Don’t underestimate the venture capital markets in the Midwest — and Ohio — advises the leader of the recently renamed New Ventures group at Cleveland law firm Thompson Hine.
Ohio’s startups and high-growth technology companies topped $2 billion in venture capital investment for the first time by the third quarter of 2021. And that was during a pandemic.
Thompson Hine's New Ventures group has closed more than 120 transactions since June, averaging more than $11.2 million per transaction and totaling more than $1.4 billion invested in startups, the firm said.
Thompson Hine represented either the investor or the startup in more than 17% of the amounts raised in Midwest venture capital transactions in the first three quarters of 2021, said Jonathon Vinocur, Cleveland-based chair of the New Ventures group.
The group also represents a party on either side of almost every transaction in the state of Ohio, Vinocur said.
The Cleveland Business Journal talked with Vinocur and his colleague, Lindsay Karas Stencel, who works in the company's Columbus office, about the state of venture funding in Cleveland and Ohio. This interview has been edited for clarity and brevity.
How typical is a New Ventures group within a law firm?
Vinocur: So for the last 15 years, we have worked to put together a team that spends all of its time working with high-growth technology companies. At this point, we have clients in close to all 50 states, but we work primarily throughout the heartland, as we think about it. And so unlike lots of corporate lawyers who might spend part of their time working on M&A transactions or even commercial finance transactions, all we do is work with the startups. We are at the forefront of how legal services are delivered to these companies.
Seems to me that venture capital funding has picked up more in Columbus and Cincinnati than in Cleveland. What do you think?
Stencel: I think there is a lot more interplay between the investors in Cleveland and Columbus now than in many years past. We are really seeing a true corridor along I-71 from Cleveland and south to Columbus and Cincinnati. There are large investment rounds and exits happening all along the corridor. There also is a lot of co-investment among investors because ultimately that's how ecosystems that are smaller than what you see on the West Coast win. You have to have different cities working together to create a critical mass of funding and talent and all of those things that keep businesses growing and thriving here.
So we in Cleveland shouldn't look for a billion-dollar exit like CoverMyMeds (which started in Cleveland, by the way) had in Columbus last year?
Vinocur: We're seeing different types of successes come along, such as the sale of companies in Northeast Ohio for less than $100 million. They're still creating great returns for the investing community and for those entrepreneurs. So it's just a completely different kind of equation.
What do we need in the Cleveland area to take our venture capital scene to the next level?
Stencel: One is continuing to grow the businesses that are here so they can have large exits, because what happens is a circle of life. The funding comes in, businesses grow, there's a large exit, and then investors reinvest their returns into more startups and entrepreneurs start more companies.
Two, we need more capital throughout the capitalization stack. One of the things I analyze annually is, where does the money sit in the stack and where are the gaps? Like any developing region, we have a gap after the seed stage of investing. There are only so many funders in Ohio that will take the next step. We need more capital in that space.
