Access to capital. Experienced mentors. A steady flow of talent. These are the things that grow start-up companies.

And start-ups grow jobs.

A critical mass is building in Greater Cincinnati to fuel "an innovation ecosystem""” a platform that nurtures start-ups as they plant jobs and fertilize the region's economic base.

Pioneers putting down Tristate roots say that for their early stage firms, there is no better place to be right now than Cincinnati.

"What's really encouraging is that it's gone beyond the availability of capital and it's getting into other resources to assist entrepreneurs to build these businesses," says Dan Meyer, president and CEO at Comet Solutions, a product simulation software company.

It stems from taking to heart this fact: start-up firms, not large employers, generate jobs.

New firms add an average of 3 million jobs in their first year, while older companies lose 1 million jobs annually, says a 2010 Kauffman Foundation study. A year later, those new companies create an additional 1 million jobs.

Carl Schramm, Kauffman CEO, describes it further: "The single most important contributor to a nation's economic growth is the number of start-ups that grow to a billion dollars in revenue within 20 years."

Quiet Growth

Comet Solutions (cometsolutions.com) started quietly growing in Cincinnati in 2008, when Meyer moved it from Albuquerque to be close to early investor Fort Washington Investment Advisors and his Cincinnati home.

A $1.4 million Innovation Ohio Loan funded the Blue Ash office and the hiring of six people. It gave Comet the credibility to raise more capital, Meyer says.

Comet closed a $2 million funding round in January 2010 with Athenian Venture Partners in Athens, Ohio; Fort Washington's Tristate Growth Capital Fund and others. The infusion is boosting growth in Ohio, China and with partners like NASA.

Comet's software lets customers in the industries including aerospace, defense and manufacturing perform more precise product simulations faster.

"They gain insight into design flaws at an early point in the process so they can develop more innovative and reliable products," Meyer says.

Comet tripled sales in 2010. Meyer says growth will triple again in 2011.

Raising Capital

Young companies need a lot of financial and professional support.

The region's universities, accelerators and early stage funders "” CincyTech, the Brandery, Queen City Angels, Northern Kentucky's Ezone and Ohio's Third Frontier initiative "” are doing their part.

But the 2010 Regional Indicators report from Agenda 360 and Northern Kentucky's Vision 2015 point out the work ahead.

When compared to 11 peer cities like Pittsburgh and Louisville, Cincinnati ranked ninth in venture capital funding, with an average of $115 million invested in start-ups between 2007 and 2009. (See sidebar.)

In response to that report, the Cincinnati Business Committee launched a task force led by Procter & Gamble CEO Bob McDonald and retired Cincinnati Children's Hospital Medical Center CEO Jim Anderson. It hired consultant McKinsey & Co. to study Greater Cincinnati's assets and what's needed to better compete (see sidebar). Look for an action plan by year-end, says Gary Lindgren, executive director.

The push is about more than money, says Agenda 360 executive director Mary Stagaman: "We have to create the ecosystem of innovation.

"Without a system that works to retain young companies once they get going, we are high risk for losing them to other places where more capital is available."

"An Excuse to Stay"

Start-up entrepreneurs say they want to stay "” if they can find the money to keep them here.

Andrew Dennis and Eric Liu moved from Chicago to grow SpaCiety (spaciety.com), an online appointment-making site for discounted spa services. They say the Brandery hooked them into a network much deeper than what they could access in Chicago.

Dennis wants to double the site's reach in the next year. He employs six interns from Miami University, Ohio University and the University of Cincinnati.

"We are looking for an excuse to stay, but at the end of the day it is a function of what is the best place for our company," Liu says.

Middletown native James Dickerson needs to raise $700,000 to hire developers and launch Leap (leapfor.it), a mobile challenge and photo sharing site. The application lets people compete with friends.

The Brandery helped tweak the model. Sponsored challenges from brands will generate revenue.

"Our ability to find technology talent and raise capital will be key in keeping us here," Dickerson says.

Transforming the Region

Everyone has a duty to support start-up firms taking the risk for Greater Cincinnati's future, says Dave Knox, one of four Brandery co-founders . If they succeed, everyone benefits. "Having that vibrant entrepreneurial scene encourages and attracts other entrepreneurs," Knox says.

CincyTech's Bob Coy sees it happening already as deal flow and idea quality increases.

"People are leaving large corporations to start their own companies because they believe it is possible to raise the money they need and get the support they need," Coy says.

Since 2007, CincyTech has raised nearly $100 million for portfolio companies. As of September 2010, its portfolio firms created 250 jobs.

It can take 15 to 30 years for a strategy focused on juicing technology start-ups to transform a region, Coy says.

"What we need to have is the vision and constancy of purpose to stick with a strategy that supports high-potential start-ups over a considerable period of time," Coy says.

The Risk Profile

Attitudes are changing.

"There is more recognition of the value to our region's health and economic development that smaller companies can play," says Comet Solution's Meyer, a Cincinnati native who worked on both coasts before returning in 1996.

Comet employs 18 in Cincinnati, Albuquerque and Ann Arbor, Mich. Meyer will add four in Cincinnati this year.

Comet is seeking another $3 million in investments to grow sales in the U.S. and Asia, and enter European markets.

