Startups & Education in Cincinnati: the Key to Our Economic Future

I've just returned from Washington D.C. as part of the Cincinnati contingent for CEOs for Cities, a network of urban change agents. We were joined by over 40 other cities from the US and Canada in hearing speakers from the White House, urban institutes, and thought leaders from around the country talk about programs and best practices being applied in cities around the world. I came away from D.C. really encouraged - there are a lot of brilliant people working hard right now to ensure our economic future in the U.S.

One of the most astounding statistics we heard relates to education - and its impact on urban economic prosperity. When it comes to urban policy, we often think of affordable housing and the revitalization of disadvantaged neighborhoods. Now there’s another factor that’s crucial to a city’s success: attracting and retaining college graduates. The good news? As a country, we're on it. Obama has set a goal for 2020 to be #1 in the world in post secondary education (in the past, we have been, but in recent years, we’ve dropped in the ranks).

CEO for Cities has found that the amount of talent, or percentage of graduates in a city's population, can explain 58% of a city's success measured by per capita income. According to Carol Coletta, president of CEOs for Cities, "those cities that can attract the greatest number of people with the most talent will be the ones that win." CEOs for Cities did a study on the Talent Dividend and found that by increasing the college graduation rate by 1% would result in a $763 increase in annual regional per capita income. That means that in each of the 51 largest metropolitan areas (Cincinnati is #50), increasing the four-year college attainment rate by one percentage point from its current median of 29.4 percent to 30.4 percent would be associated with an increase in aggregate personal income of $124 billion per year for the nation.

And that’s just the beginning. If you factor in not just the return on investment from increased productivity and associated wages from employment, but also factor in the companies that could be created by recent college grads, the return is much faster and much greater. Case in point: 5 out of 8 of the winners of the Cincinnati Innovates competition were undergraduate students or within one year of graduation. What that tells me is that our young people are not just our future; they are our present.

In economic times like this, we need to look beyond the established companies that fuel our local economy. We need to think seriously about the talent, opportunity, and latent intellectual property that exists in our universities -students, professors, and researchers. According to the Kauffman Foundation, 100% of net job growth from 1981-2001 can be attributed to companies that are less than 5 years old. Today, cities like Pittsburgh are capitalizing on startups to fuel their economic growth.

A decade ago, venture capital investing in Pittsburgh was a blip on the national radar, number 31 to be exact, down from cities like San Francisco, Boston, and New York. Data compiled by the National Venture Capital Association, Thomson Financial, and PWC Money Tree for 2006 shows the Pittsburgh region at number 16, one of the largest relative increases in venture capital (VC) investment among all regions in the United States. Pennsylvania also now ranks third in the country for total VC jobs.

This increase in venture capital and startup companies over the last 10 years has created one of the most startling economic rebounds in the history of the U.S. Pennsylvania venture-backed companies added the most U.S. jobs between 2003-2005 than any other state - 167,000 jobs, beating Texas and California. Startups create jobs.

As a venture capital investor at Neyer Holdings, I work a lot with the University of Cincinnati and other university tech transfer offices to commercialize technologies being developed at our universities. And because of that involvement, I’ve been able to meet some amazing researchers at UC like Jason Heikenfeld, a professor in the Novel Device labs who creates electrofluidic display technologies with industry leaders like Polymer Vision - and has a tough time finding funds at UC to cover patents.

Time to pay attention! Follow the dollars. UC has over $350 million in research going on right now and less than $1 million a year in royalty revenues from technologies it has developed. You might wonder why. Well, at a time when budgets are tight, things like patent funds and offices like the tech transfer office don’t get as much attention as maybe they should. It’s absolutely critical that we properly fund - through foundation grants, private donations, and state funds - these activities. Otherwise, we’ll never reap the rewards of the hard work we do in this region.

If we don’t, do something fast, we’re going to slip down in the ranks of innovative cities into what innovation experts at McKinsey call "Shrinking Pools", markets that are economically stagnant and failing due to lack of innovation. Check out how Cincinnati stacks up in terms of innovation in this interactive world map.

Statewide, we're on the right track. Eric Fingerhut, Chancellor of the Ohio Board of Regents, who oversees the entire university system for the State of Ohio spoke in D.C. at CEOs for Cities about our state's objective to make our universities centers of economic prosperity and talent retention. His commitment to that goal has led to commitment from all the Ohio University presidents: economic prosperity, talent retention, and startups are on the radar in Columbus.

