Sunday, January 19, 2003

Private investors fuel innovation

Risk-takers are willing to listen to good ideas, business plans

By James McNair
The Cincinnati Enquirer


As Ohio celebrates its bicentennial, The Cincinnati Enquirer will examine where the Buckeye State is headed and analyze the key topics that confront the state. Watch for these reports throughout 2003.

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As Ohio tries to find and flush out new technology industries, it can learn a lot from private investors.

Private investors are the bird dogs when it comes to finding technologies and building great companies. Behind virtually every successful high-tech company is a corps of venture capitalists and "angel" investors. They put their money into startup companies with potentially great technologies or ideas.

Ohio, the Rust Belt and farming state that it is, ranks 21st on the list of states receiving venture capital. But the state's venture capital community is growing. If Ohioans are indeed thinking up new technologies that have the potential of creating large companies - even industries - private investors will be there to bootstrap them.

"It's almost impossible to accomplish the metamorphosis of a private enterprise into a flourishing company with size and scope without outside money and brains," said Jack Wyant, a managing partner of Blue Chip Venture Co. It is the largest venture capital firm in Greater Cincinnati.

Jack Wyant, managing partner of Blue Chip Venture Co., the largest venture capital firm in Greater Cincinnati, in front of the factors he reviews for an investment proposal.
Cincinnati alone has $1.1 billion in venture capital at its disposal, according to Blue Chip. About two-thirds of it is actually invested in startups. Fund managers are waiting for entrepreneurs to bring them companies and technologies with long-term potential.

For example, only 35 percent of the $450 million currently invested by Blue Chip is with Ohio companies, Mr. Wyant said. Greater Cincinnati, which has a number of technology initiatives under way, is still trying to spawn companies of size and staying power.

"The area has shown evidence of being able to build companies from early stages to a level of maturity, with profits and stability, but which then results in a sale," said Mr. Wyant, a former Procter & Gamble brand manager and founder of two startups.

Consider Ohio's best-known Internet companies, CompuServe and LexisNexis.

CompuServe was founded in 1969 and became the nation's first online service to offer e-mail and live chat. LexisNexis, founded in 1966, is a leading online provider of legal, news and business information.

CompuServe remains in Columbus, it is now owned by New York-based AOL Time Warner and Mississippi-based Worldcom. And while LexisNexis remains in Dayton, the Anglo-Dutch conglomerate Reed Elsevier plc owns it.

Mr. Wyant wants to do a better job of finding - and funding - startups in the Tristate. He would like to repeat Blue Chip's experience with LanVision, a 13-year-old Cincinnati company and one of the leaders in medical records imaging.

LanVision went public in 1996 and will exceed $10 million in revenue in 2002. The $900,000 that Blue Chip invested in LanVision, Mr. Wyant said, now is worth about $11 million.

Angel investors, people who provide earlier-stage funding to startups, are also on the hunt for more investment-worthy companies in Ohio.

"The problem is a dwindling number of deals and the quality of the deals," said Tony Shipley, head of Queen City Angels. Its 24 members have $5 million invested in eight companies - all but one in Ohio.

"I definitely believe that the recession has had an impact on the deal flow. Most people, if they have a job, want to hang on to their jobs. They don't want to take the risk of starting new businesses."

Mr. Shipley is proof that Ohio can do the entrepreneurship thing.

In 1981, he founded Entek Scientific, a Milford company that made machine-monitoring systems. With financing ranging from venture capital to a bank loan - and no government handouts - Entek reached $50 million in annual sales and 400 employees. The company was sold to Rockwell International in 2000 for an undisclosed amount.

Mr. Shipley, who lives in Indian Hill, said Ohio has the ability to get back on the entrepreneurship path.

"It can't just be a program that has a start date and an end date," he said. "It's got to be a way of life."

The story of a West Chester company, AtriCure, was compelling enough that Gov. Bob Taft paid it a visit last year while stumping for his Third Frontier program. The company, which makes an electrical device for the treatment of irregular heartbeat rhythm, was founded in November 2000 and has 30 employees.

AtriCure President David Drachman would not disclose a sales figure, but said sales growth will be "explosive" this year.

The firm can thank venture capital for that. It received $26 million from groups headed by U.S. Venture Partners - of Menlo Park, Calif.


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