UpTech Archives

Entrepreneurship Weekly Roundup 3/10/17

Weekly Roundup is a McNair Center series compiling and summarizing the week’s most important Entrepreneurship and Innovation news.

Here is what you need to know about entrepreneurship this week:

A Tale of Untapped Potential: Cincinnati

Eliza Martin, Research Assistant, McNair Center for Entrepreneurship and Innovation

McNair’s Martin focuses on Cincinnati’s entrepreneurial ecosystem this week. While this midwestern city might appear a surprising or unlikely choice, many of Cincinnati’s entrepreneurs have thrived in recent years due to the city’s ample resources. For starters, the city is home to ten Fortune 500 companies, including Macy’s and Kroger. Its large corporations offer an invaluable network of resources and access to capital for aspiring entrepreneurs.

Furthermore, the University of Cincinnati, which boasts a marketing program that ranks among the top five in the nation, and Xavier University both offer university accelerator programs designed to support young entrepreneurs as they look to launch a business plan. In addition to university accelerator programs, entrepreneurs in Cincinnati also have the option of applying to three other accelerators within the region, The Brandery, UpTech and Ocean Accelerator.

Although Cincinnati is home to a variety of different VC funds and investment options, like CincyTech and Cintrifuse, the city closes significantly fewer deals on average per year than the likes of Austin or Denver. Martin explains this smaller number of deal closures as a function of lower levels of VC activity and fewer funding rounds. To compete with major entrepreneurial hubs, Cincinnati must increase its VC presence even further.

Wanted: More Women Entrepreneurs

Taylor Jacobe, Research Assistant, McNair Center for Entrepreneurship and Innovation

In her latest post for the McNair Center, Jacobe analyzes how improving female representation in entrepreneurship could boost economic growth in the U.S. Currently, women-owned businesses account for only 16 percent of employing companies. While women entrepreneurs tend to perform as well as, if not better than, their male counterparts, many cite lack of access to capital and limited mentorship opportunities as major obstacles to success.

According to a study from the National Women’s Business Council, women entrepreneurs start their businesses with 50 percent less capital than men. A survey conducted by the Kauffman Foundation revealed that 79 percent of women entrepreneurs drew from their personal funds when launching their business. Perhaps more telling, women are three times less likely than men to receive funding from angel and seed investors for their startups. By tackling gender bias in VC firms and other barriers to capital, public and private initiatives can better integrate women into America’s entrepreneurial ecosystem.

As Snap Ascended, These Rival Apps Faltered

Joanna Glasner, Reporter, TechCrunch

According to TechCrunch’s Glasner, VCs love messaging apps for a number of reasons: “massive scalability, low startup costs, loyal users and the potential to mint billions without having to turn a profit.” Messaging apps present a huge potential for success for investors in the modern age, exemplified by Snap’s recent IPO and WhatsApp’s acquisition by Facebook for $17 billion in 2014. Despite this rosy picture, many VC-backed startups that were messaging apps have fallen through the cracks over the years. TechCrunch recently took a closer look at how much capital has been invested into messaging apps only to find that VCs have poured hundreds of millions of dollars into companies that haven’t raised a funding round in two years. Glasner concedes that it is too early to dismiss these once promising startups as failed investments. Regardless the outcomes of these startups, prospects of success in the messaging app arena are daunting.

Y Combinator Opens Registration for Its Free Startup School Online Course

Ken Yeung, Contributor, VentureBeat

Y Combinator,one of the most successful seed accelerators in the U.S., has funded over 1,464 startups since its founding in 2005. Known for its excellent track record of spotting tech giants (Dropbox, Reddit and Airbnb, to name a few), its companies have a total valuation of over $80 billion. The famous accelerator recently announced that it would be opening up its Startup School event to the masses through a massively open online course (MOOC). The 10-week online course will offer entrepreneurs, who are not enrolled in Y Combinator’s core program, access to online courses taught by successful entrepreneurs, venture capitalists and industry greats. Lessons will focus on important topics in the startup business, such as “idea generation, product development, growth, culture building, fundraising and more.” Y Combinator partner Jessica Livingston told VentureBeat back in 2015 that the accelerator’s mission was “to help startups at whatever stage they’re in become billion-dollar companies.”

