Growing the Pie: How Cintrifuse & Greater Cincinnati Foundation teamed to boost StartupCincy

Think of an entrepreneur’s journey starting a company as a road trip from point A (idea) to point Z (financial success). There are plenty of stops along the way to test the idea, crash a startup weekend, hire employees, roll out the product, open a storefront or office and scale up — plus fill the gas tank in between.

Funding is the fuel that keeps the company car humming. As everywhere, money makes the startup world go around.

Two traditional sources of startup funding are investment and philanthropy, usually directed at for-profit and nonprofit ventures respectively. Other tools like government partnerships, bank loans and personal/family money can play big roles as well.

However the money gets to the startups — via ownership stakes, loans, awards or grants — it usually arrives with one goal in common: to accelerate growth. Which means new jobs, improved tax base, spin-off business activity and eventually the kind of economic development that benefits everyone across Greater Cincinnati.
Eric Weissmann
Two leading sources of local funding — Cintrifuse on the investment side and Greater Cincinnati Foundation on the philanthropy side — have been testing a unique partnership to see if they can find new sources of local money for Cincinnati startups. Leaders at both organizations had been increasing outreach efforts recently and liked the idea of joining forces to grow the funding pie.

“Every startup I talk with is trying to raise money, and no one thinks they have enough,” Cintrifuse Director of Marketing Eric Weissmann says. “A lack of capital will kill a local startup ecosystem. It’s just a fact that everyone needs more capital to build, expand and grow.”

Angel Investing 101

Cintrifuse has hosted two workshops to introduce the concept of investing in Cincinnati’s startup ecosystem to those who’ve heard about the scene’s growth and positive momentum but haven’t gotten personally involved yet. The meetings were at Union Hall, the cool new Over-the-Rhine home to startup cornerstone organizations Cintrifuse, CincyTech and The Brandery.

The first workshop, in February, was geared exclusively to philanthropists invited by the Greater Cincinnati Foundation (GCF). A panel of experts presented “Angel Investing 101” to explain how and why investors get involved with startups and legal aspects of angel investing; DotLoop founder Austin Allison discussed how investors helped him build and eventually sell his company.

GCF has been investing charitable resources from local donors for more than 50 years to support nonprofit organizations across Greater Cincinnati. It also invests directly in the local startup ecosystem through a relatively new “impact investing” strategy.

As stewards of more than $500 million in charitable assets, GCF leaders have earned the trust of donors and saw an opportunity to introduce them to the local startup scene in a safe, supportive atmosphere at Cintrifuse.

“A lot of our donors were entrepreneurs themselves,” Foundation CEO Ellen Katz says. “They’ve been reading and hearing about Cincinnati’s growing startup world and are intrigued, but maybe they don’t know how to get involved or think it’s too late to get involved.”

Around 60 curious philanthropists attended the February workshop, which for many was their first look at Union Hall and first hands-on experience with OTR’s startup energy.

GCF is simply making introductions, isn’t recommending investments and won’t benefit directly from any investments that do occur, Program Director Robert Killins says.

“Our payoff is if and when investments result in economic development here,” he says. “The Foundation is all about creating a more vibrant and prosperous Greater Cincinnati.”

The followup workshop in April was opened to a broader audience, and again 60 or so people attended. Weissmann says about two-thirds of them had GCF connections, either repeats from February or interested philanthropists who weren’t able to make the first event.

“I recognized several couples from the first one,” he says.

Brandery co-founder Rob McDonald moderated a panel discussion among Marina Dedes Gallagher, director at Vine Street Ventures; Kyle Schlotman, chief investment officer at Connetic Ventures; and CincyTech’s Doug Groh.

Weissmann says that at least five or six people who attended the April event met later with McDonald to hear more about The Brandery, Cintrifuse and the local startup ecosystem, so he thinks the education process is working.

A third investing workshop is being organized for September, Weissmann says.

“We hope to hold it right before The Brandery’s 2016 Demo Day (Sept. 22) and FounderCon (Oct. 18-20) so people can come hear about Cincinnati’s startup scene and then go encounter startups and supporters in person at these events,” he says.

GCF pleased with impact so far

GCF’s first equity “impact investments” in the local startup ecosystem started in 2010, when the Foundation invested $500,000 in CincyTech’s Fund II. CincyTech reinvests those fund assets into high-potential technology companies in Southwest Ohio in order to create jobs, provide a return for investors and help fuel the local startup economy.

CincyTech is currently investing money from its Fund III, launched in 2013, and recently announced closing its fourth and largest fund at $30.75 million, more than its three previous funds combined. GCF put another $500,000 in Fund IV.

GCF has made a number of “impact investments” now, using a combination of loans and equity investment to create impact in all of its Community Investment focus areas: education success, health & wellness, economic opportunity, cultural vibrancy, environmental stewardship, job creation and strong communities. Killins says GCF has invested more money in the job creation area than the others, supporting growth engines like UpTech and the Minority Business Accelerator as well as CincyTech.

While the at-risk investments don’t bring immediate returns — and aren’t guaranteed to bring a return at all — they fit the Foundation’s core mission of building a more prosperous region.

“We’re expecting to generate three things with our ‘impact investments’ — a strong social return, a return of our invested capital and ideally a small financial return of 1 to 3 percent,” he says. “Often, accompanying these investments, we will make a grant to help the organization with their capacity to deliver the returns they’re trying to deliver.”

More than 70 percent of GCF’s investment in CincyTech Fund II has been returned, Killins reports, and he remains hopeful the Foundation will eventually see a 2x return, or $1 million. He’s encouraged that CincyTech’s portfolio of startup companies has created 833 of the promised 1,000 jobs by 2017.

