Cleveland leads on startups; Milwaukee follows fast

Three leaders of the innovation strategy for the reinvention of the Cleveland economy posed a poignant question this week to current and potential leaders of a similar strategy in Milwaukee: where will the world- famous Cleveland Symphony Orchestra be in 30 years without the backing of successful entrepreneurs?

Their point was that most major philanthropists are entrepreneurs or their families, so if we aren’t giving birth to a new round of entrepreneurs today, our society, including our arts organizations, will be in trouble a generation down the road.

Ergo, Cleveland’s major institutions, including 100 of its foundations, got together a decade ago to turn-around the declining fortunes of the Northeast Ohio region. Cleveland suffers from the second highest level of poverty in the country; Milwaukee ranks fourth highest.

Northeast Ohio’s grand collaboration is based on ramping up the region’s entrepreneurial capacity, a strategy that BizStarts Milwaukee borrowed and adopted four years ago. BizStarts, with the blessings of the M7 Council and the Greater Milwaukee Committee, has become Cleveland’s fastest follower.

JumpStarts, entrepreneurial support organization has invested $21 million in 55 startup companies through 2001 from what it calls a pre-seed fund. All capital gains are plowed back into the non-profit fund, making it an “evergreen” fund. The JumpStarts companies have raised an additional $65 million.

BizStarts doesn’t have such a pre-seed fund, but it has been tallying M7 regional startups since it kicked off in 2008. The various players in the early stage space in Southeastern Wisconsin have launched 34 ventures since then. Those firms have raised $81 million to date. The startup pace is accelerating.
Those numbers are not apples to apples, but clearly Milwaukee is heading the same direction as Cleveland. Both are moving faster than other regions in the Heartland.

Northeast Ohio’s awakening was led early in the last decade by its charitable foundations. They received collaborative support from all the major players in the region: the business community; local government and the state of Ohio, which has poured a whopping $2.3 billion into –its Third Frontier Fund. Those state funds are deployed through regional organizations like JumpStarts. No other state has been as bold as Ohio.

In the M7 region, five foundations have stepped forward with operating funds to help BizStarts get going. We Energies has been its major supporter.
Entrepreneurs, who create all net new jobs in the country, need two kinds of resources to get out of the starting gate. They need a support system that helps them get their business plans investor-ready, and they need early stage capital.

The support system is now in place. BizStarts has recruited about 1900 people into its “Connect” network, including angel and venture investors, lawyers and accountants who do deals, marketing experts, would-be entrepreneurs, mentors and educators. Once orphans in the Milwaukee area, entrepreneurs now have a home.
What remains in short supply is capital for new deals. There are two angel groups, who each do several deals a year. And there are two venture funds, one of which has put expansion funds into several Wisconsin deals. But good deals are going begging and undone for lack of early stage funding. There is a big gap. (Disclosure: I am part of a partnership that is raising a for-profit early stage fund.)

Cleveland’s JumpStarts raised pre-seed money of about $3.5 million per year. That non-profit fund provides initial shots of capital to promising new businesses. They are complemented by a group of for-profit startup funds.

Long and short of it, the Milwaukee region still has some catching up to match the bold Cleveland startup strategy.

This entry was posted in The Startup Economy. Bookmark the permalink.