Lemnos Just Raised a $50 Million Third Fund to (Mostly) Focus on Hardware

Connie Loizos and Katie Roof, Contributors, TechCrunch

San Francisco-based VC firm Lemnos was founded in 2014 as a firm focused on seed-staged investment into hardware companies. Successful companies like Fitbit, Oculus, Square and GoPro have boosted investor confidence in hardware companies in recent years. Lemnos recently announced that it will discontinue its incubator program to focus solely on investing in promising software development and hardware startups. The announcement marks a new stage in the VC firm’s short history, as Lemnos used to invest exclusively in hardware companies. When asked about possible investment opportunities moving forward, Lemnos executives told TechCrunch that they were very excited about the field of robotics.

This Program Uses Lean Startup Techniques to Turn Scientists into Entrepreneurs

Greg Satell, Contributor, Harvard Business Review

In 2011 the National Science Foundation (NSF), headed by Subra Suresh, founded I-Corps, a program designed to help transform scientists into entrepreneurs. The idea for the program originated when Suresh noticed that many of the scientific discoveries, made possible with NSF research grants, were not breaking out of their academic silos and into the marketplace. Harvard Business Review’s Satell describes the program as an initiative by NSF to “foster better links between government and industry.” Errol Arkilic, director of I-Corps, initially reached out to Steve Blank to help design the program, which is now an 8-week course for graduate students. The curriculum adopts the philosophies of Blank’s lean startup movement. Blank stresses the importance of developing products that actually address consumer needs; early on, Arkilic realized that many aspiring scientist-entrepreneurs create solutions to problems that consumers don’t want. Upon completion of the entrepreneurship training, participants partner with VentureWell, a nonprofit accelerator.

As of last May, I-Corps successfully trained over 700 teams. In aggregate, I-Corps teams have raised over $80 million from government grants and VC firms. Significantly, 90 percent of the program’s participants say that I-Corps changed their approach to conducting research and writing grant proposals. In response to the program’s success, the Department of Energy and the Department of Defense implemented programs that resemble the I-Corps model.

When Will All the Unicorns Exit? VC Liquidity Lagging behind Expectations

Mikey Tom, Senior Financial Writer, PitchBook

PitchBook’s Tom explains that “for the VC model to work, huge rounds need to lead to huge exits.” However, while 2015 was a year of unicorn funding rounds, 2016 did not bring large exits. In fact, VC-backed exits reached their lowest point in six years in Q4 of 2010. Part of the decline in exits could potentially be explained by an increased buildup of capital in private markets; abundance of VC in private markets might lead startups to wait longer to go public or get acquired. Another important statistic revealed by PitchBook’s analysis of VC liquidity in 2016: the median size of corporate M&A deals increased – by a lot. The total exit value of corporate M&A deal reached its second highest level in the decade, indicating larger and fewer acquisitions. On the other hand, the amount of capital raised and the number of completed IPOs in 2016 reached lows not observed since 2010 for VC-backed firms.

These Are the 50 Most Promising Startups You’ve Never Heard Of

Ellen Huet, Reporter, Bloomberg

Bloomberg recently released a list of the 50 most promising U.S. startups. Market researcher Quid generated the list by looking at over 50,000 startups and considering factors, such pace of funding, industry and history of the company’s founders.All 50 startups were founded within the last six years, and they represent a variety of industries. Startups involved in online security, fraud detection, AI, autonomous driving and AR drew the most capital. VC firms Andreessen Horowitz and Sequoia Capital each invested in six startups that made the cut.

The Weekly Roundup will return on March 24.

A Tale of Untapped Potential: Cincinnati

When you think of an emerging entrepreneurial ecosystem, you probably think of Austin, Texas or Boulder, Colorado, not a moderately sized city deep in the heart of the Midwest. But Cincinnati’s entrepreneurship ecosystem is positioning itself as a good place to start a high-growth, high-technology startup firm.

The Fortunate 500 companies that call Cincinnati home, such as Kroger, P&G and Macy’s, have been investing in their local ecosystem through a nonprofit organization. The resulting increase in resources and capital in Cincinnati’s entrepreneurship scene has led industry commentators, including TechInsurance and Entrepreneur.com to enthusiastically expound the city’s positive trajectory. In this blog post, I explore the driving forces behind Cincinnati’s transformation and ask whether it is real.

