“The bottom line is that there are simply more companies that have needs for money than there is venture money out there,” said Joel Ivers, senior vice president of entrepreneurial development for the Dayton Development Coalition, a member of VentureOhio, which conducted the confidential survey of venture investors in the state from April 16 to May 16.
Last year, venture capitalists invested in 83 deals in Ohio worth approximately $311 million — up about 8 percent from the $289 million invested in 61 venture capital deals in in 2012, according to the MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association.
But venture capital investment in the state in each of the past two years was more than $100 million less than the $433 million invested in Ohio in 2011, the report showed.
Facing growing demand for dwindling capital, investors are now more likely to focus their resources on well-established, high-growth companies rather than start-ups or those in need of early-stage capital, Ivers said.
“As the venture world has imploded, only the strongest companies are going to get the funding,” he said. “We’re looking for home runs; companies that can expand very quickly.”
In Dayton, at least two dozen companies that received venture funding through the coalition’s $13.5 million Dayton Region Signature Fund launched in 2007 are still in need of financial support, Ivers said.
“We’re working with our portfolio companies to help them obtain financing,” he said. “But, again, it’s a competitive world. Any company has always had to prove what value they’ve been able to produce in order to get funding.”
The difference today is that traditional bank financing has become harder to obtain at the same time venture investors have tightened their purse strings, said Steven Budd, president of Dayton-based CityWide Development Corp. CityWide invests in established and start-up companies through its venture capital investment arm, Enterprise Ohio Investment Co.
“What we’ve seen since the great recession is that the banking industry has tightened its credit standards, and we consistently hear that access to operating capital is a challenge for companies,” Budd said. “There is definitely a need in the region for those kinds of dollars, but these funds are not easy to establish.
“We can do two or three deals a year, but that’s not going to fulfill the whole need,” he said. “In a perfect world, we’d have have half a dozen funds in the region that could make some kind of equity like capital investment of funds that normally you couldn’t get from a traditional bank.”
The development coalition is working on raising money for a new venture fund known as Accelerant Fund I that would provide money for seed-stage investments in the Dayton region.
“We’re hoping to close on our Accelerant Fund I sometime at the end of next month,” Ivers said. “We’re hoping that we will have a $10 million fund, which is all new money to invest in Dayton companies.”
About 70 percent of the fund will come from local investors, and the coalition has applied for matching funds from Ohio Third Frontier, part of Ohio Development Services Agency.
“We’ll hear about the matching funds sometime in June,” Ivers said. “That’s not guaranteed at this point…but there could be a new infusion of money that there hasn’t been for start-ups here.”
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