A recent string of Cleveland-based startups departing for cities like San Francisco has raised a debate in the entrepreneurial community, with one local CEO arguing that other startups will leave if the city doesn’t start “taking a chance” on its innovators.
Shaker Heights native Brian Verne is the CEO of Phenom. The company has a smartphone app for high school athletes that helps track the products they like and then markets the data to the companies that make those products.
“We were hell bent on setting a precedent for consumer tech in Cleveland,” Verne told newsnet5.com in a video interview from his apartment in San Francisco.
Earlier this year, Verne and his business partner picked up everything and moved to San Francisco, despite their hopes to stay in Cleveland. Verne said it’s because the company just wasn’t getting the support it needed in their hometown.
“If Cleveland wants to be perceived as a globally relevant startup community we need to literally obsess about keeping all of our best entrepreneurs in our city,” Verne said.
Phenom, which has 60,000 registered users, was recently accepted to an accelerator program in San Francisco called 500 Startups.
Verne said he was pleased with the success that his company has had on the west coast, but wished he had found the same investor support in the Midwest.
Heureka Software CEO Nate Latessa shared the same concerns with newsnet5.com.
His Cleveland-based startup created software that helps companies find the risk in their unstructured data in an effort to prevent identity theft.
“We love Cleveland, we want to do everything to stay here. But the reality is we’re going to have to go wherever the money’s at,” Latessa explained.
He said he watched Phenom’s departure to San Francisco closely, the latest in a string of departures including Cleveland-founded companies like Rageon.com, Tallyo and Dollop.
Latessa said “seed money” isn’t hard to come by, but its the second stage of funding that is difficult to acquire.
“The ecosystem behind it to help those companies sustain that growth and actually continue to grow in Cleveland is lacking,” he explained.
Latessa said organizations like JumpStart, Inc. are doing the best they can to help support local startups.
“But ultimately we need a culture change,” he said.
Ray Leach is the Chief Executive Officer of JumpStart and he told newsnet5.com it’s a challenge he’s been working to address for the last 10 years.
He said securing investors beyond the initial seed money has been difficult.
“There haven’t been funds in Cleveland that have been investing that amount of money in early stage companies in Cleveland, particularly over the last three or four years. So that is a big challenge,” Leach said.
Leach said it’s not just a Cleveland problem, it’s an issue across the Midwest.
“There haven’t been a whole lot of investors in Cleveland and Northeast Ohio who have made a ton of money with early stage tech companies,” he explained.
Without a precedent for success, local investors are hesitant to get involved.
He said a December 2015 grant from the Ohio Third Frontier, an economic development program that invests in new tech companies, could help achieve progress over the next two to three years.
The $180 million public/private grant will go towards Ohio’s startup and early stage technology companies.
Leach said two other options could also help. A local company would need to have a huge success and that company’s investors would generate profits and become the next wave of leaders investing in the space.
The alternative would be a Cleveland startup having a big success in a place like San Francisco and then coming back home to invest their own money in the Cleveland network.
Leach said Jumpstart has already invested in about 85 early stage tech companies since 2006.
