Venture Capital Firms Boost Area Startups
YOUNGSTOWN, Ohio – Venture capital helps startups avoid getting caught in what Brian Slawin refers to as “the valley of death.”
Early-stage startups risk falling into this valley when they are beginning to get more customers, which means they have to invest in hiring more employees and take other steps to grow the business, says Slawin, portfolio manager for Ben Franklin Technology Partners in Erie, Pa.
“Until they can get some outside capital infused into the company, they will never be able to cross that valley and get to the other side and start to scale,” he says. “The valley of death is quite literally where startups go to die.”
Ben Franklin Technology Partners works with startups in a 32-county region in central and northern Pennsylvania. It makes investments “in the couple-million-dollar range” to about 20 companies annually, Slawin reports.
“Our kind of capital is what is known as seed-stage capital,” he says. “We’re working with the youngest, newest companies as they begin to come out of their basement or garage.”
Among the criteria the fund considers is whether they serve a segment not currently served and if they can expand into a large market.
Most venture capital – 87%, he says – is invested within 20 miles of the investor, he says. “That means that local capital really matters,” he says.
Valley Growth Ventures, established by a group of Mahoning Valley partners, was founded to provide a source of venture capital for local companies and entice other companies to come to the region. The fund, which targets early-stage firms, has a geographic focus primarily for the Mahoning Valley, northeastern Ohio more broadly and the state of Ohio, because of state money the fund received.
It focuses on sectors its founding partners have experience in: software, information technology, advanced materials, advanced energy and health care.
“We are unique in that we have a for-profit fund that is focused first and foremost on financial returns,” says Ernie Knight, managing director. “We do have a double bottom-line mission to create economic development opportunities in the Mahoning Valley region. But we come at it with a public-private partnership approach where our founding partner group provides services. That’s a unique model and we’re excited about it.”
The $6.05 million fund recently made its first two investments totaling $400,000, Knight reports.
“The way we think about deals generally is we’ll invest initially from $150,000 to $250,000,” then reserve additional funds for future investments, he says. “Our goal is to have nine investments and average about $500,000 per investment over the life.”
Local firms also are a focus for Mahoning Valley Business Alliance, a fund established about eight months ago, says Chris Jaskiewicz, one of the fund’s three partners. It primarily looks at investments in companies within a 30-mile radius of Youngstown.
In July, the fund made its first investment in Freshmade 3D, which provides 3D-printing design, scanning and reverse engineering services. Jaskiewicz expects the paperwork on its second investment to be completed soon.
“We are open to any type of business that needs help that we feel we can help them,” he says. Other potential investments include manufacturers and even a T-shirt company.
Unlike Ben Franklin Investment Partners or Valley Growth Ventures, Jaskiewicz says his fund prefers working with established firms over startups because the return takes a long time, if it comes at all. “We actually prefer businesses that have some established revenue,” he says.
Jaskiewicz modeled the firm on “The Profit,” the CNBC reality show featuring entrepreneur Marcus Lemonis, who provides his expertise as well as his cash to businesses he invests in. The three partners all have their own separate businesses but getting businesses in the Valley “up and running again is really an underlying passion of ours,” he says.
The most important factor the investors consider is the integrity and character of the owners, he says. “When you’re buying into a business, obviously you are buying into a group of people,” he says. “So our No. 1 consideration is who we are investing with.”
Copyright 2021 The Business Journal, Youngstown, Ohio.