Cincinnati’s Entrepreneurial Ecosystem
Silicon Valley, Research Triangle, Israel, and Boston are areas that come to mind when one thinks of startups. They are, after all, the homes to such startsups as Google, Uber, Airbnb, and Snap. But startups are ubiquitous—global is scope (Table 1). So where does Cincinnati rank? According to the Kauffman Index of Entrepreneurship, from 2105 to 2016 Cincinnati was ranked as one of the five metropolitan areas that experienced the biggest positive shifts in startup growth. In 2015, CincyTech, one of the Midwest’s leading seed-stage investors, advised over 300 companies and financed 59 startup, with those companies raising over $506.9 million in investment and employing over 760 people.
To quote Centrifuse: “Cincinnati lays claim to one of the most vibrant startup ecosystems between the coasts. Home to The Brandery, one of the nation’s Top 10 accelerators; HCDC, the one of the top incubators in Ohio; CincyTech, Queen City Angels, a private, seed-stage venture capital investor ranked 2nd in the nation; four universities committed to innovation; and now the country’s only faith-based accelerator.” Among Cincinnati’s most recent startups is Lisnr. This company created an app to unlock special content from music, and more recently, introduced a new app that can transfer data using sounds inaudible to the human ear—an app that has applications for mobile payments, instant replay, and event ticking. Eccrine Systems is another Cincinnati upstart. Eccrine Systems is a wearable patch that monitors health and wellbeing through sweat. It has applications in sports and the military. A third upstart of note is Astronomer. This big data company recently partnered with the Cincinnati/Northern Kentucky International Airport to analyze and study data the airport collects. Its customers include Fortune 500 companies. According to the Cincinnati Courier, some of the other notable startup in Cincinnati in 2017 were FamilyTech, Everything, House, MedaCheck, Enable Injections, Losant, and ReadySet Surgical (Table 2).
- Asian Startups: https://angel.co/asia
- Australian Startups: https://angel.co/australia
- African Startups: https://angel.co/africa
- South Americas Startups: https://angel.co/south-america
- North American Startups: https://angel.co/north-america
- India Startups: https://angel.co/india
- Dubai Startups: https://angel.co/dubai
- Egypt Startups: https://angel.co/egypt
- Saudi Arabia Startups: https://angel.co/saudi-arabia
- Ohio: https://angel.co/ohio
- Kentucky: https://angel.co/kentucky
- Indiana/Indianapolis Startups: https://angel.co/indianapolis
- California Startups: https://angel.co/california
- North Carolina: https://angel.co/north-carolina
- Georgia: https://angel.co/georgia
- Boston: https://angel.co/boston
- Silicon Valley Startups: https://angel.co/silicon-valley
- Texas Startups: https://angel.co/texas
- New York Startup: https://angel.co/new-york
- Israeli Startups: http://www.startupranking.com/top/israel
- Europe Startups: http://www.wired.co.uk/article/europes-100-hottest-startups-2016
Table 2: A Sample of Startups in Cincinnati, Boston, Atlanta, Lexington, and Louisville
MedaCheck: Developed a tablet designed to help seniors remember to take their medication.
Enable Injections: Developed a body-worn device that allows patients to inject biologic drugs on their own that were previously only done intravenously in a hospital or health care facility.
Astronomer: Big data startup that analyze data collected by airports
Lovepop: Created 3D pop-up greeting cards
Cybereason: Created software that uses military grade technology, machine learning and behavioral analytics to hunt advanced cyber threats in real time.
PatientPing: Healthtech company that developeda network system for healthcare providers to share information and coordinate care using real-time notifications wherever their patients are receiving care.
Crayon: Providsdynamic market intelligence using machine learning
Freebird: Developed software allowing travelers to instantly book a new ticket on any airline (at no additional cost) in the event of a flight cancellation
Podium Data: Developed data management software for large companies with massive amounts of data to manage.
TellusLabs: Company combines human expertise, satellite imagery and machine learning to answer some of the world’s most critical economic and environmental questions for various sectors of the economy
Elsen Developed system aims to accelerate the speed of computer processing at hedge funds and other financial institutions.
