A four-year-old Cleveland-based startup called CardioInsight Technologies Inc. is working feverishly to complete by mid-December a preproduction prototype of an amazing new device: a vestlike apparatus that would allow doctors to noninvasively map the heart's electrical system, critical in cases of cardiac arrhythmias and heart failure.
The CardioInsight story demonstrates Cleveland's belief in medical devices as an economic driver. It's a neighborhood affair. CardioInsight licensed the technology from Case Western University, across the street. The company occupies facilities within the BioEnterprise Corp. technology center, a short walk from the Cleveland Clinic and University Hospitals, where it conducts clinical studies.
CardioInsight is being propelled by $7 million in venture funding, $6 million of which closed in February. Chalk one up for Cleveland's attempts at building a more robust tech center. "We have been able to significantly accelerate our ability to attract investments to these companies," says Baiju Shah, BioEnterprise's president and CEO.
While two local firms helped pioneer venture capital decades ago, Cleveland has lagged behind other urban centers in generating early-stage funding needed to finance high-tech startups. Its premier institutions did a woeful job of licensing technology. Now, everyone is trying to make up for lost time.
Shah does a quick rundown of America's leading high-tech hubs: "What you find is this amazing connectedness. And when you have that type of environment, things happen," he says. "That's what we're finally reaching in the Cleveland market."
Seventeen other high-tech startups now call BioEnterprise, an eight-year-old bioscience, medical devices and healthcare technology accelerator, home. What's a little unusual is that BioEnterprise also hosts five venture firms, including St. Louis-based RiverVest Venture Partners LLC, Ann Arbor, Mich.-based Arboretum Ventures and the venture arm of Johnson & Johnson.
Their presence can be traced to the Ohio Capital Fund, which will invest up to $10 million as a limited partner in a VC fund, provided it's physically located in Ohio. It is one of many government initiatives designed to spur high-tech development. The most ambitious: the Ohio Third Frontier, a $2.3 billion economic development initiative begun in 2002. In May, voters overwhelmingly approved a $700 million bond measure that will continue funding Third Frontier.
The Cleveland Clinic, Case Western and University Hospitals helped form BioEnterprise in 2002, along with the Cleveland Foundation. Two years later, Case Western teamed up with the Cleveland Foundation and several other local foundations to launch JumpStart Inc., which funds very early-stage tech-related startups with investments that top out at $600,000. JumpStart's portfolio now totals 49 companies, including CardioInsight. Collectively, those companies have raised $130 million in follow-on capital, says Lynn-Ann Gries, JumpStart's president and chief investment officer. Investors include Early Stage Partners, Cleveland's biggest homegrown VC firm.
BioEnterprise has shepherded more than 90 companies since inception. Together, they have raised just under $1 billion, says Shah. Several have exited.
While both BioEnterprise and JumpStart are providing impetus to a wide range of early-stage tech efforts, Cleveland's ability to source significant venture funding hasn't been easy. "It's a struggle," admits Gries.
Laura Bennett is founder of Embrace Pet Insurance, based in the Cleveland suburb of Beachwood. The online pet insurer gained initial funding from JumpStart in March 2004, but labored for years before it could attract enough additional capital. Bennett has nothing but praise for JumpStart; she's more skeptical that VC will make Cleveland its next big destination. "VCs are looking for successes coming out of Cleveland," she says. "How can they expect that when no one comes in and funds?"
Shah says there is movement. He cites companies that have relocated from Florida, California, Louisiana and Illinois specifically to obtain funding, which wasn't available at home.
Medical surgery simulator Simbionix USA Corp. moved even further. In 2002, it relocated R&D and sales operations from Israel and became one of BioEnterprise's original occupants, after gaining funding from Early Stage Partners and the city of Cleveland.
"I exchanged the Mediterranean Sea for Lake Erie," quips CEO Gary Zamler. "We're committed to Cleveland."
Last year, Simbionix moved to larger facilities nearby in the old Baker Motor Vehicle Co. building, where Walter Baker turned heads in the early 20th century by building electric cars. Cleveland is hoping companies like Simbionix prove the 21st-century equivalent.