Healthcare startups in the region could get a boost from a recent round of government investment Third frontier Program.
In March, Third Frontier awarded $ 30.5 million to four organizations based in Cuyahoga County. The money will be available to fund pre-seed and seed rounds for technology startups, particularly in the healthcare and biotechnology sectors. These are the earliest stages of funding for startup companies.
One of the investments will be the basis for a new collaboration between two local organizations. It will provide $ 4 million to start the Healthcare Collaboration Fund, a mutual fund that JumpStart Inc., the Cleveland-based nonprofit business accelerator, and Ventures University Hospital, the innovation and commercialization arm of the university hospitals, is creating investments in technology startups from northeast Ohio in the fields of biomedicine and life sciences.
Each of the partners will add $ 2 million, creating a $ 8 million fund that will seek to increase its clout with co-investing partners. The fund will focus on a wide range of biomedical and life sciences, including diagnostics, imaging, surgical instruments and devices, implants, therapeutics and regenerative medicine, and healthcare software applications.
Jerry Frantz, JumpStart’s chief investment and services officer, said the idea of creating a working relationship came from UH Ventures and evolved until they decided to start the fund.
“For this region, it really is a novel approach to how … you create and support deals,” said Frantz.
David Sylan, President of UH Ventures, agreed, adding that partnering university hospitals can be attractive to potential co-investors. “We bring clinical knowledge into the equation,” he said.
This means, according to Frantz, that co-investors know that one of their partners is a potential user of the startup’s technology, a partner who also has a purchasing department that can help assess the marketability of the technology. And as part of a research hospital, UH Ventures may even find an internal space for a pilot program.
“As much as we share the process of investing dollars, they bring in clinical specialists as subject matter experts and the real market perspective. And that is very attractive to entrepreneurs,” said Frantz. “When you drive at university hospitals, you have your pilot running with your financier. So it’s a very exciting model.”
Scott Shane, Professor of Economics at Case Western Reserve University’s Weatherhead School of Management, sees UH Ventures’ involvement of university hospitals in the investment arena as a positive move for a region that he believes lacks a strong venture capital base.
“If you get (UH Ventures) to do more, it is definitely a step forward because what you really want is more different players with more different perspectives and more different types of business,” said Shane, who is also the Founder of. is Comeback capital, a Cleveland-based venture capital firm that invests in technology-based startups.
Frantz said the new fund was about to make its first investment, which he would not disclose.
“We are preparing to close our first investment and are building a strong pipeline of new opportunities,” he said.
Early-stage funding is viewed as a two-step process – first a pre-seed round, followed by a seed round.
Pre-seed funding can be sought before the company has a prototype or pilot project, does market research, or possibly hires employees. In this phase, financing can come from family, friends and, increasingly, from investors close to home or investment funds who see themselves as angels who call the financial markets. A pre-seed round can be as low as $ 50,000, but it can be significantly larger.
This is followed by seed financing aimed at taking these first steps and reaching a wider range of investors. One recently to learn of Wing Venture Capital, an investment firm focused on early stage companies, found the average seed funding round in 2020 was $ 4 million.
This level of funding is more than the Healthcare Collaboration Fund could handle on its own, so its founders know they will need partners.
Shane said his Comeback Capital fund could be a co-investor. Several other local investors have also expressed interest, although some early stage medical technologies may not be attractive to some early stage investors as they require a lengthy federal government approval process before their products hit the market and have a return on investment.
North Coast VenturesFor example, a local early-stage investor would only be interested in investing in what CEO Todd Federman describes as a “subset” of the technologies targeted by the new fund.
“The opportunities we are most interested in usually have a software component,” said Federman. “That means we’re getting more into healthcare (information technology) and digital health.”
Federman said UH Ventures recently invited several North Coast directors to give a presentation to a group of UH doctors to share how private investing works and what North Coast is interested in.
In fact, in its most recent round of funding, Third Frontier has directed investments in both North Coast and Comeback Capital.
Two funds on the north coast share $ 9.5 million. Both the North Coast Angel Fund IV, which received $ 5 million, and the North Coast Venture Fund II, which received $ 4.5 million, are in business-to-business software startups in northeast Ohio invest.
Comeback Capital raised $ 1.5 million for its Comeback Capital Pre-Seed Fund, which will invest in early-stage technology companies based in Ohio, primarily in companies that develop software applications for business and healthcare.
Lee Zapis, President of Zapis Capital Group, believes this new fund, and the partners it will attract, will help some of the region’s budding entrepreneurs, and it fits in with the investment strategy it has pursued. Zapis, like Shane, believes northeast Ohio suffered from a shortage of early-stage investors.
Zapis, a former business owner – his family’s radio stations are owned by Zapis Communications in northeast Ohio and across the country – said that since he has grown from running a business to investing in a handful of startups, he needs the kind of expertise , UH Ventures is contributing this new fund.
“I find that as I get older and further away from actually running a business, I am not a great expert on anything other than early-stage investments, and then some people may not call me an expert on that either,” he said.