Bitpay: Online Bitcoin payment service
Tunefruit: Music licensing platform enable musicians toplace music syncs in corporate videos
Advanced Energy Materials LLC: University of Louisville spinoff company commercializing nanowire-based materials for fuel improvements and fuel alternatives.
Pyrochem Catalyst Co.: A Louisville company developing a flame spray technique to improve chemical reactions used to create fuel cells.
Innovative Diagnostics Inc.: Lexington company developing a device to determine periodontal health using saliva.
Mercury Data Systems Inc.: Lexington company developing an inertial measurement unit to make missile systems more accurate.
TwinStar TDS LLC: Lexington company that has developed a needle to improve drug delivery in the brain to treat neurodegenerative and malignant diseases.
Cincinnati has many unique assets when it comes to building a thriving entrepreneurial ecosystem, but it has been only recently that it has taken advantage of those assets. A 2010 Cincinnati USA Regional Chamber study found the region was significantly under-invested in jobs and business-creating venture capital compared to 11 peer cities. In response to that report, Cincinnati Business Community Chair, Tom Williams, formed a task force in 2010 led by then P&G chair, Bob McDonald, and former Cincinnati Children's Hospital Medical Center CEO, Jim Anderson. The task force, in turn, contracted McKinsey & Co. to study the area’s strengths and weaknesses. The McKinsey study identified several entrepreneurial strengths and challenges facing the region. McKinsey’s final report, entitled “Accelerating the Development of an Innovation Economy in Cincinnati,” provided the basis for a regional plan to address the area’s challenges. The McKinsey study focused on three important dimensions of any successful entrepreneurial ecosystem: ideas, people, and capital.
1. The study concluded that in terms of ideas, the major research institutions in Cincinnati were a major asset for startups. The University of Cincinnati and Cincinnati Children’s Hospital were identified as assets because of their proven ability to fund initiatives and create patentable ideas. The study concluded that Cincinnati was doing well at developing and patenting ideas—especially when the patents awarded to researchers at the research institutions were combined with the patents awarded to local businesses.
2. The study found good support for entrepreneurs from the area’s community institutions. Xavier University, the University of Cincinnati, Miami University, and Northern Kentucky University were identified as real assets to the Cincinnati ecosystem. The study also found that there was a sufficient number of incubators and accelerators in the region to provide the necessary space and support networks for entrepreneurs.
3. The study found that since 2000, the Cincinnati community had made important strides in developing sources of capital for startups. Seed capital was available from Queen City Angels and Third Frontier Program, and from incubators and accelerators such as CincyTech and The Brandery. The combined efforts of all these groups had helped Cincinnati increase seed capital funding more quickly than the national average.
1. The McKinsey Report found a need for greater coordination within the entrepreneurial ecosystem and the centralization of entrepreneurial activity as a regional hub. The study noted that while there were many organizations in the Cincinnati region that support local entrepreneurs, coordination between these organizations was lacking.
2. The report also found that when compared to cities such as Cleveland and Pittsburgh, Cincinnati was lacking in marketing and strategic planning. The study recommended greater clarity in the roles and activities of the various organizations supporting entrepreneurial activities. The goal would be for entrepreneurs to know exactly which organization in the region best fits their needs.
3. The study found that although seed capital funding had increased in the region, more funding was still required to develop Cincinnati’s entrepreneurial ecosystem. The study concluded that Cincinnati lacked philanthropic foundations devoted to economic development and the ability to leverage government funding for entrepreneurship. The study highlighted the fact that Cincinnati had a higher concentration of households with over $1 million in assets than other cities in similar development phase of the entrepreneurial ecosystems, and yet was not able to direct foundation wealth to develop the local ecosystem. Cincinnati also lagged behind other Ohio communities in leveraging Ohio Third Frontier Program dollars for local startups. The study recommended that Cincinnati increase the number of major local philanthropic foundations in the area focusing on economic development and become more active in seeking funding from Ohio’s Third Frontier Program, as well as other government agencies.