How can you help? The Ohio Third Frontier program is the state funded program that makes organizations like CincyTech, a $10.5 million public-private venture fund here in Cincinnati, possible. CincyTech has already invested $3.4 million in 11 companies that have created 175 jobs at an average annual wage of $66,000 and are on track to create 1,000 jobs over the next eight years. In November, the Third Frontier program will be on the ballot in Ohio. Basically, our economic future will be up for 'renewal'. I hope you will vote to renew that future.

Online game wins top Innovates award | Cincinnati.com | The Cincinnati Enquirer

Online game wins top Innovates award | Cincinnati.com | The Cincinnati Enquirer

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Day Of Coworking

Day Of Coworking

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10 Awesome Online Tools Your Small Business Should Be Using

10 Awesome Online Tools Your Small Business Should Be Using

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Raise capital... or team up!

I just found this awesome article about financing through sweat equity (as opposed to raising capital). Formal or informal, these structures are a great way to get started on a start-up without the brain damage of pre-mature fundraising.

At InOneWeekend, we have a similar participant-owned structure, where everyone who contributes to the end product owns a portion of it. While we attempt to do this on a slightly larger scale (100 people at a time) - it works just as well (maybe even better) when applied to teams of two, three, four, five - you name it. Can't afford your developer? Partner up! Can't afford your branding firm? Team up!

Building Your Team Pre-Financing
Written by Bernard Lunn (See the original article in its entirety at http://www.readwriteweb.com/readwritestart/2009/05/building-your-team-pre-financing.php. This post is part of the ReadWriteStart channel, which is dedicated to profiling startups and entrepreneurs. The channel is sponsored by Microsoft BizSpark)

In our 10 Things to Be Clear About Before You Start, we suggested that you decide whether to build a team of partners or fly solo. If you have decided to build a team of partners, even a small team of two, you'll need to also decide how this partnership will work. Your only currency will be equity in a company that has not been formed and a venture/Web service that is no more than a gleam in the eye.

Create a Small, Balanced Team

Here is the advice of Naval Ravikant, serial entrepreneur and angel investor. His advice is directed at other angel investors, but that is a good context in which to look at this as an entrepreneur:

• "Invest in teams of two to three founders. Five is unstable, one is too hard.
• The best combination is one founder who can sell and one founder who can build.
• The team matters more in enterprise deals, traction matters more in consumer deals"

There is a reason why people talk about "putting the band together" and "rock stars" in this context. Solo artists can do great (think Bob Dylan), and when they get some success, they can bring in session musicians (contractors). But the history of pop music is more about the great combos: Lennon and McCartney, Simon and Garfunkel, Jagger and Richards. Those bands may have had four people in them, and the other two members in each may have been talented and driven, but it was clear who the stars were.

One Leader Might Emerge

But business is different from music. A great band like the Rolling Stones ends up becoming a corporation, but the skill-sets are different. Typically in a business, one founder emerges as the leader and CEO. Think Bill Gates rather than Paul Allen.

There are instances of two partners staying together and really building a big business together. Hewlett and Packard are great examples of this. But this is unusual because it does not fit the need of a company to have a CEO/leader who is recognized as such by employees, customers, and investors.

This is why drawing up some kind of buy/sell agreement is a good idea. You don't even need a lawyer. Download the terms from the Internet. As long as the terms are mutual, nobody will get screwed. The buy/sell agreement simply acknowledges the fact that people change: their needs and motivations change. You might be the one who wants to get out of the partnership and move on. Or you might be the one who buys your partner out. Either should be possible.

But don't get too hung up on the buy/sell agreement. Plenty of founding partners cross that bridge when they get to it. It is a bit messier doing it that way, but something can usually be worked out.

Dividing Up Something that Does Not Exist

We'll cover the basics of creating a legal entity in a later chapter. Most ventures start without being incorporated. You may have heard legendary stories of founders getting a check from an angel first and then having to set up a company and create a bank account.