History of Entrepreneurship

Local and state governments have historically helped maintain the Cincinnati ecosystem. Individual grant programs provided the Cincinnati Children’s Hospital Medical Center, University of Cincinnati and the Cincinnati Regional Chamber with funding for high-tech projects. However, until recently, the Fortune 500 companies have been largely absent from Cincinnati’s entrepreneurship ecosystem, and there was no depth to the ecosystem’s support and service organizations. For example, less than a decade ago, there was not a single startup accelerator anywhere in the region.

Accelerators in Cincinnati

The past few years have seen an emergence of a spate of entrepreneurial resources available in and around Cincinnati. Accelerators – 12 to 16 week entrepreneurship boot-camp programs for startups that typically end with a pitch day – now span the tristate area of Ohio, Kentucky and Indiana.

Cincinnati now boasts The Brandery, UpTech, OCEAN, First Batch, Founder Institute, a minority business accelerator housed in the Cincinnati chamber of commerce, and two university affiliated accelerators. There are also several incubators in the local area.

The Brandery

The Brandery, located in Cincinnati and founded in 2010, was inspired by successful accelerators such as Austin’s Capital Factory and Boulder’s TechStars. The Brandery offers a three-month program for seed-stage companies that use Cincinnati’s existing strengths: branding, marketing and design. Companies receive $50,000 in seed funding, office space, branding identity, legal support and more in return for 6% equity stake in the startup.

The Brandery has a portfolio of twenty-nine startups. Notably, the Brandery accelerated FlightCar, “a marketplace that allows owners flying out of an airport to rent out their cars to arriving travelers” that was acquired by Mercedes Benz and Skip, “a mobile checkout solution that allows you to scan items as you go through the store and skip the checkout line.” The Brandery has been ranked a top-ten U.S. accelerator.

UpTech and Ocean Accelerator

Launched in 2012, UpTech is a Greater Cincinnati tech accelerator program for data-driven startups. Located across the river from Cincinnati in Covington, Kentucky, UpTech was established as an effort by Northern Kentucky University College of Informatics and the Greater Cincinnati community. Up to ten startups per cohort participate in a six-month accelerator program and receive up to $50,000. UpTech differs from traditional accelerators in that it draws its hundreds of support staff from community volunteers and interns from Northern Kentucky University. Successful UpTech startups include online walking-tourism planning platform, Touritz, and software and data management company, Liquid.

The third and newest accelerator in Cincinnati is three-year-old, faith-based OCEAN Accelerator. Ocean runs a five-month program that provides mentorship, monetary support in the form of a $50,000 note, branding and legal advice. OCEAN claims to be the the only faith-based accelerator in the nation, and its curriculum features weekly bible studies. Alumni of Ocean include Casamatic, a real estate technology company that increases buyer engagement, and Cerkl, a startup that provides personalized email campaigns.

University Resources

The University of Cincinnati and Xavier University both have academic accelerator programs. The University of Cincinnati’s Technology Accelerator for Commercialization provides full-time faculty and staff with the opportunity to develop intellectual property at the University of Cincinnati. In order to be eligible for the TAC program, the technology must be developed at the University of Cincinnati and have a focus on commercialization. Start-up companies are not eligible for the TAC program.

Xavier University offers a business program aimed to boost the Greater Cincinnati economy. Called X-LAB (short for Xavier Launch A Business), the seven-year old competition provides want-to-be entrepreneurs – particularly including students – opportunities to launch a business. The Williams College of Business supports the winners by providing the business expertise of its professors, executive mentors and MBA students.

Seed-Stage Funding

Cincinnati has had stable seed-stage investors for some time. These include CincyTech and Queen City Angels, as well as some early stage venture capitalists and some nonprofits that provide grants to startups. In recent years, CincyTech and Queen City Angels appear to have had some successes and grown considerably, which bodes well for the future of the ecosystem.

CincyTech

1074px-Over-the-rhine-map CincyTech, a public-private partnership focused on seed stage investments, was the first effort by the local government to jump-start entrepreneurship. Established in 2001, CincyTech’s mission has been to strengthen the regional economy through the creation and expansion of technology companies in Southwest Ohio. CincyTech is now investing out of its fourth and largest fund, a $30.75 million seed-stage fund, which is bigger than its first three funds combined.

