Wooster-based 60mo receives $1 million in funding from Groupon founders to further develop the small-business management software firm. Founder Edward Buchholz sought out-of-state funding because he was unable to attract capital in Northeast Ohio.
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Edward Buchholz, a 30-year-old founder of a small business management software company, received $1 million in funding from LightBank, the Chicago investment fund created by Groupon co-founders, after sending a tweet asking for help.He sent a message to the founders of the popular coupon site Groupon and their investment fund, LightBank, looking for help.
"Hey @lightbank, we should chat sometime. Mid-westerners gotta stick together, yo," Buchholz' tweet read.
It worked. A week later, he was in Chicago meeting with Groupon founders. Two months later, he had nearly $1 million for his small Wooster-based company, thanks to LightBank.
"We got turned down by everybody and their brother here locally," said Buchholz, 30, founder of the web-based 60mo, which helps businesses manage their finances. "After we failed here locally, we looked for money elsewhere."
His frustration is indicative of the difficulty many startups in Northeast Ohio -- particularly the technology-based ones -- have in getting funding to help get their businesses off the ground. That difficulty is often cited as the reason some leave the area.
More needs to be done to keep young talented entrepreneurs here, said Dar Caldwell, who started Shaker LaunchHouse to help emerging and start-up companies.
"Risk takers and bold entrepreneurs need to be viewed as a transitional region's most desired commodity," said Caldwell, 28. "Some regions have a culture that naturally attracts these talented community assets while others proactively recruit cutting-edge technology talent. Neither of those exist at a sustainable level here."
Most professional investors are focused on mature companies that are not as great a risk as some of the younger ones, said Ray Leach, chief executive officer of Cleveland nonprofit JumpStart Inc.
But Leach admits that is a concern.
"That poses a challenge for start-up companies in communities like Greater Cleveland because there's more companies like Ed's who need this level of capital and are unable to find it in Northeast Ohio," he said.
Last year alone, JumpStart met with more than 400 entrepreneurs who were looking for funding, Leach said.
Since 2004, JumpStart Ventures, the investment arm of JumpStart, has made 73 investments totaling nearly $20 million, in 52 companies. Only two of the 52 companies were headed by people under 35.
Case Western Reserve University graduate Jim England and business partners Tim Gasper and Huston Hoburg looked for an investor for their social media company Keepstream. They couldn't find one, they said.
England, 24, acknowledges they made sales pitches to only two local investors, and were turned down by both. That was enough, though, for them to take their company to Austin, Texas, where England said they received money from a program that helps develop promising technology companies like theirs.
Jonathan Murray, managing director of the Cleveland-based venture capital fund Early Stage Partners, said technology investment is still relatively new to Northeast Ohio.
"Northeast Ohio is transitioning from an industrial economy to a technology economy," Murray said. "Local expertise is building in understanding investing in technology, but we haven't reached critical mass yet. Because of that, there's more entrepreneurs seeking capital than there is available capital."
Murray said he is accustomed to hearing from critics who don't understand that generally only one-half of one percent of businesses nationwide receive venture capital. In other words, 99.5 percent of new companies have to find other areas, including mortgages, credit cards or friends and family, for investment possibilities.
Murray also said young entrepreneurs "may or may not sell themselves well to professional investors in this part of the country."
He said Buchholz did not approach his venture capital fund and he was surprised that he had not heard of the entrepreneur's company 60mo until recently. Murray considers Groupon founders, who helped Buchholz, an exception because they're entrepreneurs investing their own money, not professional investors who are investing someone else's money.
Nonetheless, Groupon wanted to know more about Buchholz. An associate of Groupon's investment fund LightBank, through the micro-blogging site Twitter, contacted Buchholz, asking more about his company after his tweet for financial help.
"We thought it (the tweet) was a very innovative and creative way to get his message across initially," said Ryan Jeffery, of LightBank, which has funded 14 companies so far, mostly in the Midwest.
"We took a look at his business right away. Based on what he had built so far, we thought it was an interesting business model and we wanted to get in and help him out," Jeffery said.
Buchholz said the nearly $1 million he received from LightBank will be used for operational capital. He intends to hire 10 people this year, adding to the 10 employees he already has.
"We're planning to be here as long as we can," Buchholz said.