Ohio is ready to invest $111 million to become a limited partner in venture capital funds investing in tech startups. About a third of the money will be channeled to founders who have historically been left out of VC, such as women, members of ethnic minorities and rural residents.
The Department of Development started accepting proposals from organizations and investment firms last week, according to a news release. The private groups must match the state investment dollar-for-dollar.
The U.S. Department of Treasury awarded two pots of money as part of Ohio's $182 million in small business aid from the 2021 American Rescue Plan Act. The Ohio Department of Development is managing the programs:
- Ohio Early Stage Focus Fund: $36 million available in $1 million to $5 million increments to "professionally managed investment funds to support early-stage technology companies that are woman- or minority-owned or based in an area that has been underserved by venture capital."
- Ohio Venture Fund: $75 million available in $5 million to $10 million increments to invest in funds that support Ohio-based tech startups up through Series A investment rounds. The startups must be growing or have high-growth potential.
“These programs will address gaps in early-stage capital as companies mature and new startups emerge, as well as for underserved communities that face barriers to accessing capital,” Gov. Mike DeWine said the release.
Both programs require the investment groups receiving Ohio's equity investment in turn back startups that are headquartered in the state, have fewer than 250 employees and sell products or services in "an approved technology area." A majority of employees and leadership must be state residents. Only the Focus Fund has the requirement for founders to be from underrepresented groups.
VC is a "catalyst for innovation and a testament to the power of bold ideas here in Ohio,” Lt. Gov. Jon Husted said in the release. “Venture capital fuels the dreams that redefine industries, empowering pioneers to shape the future we envision today."
Lack of access to capital in the Midwest is "part of pretty much every conversation around tech," said Chris Berry, co-founder and CEO of OhioX, a tech industry membership group that includes Alloy Development Co., CincyTech, Fifth Third Bank and E-Gateway Capital as partners locally.
The announcement of the two Ohio funding opportunities generated excitement at a medical technology conference in Cleveland this week, he said.
"To have an administration care about technology and innovation, we can't give a bigger thanks," Berry said. "That kind of interest for something like tech doesn't happen in every state."
The new funds augment Ohio Third Frontier, which uses bond funds to seed regional entrepreneurial service providers and Ohio-focused VC firms. Third Frontier is co-managing the new program created by the Covid relief dollars.
The 2021 Rescue Plan added $10 billion to the State Small Business Credit Initiative, which was first created in the Obama administration. Its programs are a mix of grants and loans to small businesses and the equity investments in VC.
Ohio also was awarded $46 million toward federally certified small business lenders and $25 million in collateral support, a program that helps small businesses obtain bank loans.
Black-founded startups received 1.1% of U.S. VC investments in 2022, according to Crunchbase. All-female founding teams accounted for 2% of all deal value last year, according to Pitchbook and the National Venture Capital Association. For Ohio-based companies, that amounted to 1%.
The federally backed Focus program is launching when equity efforts are under attack, however. The same conservative group that got the U.S. Supreme Court to ban affirmative action in college admissions has sued Atlanta-based Fearless Fund, an inclusive VC fund, over a small business grant program open only to nonwhite women, the Atlanta Business Chronicle reports.
