Venture Capital Firms Invested in Ohio at Record Levels in 2018
Ohio leads the Midwest in attracting growth capital
Matt Waldo, senior manager of research and analysis•Published: Mon Mar 11 2019
Some of the best-known early companies, such as IBM, Genentech, Apple and Intel, were backed by venture capital (VC). What has changed since then? In a word: everything.
As an industry, VC firms have gone from providing a few million dollars in funding per year in the 1960s, to funding over 8,900 deals worth more than $130 billion in 2018, according to Pitchbook/National Venture Capital Association data. VC firms still invest the largest share of their funds in technology and biotech firms. However, the funding shift within technology is dramatic – from mostly hardware in the 1960s and 1970s to mostly software in 2018. Software was by far the largest sector beneficiary of all VC funding in 2018, accounting for about 36 percent of the total. The second largest recipient sector, pharmaceuticals and biotech, accounted for about 18 percent.
"Venture capitalists do write the check, but that isn't all we do. I attended staff meetings. I was on the phone to them a lot. Was an excellent board member. Offered advice. Planning. Setting up an audit committee. Customer relations. Interviewed a lot of people. Built all the pieces of an enterprise." — Arthur Rock and Tom Perkins on the early days of venture capital, from the movie Something Ventured, 2011.
Another significant shift has occurred in the geography of firms receiving VC funding. In the early days of VC, West Coast firms received the vast majority of deals. Since the early 2000s, the West Coast has slowly seen its deal share decline, while Midwest states have experienced significant increases in share of deals.
Ohio led the trend toward more Midwest VC investment in 2018, breaking the $1 billion mark. In 2018, Ohio firms secured a 150 percent increase over 2017 funding, and more than a 100 percent increase over the prior three-year and five-year averages. This breakthrough placed Ohio as the No. 1 growth story in the Midwest from 2017 to 2018, in both percentage and absolute terms, and the eighth best nationally.
Falon Donohue, CEO of VentureOhio, explains, “As technology proliferates and we enter a new area of entrepreneurship, Ohio is positioned to lead. Strong public-private partnerships and an engaged corporate community are fueling the work of our visionary startup founders and investors. The raw ingredients are here to lead the next wave of innovation and job creation.”
Donohue said the buyout of the Ohio-based firm CoverMyMeds by McKesson, valued at over $1 billion, was the turning point in getting West Coast VC firms to take notice of what is happening in Ohio.
Media outlets are starting to take notice of the Ohio startup and scale-up ecosystem. Here is a sampling of recent accolades:
- In July 2018, one of the largest global commercial real estate firms, CBRE, listed Columbus, Ohio, as having the lowest technology sector rent-to-wage ratio in the U.S. Cincinnati and Cleveland were ranked No. 6 and No. 7, respectively. CBRE also listed each of these three Ohio cities in the top 10 for smaller city tech talent availability, with Columbus No. 1.
- In October 2018, Forbes published an article titled "The Top 10 Rising Cities for Startups." Columbus finished No. 1, for its "college presence, low costs (business and living), increase in VC deals and the high number of funds launched since 2013."
- In January 2019, Inc. magazine included Columbus, Cincinnati and Cleveland in the top 50 cities in the U.S. for starting a company.
According to Columbus Business First and CB Insights, each of the top five deals in 2018 were larger than those of 2017 and 2016. The 2018 VC funding leader in Ohio was Root Insurance, raising a total of $151 million in two rounds. Root is an automotive insurer, powered by an app and artificial intelligence that rewards safe driving. Other large deals include:
- Sollis Therapeutics: Raised $50 million for an extended release analgesic that is not derived from opioids or steroids.
- Olive: Raised $32.8 million for artificial intelligence to automate repetitive healthcare back-office tasks.
- Enable Injections: Raised $30.7 million for wearable devices that allow patients to self-administer high-volume and high-viscosity drugs.
- Beam Dental: Raised $22.5 million for a toothbrush and software that measures how often users brush, using the data to determine prices for dental insurance.