If the founding team is of two people, it's pretty simple. If you have three or more, you will need to define the founders' agreement one way or another. Here are four options:

1. Purely verbal. "We're all buddies and understand each other, right?"
2. Each of you hires a lawyer and lets them hammer away at each other on your nickel. Hm, now where's that nickel?
3. Document what you have verbally agreed on via email exchanges, and the next time you're all together, print it out and sign it.
4. Download a legal template, put in the terms you have agreed on, and sign it, possibly after getting one hour of legal advice from a buddy at law school.

Somewhere between three and four partners is recommended. Even buddies can misunderstand each other. When there is nothing to fight over, there are no fights. But when it looks like the venture might take off, greed sometimes kicks in, and one founder develops a case of "selective amnesia" regarding something that was verbally agreed on. Even an email record prevents that danger.

The reason to be careful about the legal agreement between the founders is that it helps with the next stage of your startup: bringing in external investors.
Get Your Due Diligence Ducks in a Row

The earliest-stage investor will be looking at just the team and the website. That's it. If your site sucks, sorry. If one of you has a criminal record, whoops. In other words, due diligence (the step after the term sheet and before the contract and cash in bank) is simple.

There is one show-stopper you want to avoid. Anybody who has worked on the website or helped with the venture in any way should sign something that acknowledges the venture's Intellectual Property (IP). If someone comes out of the woodwork and says, "They stole that from me," most investors will be scared off.

You can and should do this even before you form a legal entity. You simply want what in the old days was called a "paper trail," and is now an "email trail," which records what was agreed on. This trail could include:

• The two to three founders saying that each of them owns X amount of Newco (your to-be-established company) and assigning all of their IP related to this venture to Newco.
• A buddy who writes some super code just because they're a friend confirms that they have no financial expectation and assigns all of their IP related to this venture to Newco.
• Somebody who provides a service in return for equity and assigns all of their IP related to this venture to Newco.

Paying with Equity

You may not be able to pay in cash for the things you need done. So, you could agree to pay in equity. Don't do this as a percentage. Use a formula along these lines:

1. What cash rate would this person normally charge? Check that this is normal for the market.
2. Agree to pay twice that amount in equity. The doubling is to cover the risk that they never see anything.
3. Convert the cash into equity at the valuation of the first round.

Don't treat this person or vendor like an investor or partner. They are not. They do not know how to evaluate the venture, so don't waste your time trying. They are a vendor whose payment is being deferred. KISS.

Note: a long-term adviser is a special case that we'll deal with in the next chapter.
Vesting

This comes down to the actual term sheet with the first investor(s), which is covered in a later chapter. But this item is worth considering at the beginning. When somebody invests in a founding team, they invest in the work that the team will do in future. So they want to invest your founding shares over time.

You can haggle about vesting some founding shares from the start if you have already built a lot and gotten some traction. But this is really "at the margin." Don't obsess over it.

You also need this protection with your partners. Say you have a team of three founding partners, each with 33% of founders' stock. You don't want one of them to leave just after funding comes from another venture, or to go off to play music, or whatever. All three of you need that same protection. Build your own partner vesting schedule, typically four years, and present this to the investor(s). They will appreciate that you have thought this through and that your interests are aligned.

Microsoft BizSpark is a startup program that gives you three-year access to the latest Microsoft development tools, as well as connecting you to a nationwide network of investors and incubators. Click here to apply.

PR tool for Start-ups: HARO (HelpAReporter.com) gives you access to free PR

HARO (HelpAReporter.com) is a new free mailing list that gives you access to free newspaper, magazine, and other coverage - essential for getting the word out about your business.

One of the best ways to create buzz for your product or business is through traditional PR like newspapers, magazines, TV, and radio – depending on your demographic. The problem is getting reporters to write your story! By the way – you have to have a story.

Traditionally, you would hire a PR firm to prioritize publications, write your story, and then use their relationships to help you get coverage in those publications. For start-ups, this can be costly. At the high end, you could spend nearly $40,000 trying to generate top-ten pick status at a huge tech event like DEMO – on the low end you’ll spend a minimum of $500 to post a story to PR Newswire, a tool PR professionals use to get national coverage.

If you decide to do it yourself, you’ll have to do quite a bit of emailing and phone calling to drum up interest from reporters. First, you have to know what they’re interested in writing about. You’ll also have to know their deadline and work within that timeframe. And you might have to give them an exclusive on the story. Ultimately, you may call ten reporters and get one or two interested.