It was out of concern that the region was falling behind in attracting venture capital and entrepreneurs and the challenges identified in the McKinsey Report that led to the creation of Cintrifuse in 2011. As described on the Centrifuse website:
“Cintrifuse is a startup catalyst, a public/private partnership that exists to build a sustainable tech-based economy for the Greater Cincinnati region. Our purpose is to advocate for entrepreneurs leading high-growth tech startups– attracting, inspiring, and supporting them on their journey. Through the construction and maintenance of an Active Network of BigCos, universities, investors and startups, we are turning Cincinnati into the premier destination for startups and innovation in the Midwest.”
With financial commitments from 15 limited partners, including P&G, the University of Cincinnati, Kroger, Western & Southern Financial Group, and Cincinnati Children's Hospital Medical Center, Centrifuse raised over $57 million two years after its launch. The investment capital was set up as a “fund of funds.” Patterned after the Michigan-based Renaissance Venture Capital Fund, the fund of funds was not require to invest in the area, but was expected to participate in Cintrifuse events and activities. According to Jeff Weedman, Centrifuse Director, "If you require them to invest in a region, without knowing whether there's anything of value to invest in there, the best funds don't necessarily come. By requiring the funds be involved in the local entrepreneurial community, Cintrifuse was betting those funds will find projects they want to support.”
In addition to raising funds, Centrifuse in its first two years attracted over 100 member companies and entrepreneurs, recruited 50 business executives to mentor startups, developed office space in Over-the-Rhine for Brandery and CincyTech, established its LEAP and STEP programs to helps startups identify top business prospects, and hired Wendy Lea, a prominent Silicon Valley leader, as its CEO.
To many, Research Triangle is the quintessential example of a successful public/private partnership created to build a sustainable tech-based econsystem (Exhibit 1). By all accounts, Research Triangle has been an engine for economic growth in North Carolina and a magnet for attracting high tech firms and spurring upstarts. Centrifuse is structured similar to Research Triangle. Moreover, just as Research Triangle transformed the North Carolina corridor, the recent successes of Centrifuse and the rise in Cincinnati unstarts suggest similar successes are possible for Cincinnati’s ecosystem.
The Genesis of the Cincinnati Ecosystem—Thoughts of Directors
Thoughts of HCDC’s Directors
Many organizations in Cincinnati are currently collaborating to create Cincinnati’s entrepreneurial ecosystem. One such organization is the HCDC, Inc., which runs a business center near Xavier University that acts as an incubator for startups. Created in the 1980s, HCDC sets up incubators for startups and connects entrepreneurs with capital, business coaches, and their fellow entrepreneurs. HCDC’s Business Center has graduated more than 180 businesses who generate over $300 million in revenue annually and employ over 2,400 employees.
“It gave entrepreneurship a location,” says Patrick Longo, the Vice President at HCDC’s Business Center. “That location allows for coaching to occur, for an environment to be created that’s conducive to growing a business, and it starts a heartbeat.” Startups can apply for a place at HCDC’s Business Center and, if accepted, can rent space at the location with easy access to the business center’s many resources. One of the best resources of the business center is the coaching that the organization is able to provide. Former business executives with experience in different industries are able to give advice to entrepreneurs as they start to develop their ideas or when they are starting to implement a marketing strategy.
“A lot of times you have a great technologist but they have no idea how to take it to market,” explains Dennis Reinersman, a business coach at the center. “That’s one of our great skillsets. We did a showcase last year at Xavier. We sat down and went through their presentations, and then were able to provide some really good feedback on how to better present their stories.” The business coaches at the Business Center also often help create business plans and locate potential sources of capital. One of the most important parts of the Business Center incubation program is the opportunity that entrepreneurs have to interact with one another on a daily basis. “When you come into this environment it's so synergistic, and our entrepreneurs share ideas, concepts, and capabilities” says Mr. Reinersman. That interactive environment helps entrepreneurs utilize one another’s skill sets in a unique way. If one has a comparative advantage in marketing and another in engineering, they can use their expertise in those areas to help each other.
Overall, Mr. Longo and Mr. Reinersman think that Cincinnati has a lot of advantages when it comes to having a thriving entrepreneurial ecosystem. “A key advantage is if you are starting a new business you want to do it at a low cost,” states Mr. Reinersman. “It’s a lot less expensive to do it here in Greater Cincinnati.” “A dollar goes further here, whether it be talent wise or buying material,” adds Mr. Longo. “We are 500 miles from 60% of the population in the United States.” That central location decreases transportation costs for getting products to the majority of the population in the United States.