“We’d be thrilled for them to reach 1,000 jobs created and to get back our $500,000,” he says. “Anything above that would be a bonus.”

UpTech Fund I has returned 35 percent of GCF’s initial $200,000 investment made in 2014, Killins says, while creating 135 of a target 500 jobs by 2020.

“Again, if we get back our $200,000 and they reach 500 jobs created, we will be thrilled,” he says. “Overall, while it’s still early — two of our ‘impact investments’ were made in 2016 — we’re pleased with their overall trajectory so far.”

The money GCF invests is a combination of unrestricted funds the Foundation manages and dollars from individuals’ donor advised funds that they direct to these “impact investments.” So a number of GCF donors have already been investing in the local startup ecosystem for several years — a connection that led intuitively to the “Angel Investing 101” partnership with Cintrifuse.
Michele Carey
“We’ve received positive feedback from our donors,” Michele Carey, GCF senior giving strategies officer, says of the February and April workshops. “Many were curious about angel investing but didn’t know where to begin — the start-up community and angel investing seemed complex and unfamiliar, not part of their everyday world. Finding an entry point hadn’t been obvious or simple, and other commitments made it difficult for them to find the time to dive into researching it on their own.

“Our donors are generous people who likely desire financial investments that have social impact as well as opportunity for profit, so it’s not at all surprising if they do become angel investors.”

Building camaraderie and community in StartupCincy

The GCF partnership might seem to be a stretch for Cintrifuse, but the organization has become adept at experimenting with new approaches to generate support for startups. In the process it’s become the de facto hub for the local startup scene, represented by the #StartupCincy hashtag.

Experimentation was built into the organization’s DNA, when local corporate leaders created Cintrifuse to boost success rates for Cincinnati startups in much the same way they created 3CDC to boost development in the urban core. In both cases, good ideas were languishing due to a lack of funding and strategic planning.

Cintrifuse now offers member startups a range of services, from educational programming and mentoring to connecting entrepreneurs with larger companies looking for innovative solutions to providing co-working space at Union Hall to helping identify funding options.

Its Syndicate Fund is a “fund of funds” designed to generate venture capital and resources for Cincinnati’s startup ecosystem. Its initial fundraising round closed at $57 million and is believed to be the largest privately funded first-time regional fund of funds in the U.S.

The new Syndicate Fund Director, Sarah Anderson, says by investing in other venture capital funds Cintrifuse has developed relationships across the U.S. and shared the story of Cincinnati’s entrepreneurial momentum, resulting in those VC funds investing in local startups — to the tune of a 7:1 return on its investments back to Cincinnati so far.

In the public eye, Cintrifuse’s largest contribution might be its Union Hall space, which has become home base for Cincinnati’s startup ecosystem, both literally and figuratively.

With Wendy Lea’s arrival as Cintrifuse CEO in late 2014 and the opening of Union Hall last year, the organization has been busy helping expand the startup scene’s profile:

• Cintrifuse organized the local version of NewCo last July, making Cincinnati one of just 12 U.S. cities hosting the one-day “inside-out” conference. More than 80 local businesses — including startups, breweries, arts organizations and Fortune 500 companies — hosted pubic sessions. NewCo Cincinnati returns on July 21.

• Cintrifuse hosted the Art x Tech Challenge hackathon in April in partnership with ArtsWave and Fifth Third Bank, bringing together local tech developers, marketers and designers to devise solutions to improve how arts organizations connect with their audiences. Soapbox called it “the start of a beautiful tech/arts relationship” for Cincinnati.
Wendy Lea announces that Cincinnati will host the 2016 FounderCon event in October

• Cintrifuse’s relationship with Colorado-based Techstars Ventures helped Cincinnati become host city for FounderCon, an annual conference for Techstars alumni and mentors to connect with each other and the rest of the entrepreneurial world that’s expected to attract 1,000 innovation leaders to town Oct. 18-20. Lea called the hosting opportunity “a dream come true” for the local startup ecosystem.

• Cintrifuse recently welcomed Flywheel Cincinnati to work out of Union Hall, creating more overlap between Flywheel’s focus on nonprofit, for-profit and faith-based social enterprises and the larger startup ecosystem.

Just as importantly, Weissmann and his staff manage the StartupCincy website, Facebook page and Twitter feed and provide a news feed, resource guide and events calendar of everything happening with local startups. Their effort has done as much as any conference, workshop, demo day or pitch night to build camaraderie and community among Cincinnati’s entrepreneurs.

“We have our hand on the joystick but aren’t controlling the direction of the ship,” he says. “We’re a community and want as many voices, hands and oars in the water as possible.”

An advisory council has been formed and is planning to host a June 15 town hall meeting to discuss the future of the StartupCincy movement.

On the funding front, Weissmann is excited about the recent emergence of Keiretsu Forum Tri-State, the Midwest chapter of a San Francisco-based network of angel capital groups with 46 chapters and 2,500 investors around the world.

The local chapter will connect startups with potential investors, both Cincinnati-based and across its worldwide network, as well as host workshops for entrepreneurs and member investors. A May 25 forum will introduce several local entrepreneurs and their companies to an invitation-only group of investors, who are vetted by Keiretsu before becoming members.

It’s just another potential funding stop along the startup journey, and Cintrifuse welcomes the support and the opportunities to connect.

“So far all we’ve done is just skim the surface as far as educating people on what there is to know about angel investing,” Weissmann says. “I think the most important aspect to demystify is that this form of investing is accessible and an entirely different asset class than you’d normally attribute to investing. We’re not talking tens of millions of dollars, we’re talking tens of thousands. That right there opens the audience up to a much broader swath of the public, and that’s who we want in the game.”
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John Fox is an experienced freelance writer and editor who served as managing editor of Soapbox from December 2014 to August 2016.