Startup City 

Never mind the rust. Young tech companies are hot in Cleveland, where creating a startup has never been easier.

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"We're in the middle of wrapping up an angel investment round for $2.5 million," says Roth, who expects to hire 10 more employees between now and the end of the year. Streamlink provides software-as-a-service solutions that help nonprofits manage communications with their boards and apply for and track large federal grants.

Ryan O'Donnell is an entrepreneur who moved from New York to Lakewood last fall to start Sociagram, which allows shoppers to record a video to personalize a gift bought online. He's raised $500,000 so far and has 25 customers for his e-commerce plug-in. He says entrepreneurs need support and guidance just as much as they need money.   

Although not as developed as New York, Cleveland's a good place to experiment.  "Jumpstart is not like a traditional venture capital firm, where it's 'one and done,'" he says. "They help you think critically through your business and pivot towards success."

Exit signs

After early-stage funding, venture capital and "exits" are considered the next stages of success.  Although Cleveland is not as rich in venture capital as some coastal cities, VC firms in Cleveland and other cities are increasingly eyeing deals here because of our growing tech scene and the fact that our investments are a comparative bargain.

John Knific, Eric Neuman and Marc Plotkin, who founded DecisionDesk in 2010 out of their Case dorm rooms, are an example. DecisionDesk helps universities more easily process applications that include multimedia submissions such as video and music. The startup has offices in Cleveland and New York.

DecisionDesk recently landed $1.7 million from the North Coast Angel Fund and the Innovation Ohio Loan Fund. This came after years of bootstrapping their startup company. The first year, they lived with their parents and earned $12,000.

Knific is excited to announce that DecisionDesk is a venture-backed company—and to move their New York office, which is currently above a motorcycle shop, to a quieter location. Yet he says Northeast Ohio still needs to attract a lot more investment.   

"Currently, there's not heavy access to capital beyond the seed stage," Knific argues, citing the fact that New York VC firms often want to be no more than an hour car ride from their portfolio. "As a region, we have to help investors see that they can safely place bets outside their backyard."

Yet venture capitalists are finding deals in Cleveland, an area once considered flyover country. From 2007 to 2011, $961 million of venture capital was invested in Northeast Ohio companies — an increase of 26 percent compared to the previous five-year span, according to a report by the Venture Capital Advisory Task Force. Ohio now ranks between 13th and 16th nationally in terms of the dollars attracted to companies.

"I'm seeing evidence of investors actually competing for deals," says Dearborn. "That competition is more common in other parts of the country. Now it's happening here."

Still, a worrying trend in recent months has been a slowdown in venture capital funding. Many VC funds are waiting for their portfolio companies to be bought or go public.  Jumpstart is carefully watching the trend, a problem playing out across the U.S.  

Cleveland has seen a handful of high-profile exits in recent years. One is Onosys, an Internet company founded by Case graduates Stan Garber, Oleg Fridman and Alex Yakubovich. It was acquired by the daily deal company Living Social a year ago.  

"We've taken over all the restaurant operations for Living Social," says Garber, who first developed the online restaurant ordering software for Rascal House Pizza years ago. "We'll have 33 employees this month—up from 18 when we sold the company."

One thing that helped Onosys to grow was the fact that people in Cleveland were willing to talk to them. "In Silicon Valley and Boston, it's harder to get on people's calendars," says Garber. "When I was in college, we met with Scott Wolstein [of Developers Diversified] and Albert Ratner [of Forest City]. They made time for us."

A new success story

With the success of the entrepreneurial community here, some company founders are trying to do their part to keep the area's top talent from leaving for bright lights, big city.

"My customers are asking me to build [software developers] here and ship them to other cities," says John Stahl of LeanDog, a 50-person software company whose offices are in a boat off the East 9th Street pier that once housed Hornblower's Restaurant. "I can't keep talent here. We've had our people leave for Chicago, Austin and California."

To stem brain drain, Stahl, a flip-flop-wearing CEO who ditched his job at Nationwide Insurance five years ago to pursue his passion, allows other entrepreneurs to work on his boat. Stahl also started LeanDog labs to help entrepreneurs launch new companies.   

Entrepreneurial support groups are also building the pipeline for the next generation of entrepreneurs. Blackstone Launchpad at Case is one of many university programs in Northeast Ohio that teach students entrepreneurial skills. "Some of our students are competing for top spots in accelerators," says Bob Sopko, director of Blackstone.   

John Dearborn says Cleveland's success stories and increasingly vibrant startup community are signs that the entrepreneurial ecosystem is teeming with life here.

"I think we're close to creating a new story [for the region]," says Dearborn. "What you see happening is that, like any portfolio, in the first few years these young companies are finding their sea legs. Now you're seeing companies with over 100 employees raising $10, $20, $30 million. We're not at the tipping point yet, but we're close."


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