Is this like a 500 startups at a given time?

Bill Baumel: I’d say around a few hundred. If you want to look at some startups that have made some great progress, that’s probably 50 to 75. When I first got here, the growth company of the year in Ohio was doing about $5 million in revenue. That was five years ago. We have a company now doing $100 million in revenue.

Sramana Mitra: Very cool. It’s wonderful. It’s going to be a big snowball effect from here on. You’ve done great work.

Bill Baumel: It’s been fantastic. We’re happy with how broad-based it is. We would likely majority of the fund exiting successfully. Some at 2x to 5x. Some 20x plus. The founders, CTO, and CEO go do something else. The usual snowball effect.

Sramana Mitra: Right. It just takes time. Thank you for your time.

This segment is part 3 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Bill Baumel, Managing Director of Ohio Innovation Fund
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