CincyTech garnered considerable national attention after providing Lisnr, a company that has invented an ultrasonic technology for transmitting data through sound, with Stage A capital. Lisnr came to fruition aboard the 2012 StartupBus, a competition where participants launch a company in 72 hours on a bus headed to Austin for the South by Southwest Festival. Since Lisnr’s establishment, they have received $10 million in Series B funding from Intel Capital and garnered accolades from CNBC’s Disruptor 50 list, Cannes Lions International Festival for Creativity and Fast Company’s Innovation by Design Awards.

Queen’s City Angels

Likewise, Queen City Angels is the region’s longest running angel group and is currently investing out of its largest fund of $10 million. Queen City Angels provided the initial stage funding for Assurex Health. Now ten years old, Assurex grew out of research at Cincinnati Children’s Hospital Medical Center and the Mayo Clinic. Its singular product is the GeneSight Test, which analyzes twelve genes that influence mental health and psychoactive drugs that treat a spectrum of mental health disorders. Myriad Genetics purchased Assurex Health in April 2016 for $225 million with another $185 million to come when performance stipulations are met.

Coordinating the Ecosystem

Two organizations provide the glue for Cincinnati’s entrepreneurship scene. StartupCincy is a grassroots organizations that first registered its domain name in 2010. Cintrifuse is an example of a successful municipal government intervention in an entrepreneurship ecosystem.

StartupCincy

StartupCincy describes itself as “the driving force behind [Cincinnati’s] new economy…a rallying cry.” In addition to maintaining a long list of upcoming network, education, accelerator and developer events in the city, Startup Cincy connects venture capitalists and angel investors to startups. StartupCincy is credited by the Cincinnati Business Courier as “one of the most influential groups leading the renaissance of Cincinnati’s startup community.”

Cintrifuse

However, the most important element of Cincinnati’s ecosystem is probably Cintrifuse. Established in 2011 with the goal of creating a sustainable technology driven economy for the Cincinnati metropolitan area, Centrifuse primary manages a fund of funds. This fund of fund has created a network of venture capital funds, including Allos Ventures, Mercury Fund and Sigma Prime Ventures, that invest in Cincinnati startups.

For big companies, like Kroger, USBank, the Greater Cincinnati Foundation and Duke Energy, investment in Centrifuse isn’t just about financial returns. Corporate investors get access to new companies and new ideas, while the startups receive mentorship and connections that help them access potential partners and customers.

Cintrifuse also provides co-working space in Over-the-Rhine, a neighborhood of Cincinnati, and entrepreneur-focused educational programs. More than four hundred companies have gone through Cintrifuse’s programs, and both CincyTech and the Brandery are located in Over-the-Rhine just feet away, providing unique collaboration opportunities.

Cincinnati’s Venture Capital Woes

Author’s calculations based on data from SDC Platinum VentureXpert

Despite all of its great resources, Cincinnati is still not producing enough successful startups to be considered a mature and effective ecosystem. Although there is no consensus among experts, ecosystems that close around thirty to thirty-five deals a year are markedly more stable. Cincinnati falls far below this. While the number of first rounds has been increasing, it appears that the city’s ecosystem may be leveling out at an average of just five first rounds per year.

Author’s calculations based on data from SDC Platinum VentureXpert

The largest barrier to Cincinnati’s emergence as an entrepreneurial ecosystem is probably the quality of its deal flow. Despite the recent increase in startup activity, Cincinnati’s venture capital investment peaked in 2002 at $343 million. The recent maximum was $235 million in 2014, with 2016 reverting to pre-2010 levels. Since the turn of the millennium, the venture capital investment has averaged just $139 million per year. Mature ecosystems, like Austin or Denver, are much bigger.

Untapped Potential

Cincinnati’s entrepreneurship ecosystem is small but does genuinely seem to be growing in an exciting way. From 2000 to 2009, Cincinnati saw an average of around two new venture capital deals each year. From 2010, when the Brandery opened its doors, to the present, the number of Cincinnati based startups receiving venture capital for the first time has more than doubled to almost five each year.

There have been many factors at play: more venture capital, more seed stage investment, more mentorship and engagement with established firms, the arrival of accelerators, a co-working space, and specialist training and professionalization programs, and, just possibly, that the Over-the-Rhine neighborhood has achieved a critical mass of startups in close proximity. These factors appear to be working together to reinforce each other and grow the region’s startup ecosystem and the local economy. Cincinnati is surely a startup city to watch!