State of Technology in Cleveland“Ready for Impressive Growth”

Ohio Venture Association

April 11, 2005

State of the Industry

“The Cleveland Tech Industry”

• According to NEOSA and TeamNEO, the Cleveland area tech-based community now includes 2,800 companies.

• Employees nearly 11,000 individuals.

• Enjoys $1.0B in revenues.

• Second fastest growing industry segment in Cleveland, behind health-care.

• Deep knowledge in software development, medical devices, biotech, MEMS, fuel cells, SEO, ICE and satellite systems, disaster recovery, managed security.

“The Cleveland Tech Industry”

• Concerns with the industry.– On average each Company has four employees

and enjoys $357,000 in revenue.– Geographic dispersion.– Additional management/technical talent.– Continuum of capital.– Short-term liquidity.

“No Successes for Cleveland?”

• Third Frontier Action Fund– Cleveland (1) - $13,896,436 (38.4%)

• Bio R&D Transfer Trust Fund– Cleveland (1) - $34,347,478 (43.0%)

• Wright Capital Funds– Biosciences (2) - $19,765,170 (27.2%)– Non-biosciences (1) - $18,000,000 (45.0%)

“No Successes for Cleveland?”

• Fuel Cell Initiative Awards– Cleveland (2) - $1,827,044 (23.4%)

• Validation Fund/Seed Fund Initiative– Cleveland (T1) - $2,500,000 (41.6%)

• Third Frontier Internship Program– Cleveland (3) - $920,100 (21.9%)

• Ohio Research Commercialization Grants– Cleveland (1) - $1,216,813 (58.2%)

• Innovation Revolving Loan Fund– Cleveland (1) - $2,254,439 (70.0%)

“No Successes for Cleveland?”

• Since the Creation of the Third Frontier in 2002, the State has awarded $244,027,866.– Cleveland’s Take: $85,763,210 (35.1%)– Estimated to be over $90.0MM by the end of 2005

“The Emergence of the Seed Funds.”

• JumpStart (2004) - $9.0MM• Case Technology Ventures (2002) - $5.0MM• Ohio Innovation Fund (1997) - $12.5MM• Early Stage Partners (2002) - $44.0MM• Draper Triangle Ventures (1999) – New Fund

$40.0MM• Fund for Our Economic Future (2004) - $30.0MM• Mutual Capital Partners (2005) • SB180 and OVCA

“The Emergence of the Seed Funds.”

• Tech community should work with Nortech, JumpStart, NEOSA and other agencies to aid in capital aggregation.

• Potential goal should be $500.0MM by 2010.

The Strategic Vision

“The Path to Follow….”

• Heavily Recruit Tech Companies to Cleveland and Nurture the Companies Already Established

• Aggregate Capital to the Cleveland’s Tech Industry

• Create a Spectrum of Entrepreneurial Education from ‘Grade School to Grad School’

Recruit/Nurture

• Aggregate Tech Companies in Downtown.• Target: Euclid, East Ninth, Huron, Prospect,

West Sixth, West Ninth.• Target: Street Level Space with Signage.• Target: Company with seasoning, employees

from 10-50, success in generating revenue.• Discount smaller, entrepreneurial companies:

Absolutely Not.

Recruit/Nurture

• Set of incentives– Loan Programs– Tax Abatements– Employment Tax Rebate (Legislation)– Grant Options

• Potential/Considered Incentives– R&D Tax Credit– Patent Credit

Recruit/Nurture

• Centers of Excellence– Disaster Recovery/Business Continuity– Search Engine Optimization– MEMS– Fuel Cells– Medical Devices

Recruit/Nurture

• Scorecard– 18 Companies (Two from outside region).– 1 has signed lease, three others

negotiating letters of intent.– Discussions on three Centers of

Excellence.

Capital Aggregation

• Support Angel Fund Initiatives– Discussions with two groups to date.

• New Market Tax Credit Fund– Next allocation secure $150.0MM in

NMTCs.– Use NMTCs as an incentive to invest in

emerging growth companies within the City proper.

Capital Aggregation

• “Plug-and-Play”– City will co-invest with venture funds and

private equity funds on a non-equity basis.– Use of low-interest loans, tax abatements,

etc., to enhance viability of the transaction.

Capital Aggregation

• Potential/Considered Strategies– Line of Credit Issues – Solve the short-

term liquidity problems of tech companies.– Line of Credit Guarantee– Venture Bank – Either recruit a VB or

establish a partnership with various banks to establish a VB.

Education

• Create a spectrum of entrepreneurial empowerment/education and technical training.– City Tech Certification– Cleveland Municipal School System– Entrepreneurial Academy

• E-City

Education

• Create a spectrum of entrepreneurial empowerment/education and technical training.– Venture Capital Institute– CEO Forum– “The Red Room Meetings”

Final Thoughts

• “Success usually comes to those who are too busy to be looking for it.”– Henry David Thoreau

Thank You

Michael C. DeAloia

Senior Executive for Technology Development

216.664.3644 (O)

mdealoia@city.cleveland.oh.us