Companies in Cleveland Plus Region Attracting Millions in Venture Funds

1/18/2009

A new report says 73 companies in Northeast Ohio attracted more than $259 million in venture investment in 2008.

That brings the two-year total to $577 million — almost halfway to a five-year $1.2 billion goal set by the Venture Capital Advisory Task Force.

That's how much private investment is needed to support a pipeline of innovative companies being hatched in the region, the task force estimated in 2006.

In the group's annual report, Akron's reXorce Thermionics and Portage County's PartsSource stood out among last year's leaders.

And another Akron company, Theken Spine, was noted for being successfully acquired by a larger medical enterprise.

Economic development groups are closely watching investment activity in the region, considering it one measure of how the region is transitioning from a manufacturing hub to a more technology-oriented and knowledge-based economy.

''The number of investments realized in 2008 demonstrates that the region is generating innovative companies offering competitive investment opportunities,'' said James Ireland III, the task force's chairman and managing partner of the investment company Early Stage Partners in Cleveland.

Here are highlights of the report:

Health care

Medical enterprises accounted for 60 percent of the total capital raised, with 26 startups sharing $158 million in 2008.

The largest investment in this group went to PartsSource, an Aurora supplier of replacement parts for hospital equipment. The company raised $50 million from investors both in and outside the region, including Polaris Ventures.

''PartsSource is an impressive organization at the intersection of technology, Internet and health care and we're thrilled to be partners with them,'' Jason Trevisan, of Polaris Ventures in Waltham, Mass., said.

Ohio's reputation for medicine has lured 27 health-care venture firms to the state, according to Baiju Shah, president of the Northeast Ohio business development organization BioEnterprise.

''The success of regional health-care startups continues to attract regional and national investors,'' he said.

Cleantech

With a $10 million investment, Energy Focus in Solon was the largest in the ''cleantech'' category, which covers products and services that improve operational performance, productivity and efficiency.

Getting international attention was Akron's reXorce Thermionics, which received $5 million from Aberne Limited, located on Jersey, part of Great Britain's Channel Islands off the coast of France.

Earlier this week at an Environment Ohio event, reXorce reported it would begin testing its long-anticipated thermal engine this fall, and expected to add another 10 to 15 people to its staff of 20 by the end of the year.

Also in 2008, Arisdyne Systems, a Cleveland biofuels company that collaborates with the Ohio Agriculture Research and Development Center in Wooster, received $5.3 million.

Dorothy Baunach, president of the technology advocacy group NorTech, said advanced materials and alternative energy companies benefit from the region's industrial heritage in science, electronics and manufacturing.

''Often it's at the intersections of these technologies that ideas for products are created and high-growth companies are formed,'' she said.

NorTech launched the Venture Capital Advisory Task Force in 2002.

Information technology

There were 14 information technology investments of nearly $27 million in 2008.

The largest were in software companies: TOA Technologies in Beachwood ($13 million), SageQuest in Solon ($3.7 million) and Axentis in Cleveland ($3.6 million.)

Several out-of-region investors participated in these deals, including Intel Capital and Panorama Capital, both of California, and Hopewell Ventures of Chicago.

Funding stages

The report found that ''seed'' and ''early stage'' companies both saw investment dollars increase by about 10 percent in 2008.

But ''growth stage'' companies attracted 20 percent less than the year before.

''The seed and early stage investment numbers set a great foundation for the region's growing entrepreneurial economy,'' said Ray Leach, chief executive officer of the business development organization JumpStart Inc.

Leach said investors are projecting nationally they will continue supporting existing investments, which means growth stage companies should see more gains.

Meanwhile, the number of venture-backed companies acquired by larger entities slowed, mirroring national trends.

But some did make successful moves, and Akron's Theken Spine was noted.

The Theken family of companies was acquired by Integra LifeSciences Holdings Corp., a publicly traded surgical products company based in Plainsboro, N.J., for up to $200 million.

The headquarters and manufacturing for Theken Spine, Theken Disc and Therics remain in Akron.

 

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