HCDC also utilizes Ohio’s Third Frontier Program funding and is working to collaborate with other organizations in the Cincinnati community that support the entrepreneurial ecosystem. Everyone working to support the ecosystem is as dedicated as ever before to ensuring its continued success. They believe the ecosystem can do a lot to continue to help the Cincinnati community as a whole thrive. “Entrepreneurship can do that because it’s an infectious little thing,” explains Mr. Longo. “I’ve had it for twenty years and it’s hard to shake.”
Thoughts of MORTAR’s Director
Cincinnati is home to several unique organizations that help make the entrepreneurial ecosystem more inclusive. For example, Bad Girl Ventures helps female entrepreneurs as they start their businesses, and Xavier’s Start:Me Program provides support for promising micro-entrepreneurs in Evanston (Exhibit 2). One organization of note is MORTAR. This organization operates in the Over-the-Rhine neighborhood (OTR), helping people from underserved communities start their own businesses so they can partake in the community’s business culture.
“What MORTAR is focused on doing is ensuring that there is an ecosystem that supports everybody,” says cofounder Derrick Braziel. “That those dollars, those investment opportunities aren’t always going to the people who have traditionally benefited from those investments but instead to those who have the same talent, the same drive, the same grit, but may look differently and may come from a different back ground. What those people need are advocates, they need access, they need startup capital to get their ideas off the ground.” Derrick believes that residents of Cincinnati neighborhoods have a lot to contribute to the community, but need help getting started. “People in those neighborhoods have a lot of value they can contribute to the rejuvenation of their communities if given the opportunities,” says Derrick.
Many times the problem is that there are not clear channels through which residents of Cincinnati can start to participate in the entrepreneurial ecosystem. “By saying yes to people who have been operating on the margins of society, by saying yes to people who have not necessarily always been invited to participate, you can start to create change. You can see more economic diversity and vibrancy in neighborhoods and our hope is that OTR is not going to be an anomaly.”
One of the biggest challenges for helping residents is building their confidence. “There are a lot of people that have been told no, they’ve been told you’re not good enough, they’ve been told there’s not a place for them, they’ve been told their idea is not viable, they’ve been told they should not be an entrepreneur, and until they believe that those people are wrong and they can believe in themselves, revitalization isn’t even possible. So the first thing that MORTAR has to do is to build up people so that they have self esteem.”
MORTAR has been extremely successful at helping Cincinnati residents become a part of the business community. They have classes that help entrepreneurs connect to other organizations in the Cincinnati community and teach business skills. Their classes have a 96% graduation rate and they have recently had to increase their yearly number of classes from four to six. The program has 101 graduates who have started 96 businesses, 47 of which are still in operation.
Beyond helping entrepreneurs, MORTAR has also partnered with several Cincinnati Public Schools to offer entrepreneurship workshops to students. “We are teaching fifth and sixth graders at Rothenberg Elementary in OTR and also Westwood Elementary tentative entrepreneurship,” says Derrick. “This past weekend those students made coasters and they sold them at our pop-up shop on Vine Street and in two days they made $3,200 from their sales. Those kids now have the confidence to know that they can be entrepreneurs, they can be successful selling things.”
Derrick said that his goal is that, one day, Cincinnati’s entrepreneurial system is opened up to more people of all different backgrounds without any question of where they came from or their differences. “I dream that an entrepreneur is not judged by the color of their skin but by the validity of their ideas, that our ecosystem has become color blind, that our dollars go to ideas that are valid and worthy and sustainable versus people that look like us, that make us feel comfortable.”
With all the positive activities taking place at Centrifuse, HCDC’s business Center, MORTAR, the Brandery, Queen City Angels, and local universities, the Cincinnati’s entrepreneurial ecosystem is becoming a vibrant atmosphere for startups and entrepreneurs—an atmosphere in which diversity and communities thrive because of the inclusive business culture that creates jobs and businesses.