Peter Shankman, entrepreneur and PR guru, has taken a different approach – and taken a bit of PR Newswire’s business - by creating a free mailing list HARO (helpareporter.com) where journalists post the stories they’re looking for and what their deadline is.

Example:

Joe Reporter

WIRED Magazine

Query: I’m looking for stories about new tech products that save time/headache.

Deadline: Friday 3pm EST

Contact: joe@wired/ 555-555-5555

What does this mean for start-ups? Access to free PR – more importantly, free PR that’s looking for a story. So, instead of hitting your head against the proverbial wall, looking for someone to write about you, you can sign up for a 3 daily emails, sift through the queries for relevant publications and story topics, and reach out to the reporters with your story.

Tip: Have a story crafted and ready to go with facts, images, quotes, and an enticing headline. All publications are different, but in these days of limited print real estate, shorter is better – 350 words or less. Need help crafting your story and navigating the PR jungle? I’m not a PR expert, but here are two of my local Cincinnati favorites: Dan O’Keeffe and Kevin Dugan.

To signup and start receiving the free daily updates, visit www.helpareporter.com

Michelle Spelman of Flying Pig Games tipped me off to this service. Follow Michelle on Twitter @QuickCount. Follow me @eedwards.

Have a great tip for start-ups? Share it with the rest of the InOneWeekend peeps!

Cincinnati Innovates Competition Launches May 1 - $50,000 in awards

Four-month online contest is aimed at inspiring entrepreneurship

Eight prizes awarded worth $50,000; top prize is $20,000

Cincinnati is one of the most innovative cities in the world. It boasts one of the highest rates of patent applications per capita in the country. Did you know the Uno card game, the Swiffer, the Heimlich maneuver, Benadryl, the oral polio vaccine, the iron lung, the first ambulance service, Ivory Soap, Pringles, the gas mask, and the 3-light traffic signal were all invented in Cincinnati?

Cincinnati Innovates is a regional innovation competition aimed at channeling this innovative spirit into creating companies, connecting inventors and investors and inspiring entrepreneurship.

Cincinnati Innovates from Elizabeth Edwards on Vimeo.

“The best innovations come from the most unexpected places,” says Elizabeth Edwards, a venture capital investor at Neyer Holdings, which is launching the competition with partners Taft Stettinius & Hollister law firm and CincyTech. “The challenge, then, is finding those great ideas.

“As investors, we are constantly seeking out the next big thing – the cool new product, the breakthrough processes. Cincinnati Innovates is a chance to bring those ideas out of the labs, garages and offices all over the city and connect inventors with the resources to turn those ideas into realities.”

The competition is open to anyone with an idea or an invention who has a connection to the 15-county Greater Cincinnati MSA.

To enter, visit www.cincinnatiinnovates.com and:

1. Enter a short description of your innovation – product, business, idea – and upload pictures, video, sketches, or other media to help explain and showcase it.

2. Tell your friends about it. The Community Choice Award is driven by online votes.

Details:

• The competition is open online at www.cincinnatiinnovates.com from May 1-Sept. 1, 2009.

• Anyone can enter - any age, background, level of expertise.

• Any type of innovation is welcome - product, device, business process, etc.

Awards

Commercialization awards sponsored by CincyTech
$20,000, $10,000, and $5,000

Patent Awards sponsored by Taft, Stettinius & Hollister
$10,000, $2,500, and $1,000
(in-kind pro-bono legal services*)

HYPE! Community Choice Award: $2,000
Student Innovator Award: $1,000

What’s next:
Judges, including investors and experts from all industry backgrounds, will select the best innovations of 2009 for the top awards.

Awards will be announced at a ceremony on Sept. 18 at the Contemporary Arts Center in downtown Cincinnati.

A word about our sponsors:
Our sponsors are committed to driving the long-term economic growth of Cincinnati through innovation. To find out more about how they are helping create new technologies, fund start-up companies, and create lasting change in the region, visit www.cincinnatiinnovates.com and click on sponsor details.

CincyTech
The Haile Foundation
Taft Stettinius & Hollister
Cincinnati Children’s Hospital Medical Center
C-Cap
Hamilton County Business Center
Queen City Angels
Neyer Holdings
HYPE Cincinnati
BIOSTART
Northern Kentucky e-Zone
Soapbox Media
Greater Cincinnati Venture Association