But Greater Cincinnati's acceptance of risk and failure is a barrier, Meyer says. In a big company town, there is a tendency to remove risk rather than introduce it.

The innovation ecosystem under development and all its parts "” like Xavier University's XLab "” can improve comfort levels, says Joe Carter, director of Xavier's center for entrepreneurship and innovation.

"What we need to do is standardize as much as we can while keeping it flexible," Carter says, adding that the right people will shepherd start-ups into adolescence.

As successes emerge, the region's risk tolerance will change. Companies delivering revenue and jobs show what's possible, Meyer says.

"That can reset expectations," Meyer says. "Start-ups spawn people who go populate other companies.

"They did it before and they want to do it again because it is thrilling."


 

Where Cincinnati Stands

Experts at the University of Cincinnati and Northern Kentucky University compiled and analyzed data against that of 11* peer metropolitan statistical areas with similar population size, geography and demographics.

The result, "Our Region by the Numbers," was produced in collaboration by the regional action plans Agenda 360 and Northern Kentucky's Vision 2015.

According to that Regional Indicators Report, here's where Cincinnati stands.

Total Jobs: 6th with 995,000 jobs in 2009

Creative Jobs: 8th in the percentage of workers employed as mathematicians, scientists, artists, engineers, architects and designers at 6.7 percent in 2009

Average Annual Wage: 8th at $44,009 in 2009 (total annual wages in an area divided by total number of jobs)

Per Capita Income: 8th at $38,168 in 2009, the first decline in this measure in 40 years.

Knowledge Jobs: 12th in the percentage of managerial and professional jobs at 15.3 percent in 2009

* Austin, TX; Charlotte, NC; Cleveland; Columbus; Denver; Indianapolis; Louisville; Minneapolis; Pittsburgh; Raleigh, NC; St. Louis


 
Launch 'em, Keep 'em
Accelerate, invest and retain
talent to help start-ups stay.
 
What's next to help start-ups stay?
When the Cincinnati Business Committee unveils its plan for creating an innovation economy at the end of the year, it will have interviewed more than 100 people about the region's strengths and weaknesses, CBC Executive Director Gary Lindgren says.

"We want to help drive the process but also engage the entire community in this project," he says.

In a September speech at the Cincinnati USA Regional Chamber's annual luncheon, P&G's Bob McDonald, innovation task force co-chair, said public and private sectors must work together and across boundaries to create an innovation capability and culture.

McDonald highlighted the region's strengths:

"¢ Research and idea generation at Cincinnati Children's Hospital Medical Center

"¢ Concentration of consumer-focused businesses

"¢ University of Cincinnati's College of Design,
Art, Architecture and Planning

"¢ UC's growing $500 million R&D budget

"¢ CincyTech's track record of funding local tech companies

"¢ Growth in seed capital and venture funds

"¢ Brandery accelerator named one of Top 10
in the country

"¢ Companies like Akebia and AssureRx attracting venture investments from outside the area


 
 
Successful Start-Ups On Track for 1,000 Jobs

Between 2007 and September 2010, CincyTech portfolio companies had
created 250 jobs at an average annual wage of $61,000. That puts those firms
on track to generate 1,000 jobs in the next eight years. Take a look:

Akebia Therapeutics

Akebia is focused on anemia and vascular disorders using technology developed at Procter & Gamble Co. In April it closed a $22 million stock financing round. The infusion will allow Phase 2b studies on Akebia's anemia drug and further clinic studies on other products. www.akebia.com

AssureRx

AssureRx expects to employ about 50 at the end of 2011, with 100 employees in three years. AssureRx's GeneSightRx product uses technology developed at Cincinnati Children's Hospital Medical Center to conduct genetic tests that help psychiatrists determine the correct medical dose for an individual patient.
www.assurerxhealth.com

Giftiki

A member of the 2010 Brandery class, Bryan Jowers is the Brandery's biggest success so far. Giftiki lets social media users give small monetary gifts of $1 to $10 that are pooled together. The recipient can then buy what they want by cashing out onto an American Express or partner retailer gift card. www.giftiki.com

Ilesfay Technology Group LLC

The cloud-based data replication services firm received a $250,000 investment from CincyTech in September and already has a contract with Procter & Gamble. Founded in 2009, Ilesfay (pig Latin for "files") technology solves the time-consuming and expensive problem of sending terabytes of data back and forth between work in different parts of the world. The Ilesfay software ferrets out the changes and transfers only the new information instead of the entire document. www.ilesfay.com

ThinkVine

Marketing planning and simulation software provider ThinkVine is expected to close another big funding round in December. Damon Ragusa's company is posting revenue in the single-digit millions and has great traction with consumer products companies like Sunny Delight Beverages, Hershey's and Pfizer. www.thinkvine.com

VenturePax

A 2010 Brandery graduate, Danny Stahl's firm raised $250,000 in May and has hired five people. VenturePax rewards people for getting outside and partners with outdoor retailers. www.venurepax.com

VenueAgent

Venue Agent was the Cincinnati Innovates $25,000 winner in the October 2010 competition. Jocelyn Cates developed the online event booking web application after a career in the wedding service industry and event venue sales. www.venueagent.com