Giving Northeast Ohio's Businesses Wings

Giving Northeast Ohio's Businesses WingsBeth A. Kapes

It’s said that everyone has an angel watching over them, and, in Cleveland, this couldn’t be more true for entrepreneurs looking to make their dreams a reality. For them, the spirit to ensure their success is ever present through the North Coast Angel Fund (NCAF).

As the nation’s fifth largest angel group with more than 200 individual angel investors, Cleveland’s NCAF has deployed more than $30 million to 40 local companies that have gone on to raise nearly $500 million in venture capital. Born out of a partnership between a group of about 20 individual angel investors and JumpStart, Cleveland’s economic development group focused on entrepreneurship, NCAF’s angel investors risk their private capital and often roll-up their sleeves to help entrepreneurs build and grow great companies, according to NCAF’s Managing Director, Todd Federman.

“NCAF’s mission is to accelerate technology startup success and improve the state of early-stage funding in Cleveland,” Federman said. “By bringing increased discipline, structure and effectiveness to the region’s angel investing community, we seek to create a more accessible and flexible capital environment in which the region’s best and brightest entrepreneurs can prosper.” According to Federman, angel investing is very risky, but can have huge payoffs for investors, entrepreneurs and the community.

Benevolent backing
The concept of “angels” in terms of investing originally stems from Broadway theater, where the expression was used to describe wealthy individuals who provided money for theatrical productions that would have otherwise had to shut down. In the late 1970s, a pioneering study from the University of New Hampshire on how entrepreneurs raised seed funding in the U.S. used the term “angel” to describe investors that support them—similar to “patron,” commonly used in the arts.

Today, the concept of angel investing is alive and well. According to the Angel Capital Association, approximately 300,000 people in the U.S. have made an angel investment in the last two years. Notably, Ohio has the country’s most aggressive program to support early stage funds like NCAF.

“Cleveland’s NCAF has been awarded over $10 million from the state to deploy into high potential Ohio-based technology companies,” Federman said. “Our group is deeply committed to supporting and building great companies.” NCAF has three full-time staff that meet with entrepreneurs and review opportunities on an ongoing basis.

Over the past nine years, Cleveland’s NCAF has grown to more than 200 active angle investors who include some of the city’s leading entrepreneurs, business people, physicians and community leaders who offer value to companies through direct investment, mentoring and advice. Full member meetings are held monthly where entrepreneurs have a chance to present to the angels for consideration. Prospective members must be accredited investors per the U.S. Security and Exchange Commission.

Speculation success
While angels and venture capitalists both invest in entrepreneurial firms and take equity in those businesses, angels invest their own funds directly in a business, while venture capitalists invest funds from other sources. In general, angels invest in seed, start-up and early-stage businesses, while venture capitalists tend to invest in later-stage businesses.

NCAF’s angels band together to not only gain a return on their money, but also participate in the entrepreneurial process and give back to the community by catalyzing Cleveland’s economic growth. The typical NCAF initial investment is $250,000, with $200,000 held in reserve for possible follow-on investment. Most of the group’s deals take the form of preferred equity securities and involve an NCAF member serving on the board.

“NCAF is most interested in investments where there is an opportunity and a willingness to leverage our members’ significant experience and expertise in key functions such as product development, sales, marketing, management and follow-on financing,” Federman said.

NCAF’s support has helped Downtown Cleveland’s StreamLink Software prosper. Founded in 2008, StreamLink Software develops grant management and board management software products for nonprofit organizations and the public sector. Chosen as one of the Top 25 Coolest Tech companies in Cleveland for three years in a row, StreamLink is a prime example of how angels make a difference.

“StreamLink Software is a high growth company, which now has nearly 50 people working Downtown focused on cutting edge software to help federal agencies, states, counties and cities better manage large grants,” Federman said. “The company has over 700 customers, including the Department of Homeland Security.”

It’s companies like StreamLink that inspire the future of Cleveland’s NCAF. “Small businesses are the largest source of new job creation and we’re proud that our angel group’s companies now have over 900 employees collectively,” Federman said.