By John Cook
You couldn’t get much more rooted in Silicon Valley than Mark Kvamme. His father, Floyd, was one of the founding members of National Semiconductor in the late 1960s, later joining the venture capital firm Kleiner Perkins Caufield & Byers.
Mark himself grew up in the Valley, starting his career at Apple before joining esteemed venture capital firm Sequoia Capital where he placed bets on companies such as LinkedIn, Cast Iron Systems and FunnyOrDie.
So when Ohio governor John Kasich asked his longtime friend to come to Columbus in 2010 to lead economic development efforts, Kvamme thought it would be a short six month stint. After all, Kvamme had never stepped foot in the Buckeye state, and didn’t know much about its people, culture or business community.
Nearly five years later, Kvamme remains firmly planted in Columbus, leading a $250 million venture capital fund by the name of Drive Capital that’s bankrolling promising startups in the Midwest.
The Born Again Buckeye
The Silicon Valley kid is not going anywhere, and he thinks Ohio — and especially hard-working Columbus — can be a new frontier for startups and entrepreneurship. He’s not alone.
“They call me the born again Buckeye around here,” says Kvamme, referring to perhaps the most powerful unifying force in the state: The Ohio State Buckeyes football team. But Kvamme’s devotion goes beyond the scarlet and gray.
He sees green in Ohio — and we’re not talking about the corn fields that dot the landscape around the sprawling capital city of Columbus.
Kvamme started recognizing the opportunity shortly after arriving in Columbus, where he led Gov. Kasich’s controversial JobsOhio program.
“I started seeing really cool companies, great entrepreneurs and great opportunities. I said to myself: ‘You know, it kind of reminds me of Silicon Valley’” in the early days, said Kvamme.
Putting his Silicon Valley connections, money and mindset to work, Kvamme realized that he could help “build something pretty special” in the region.
And while Columbus may have just one good Chinese restaurant compared to 15 in Silicon Valley, Kvamme isn’t moving back to California.
“I love it here,” said Kvamme, adding that he even likes the change of seasons that bring brutal heat in the summer months and numbing cold in the winter. “I tell my friends, you can’t appreciate summer if you don’t have winter.”
A Hotbed of Fortune 500 Companies
In a state that suffers from a severe case of brain drain, Kvamme represents a new type of hope. And the so-called “born again Buckeye” sees promise nearly everywhere he turns in his adopted hometown of Columbus — citing a plethora of “knowledge workers” at companies like Nationwide Insurance and JP Morgan Chase, innovative Fortune 500 companies like Cardinal Health and, of course, the immense power of THE Ohio State University, one of the biggest research universities in the country with an enrollment of 64,868.
But what makes Columbus especially interesting is the proximity to big customers. In an interview with GeekWire, he notes that roughly 125 of the Fortune 500 companies are in the Midwest, a short drive or flight from Columbus. That creates an intriguing mindset where entrepreneurs truly want to solve customers’ most pressing problems.
“There is a huge amount of business buyers, and as a result there is a burgeoning B2B community on the healthcare side and financial side,” said Paul Yancich, a Cleveland native and partner at Arsenal Venture Partners who invests in the Columbus area.
Kvamme, whose recent investments include healthcare startups Aver Informatics and CrossChx, which just this month raised $15 million from Khosla Ventures and others, said the proximity to big customers — coupled with a mindset of collaboration in the business community — allows entrepreneurs to break into bigger companies with new products.
“What we have found is that Columbus is a great place to grow tech companies,” he says.
One of most promising tech startups in Columbus is CoverMyMeds, founded seven years ago by Ohio State biochemistry and economics grad Matt Scantland. Bootstrapped without outside financing for most of its history, Scantland took an undisclosed investment from private equity firm Francisco Partners last fall.
The profitable software company is growing fast, now employing nearly 200 people who work to make sure that prescriptions are filled properly at over 45,000 pharmacy locations.
“Columbus is an easy place to live, and that makes it possible to focus on building a business,” says Scantland “It is eminently possible to build a large company here.” He too cited the number of large customers that are located in the Midwest.
“It isn’t like commerce didn’t exist before the Internet,” he said. “And if you believe that ‘software is eating the world,’ it should be eating about 25% of the US economy right here—that is a lot of very large startups that can be built.”
Trying to Think Bigger
Even so, Columbus and the surrounding cities in Ohio have yet to produce a groundbreaking tech company — a titan as seen in cities like Seattle, San Francisco or even Indianapolis, another midwestern city which has benefitted from the growth of Angie’s List and ExactTarget.
One person interviewed for this story noted that the last big tech acquisition in Columbus was AOL’s buyout of CompuServe — a $1.2 billion deal that happened way back in 1997. (The same year that OSU football coach John Cooper continued his losing ways against heated rival Michigan).
Yes, times have changed since the John Cooper era in Columbus. The city is undergoing a major rebirth of sorts, though it still craves that big breakout success from the startup ranks.
Kvamme, for one, notes that entrepreneurs in Columbus just need to think bigger. “In the Valley, you have a much bigger yardstick in what they see as a big success,” said Kvamme.
As one example, Kvamme retold the story of a Cincinnati entrepreneur who was building a groundbreaking infrastructure technology, one that had potential be a $1 billion company. But before Kvamme could invest capital to supercharge the business, the entrepreneur took a $20 million buyout offer. “People just think a little smaller here,” said Kvamme.
But that mindset is changing for the better — possibly creating a breakout success.
“While we haven’t had a huge number of big software companies yet, many of us believe we will soon,” adds CoverMyMeds CEO Scantland.
Like many emerging startup hubs, one missing puzzle piece in Columbus is risk capital.
While a number of smaller angel and incubator groups exist, Drive Capital is unique in the region with its $250 million fund. “The good news is we have no competition,” admits Kvamme. “The problem is we have no trading partners.”
New direct flights between Columbus and the San Francisco Bay area may help matters, but drawing capital to the Midwest remains a tough challenge.
Last year, 15 startups in the Columbus area pulled in $94 million — not a bad haul compared to past years. In all of Ohio, there were 78 deals accounting for $354 million — ranking it 16th in deals, behind less populated states such as Maryland (106 deals), Colorado (148 deals) and Washington (197 deals).
This is not the Rust Belt
The capital dilemma is one faced by many emerging tech hubs, but it is especially acute in Columbus since it does not have as much “old money” as places like Cleveland or Pittsburgh.
In fact, Columbus is a bit unusual, especially when compared to nearby rust-belt cities that were shaped by the automobile, rubber and steel industries. It is a newer city, known more for fashion, food, insurance and health care.
Les Wexner’s retail powerhouse Lbrands, which includes Victoria’s Secret, Pink and Bath and Body Works, and is valued at $26 billion, is a perfect example. Meanwhile, Wendy’s headquarters is located just outside of Columbus in Dublin, Ohio, which also happens to be the home of Cardinal Healthcare, a powerhouse in the medical and health field with 34,000 employees worldwide and market value of $30 billion.
The city also has been shaped in part by newcomers and a transient population — whether it be students who only stay for four years or politicians who leave after getting voted out of office. That creates a much different dynamic than older cities such as Cleveland or Cincinnati.
“Columbus is not a rust belt city, and that has both benefits and drawbacks,” said Brian Zuercher, a Columbus native who now serves as CEO of Columbus startup Seen.
Even so, Columbus — and Ohio generally — still suffer from a perception issue. Viewed as a “flyover state” with not much going on beyond endless miles of farmland, Ohio sometimes gets compared to the useless Buckeye tree and nut. According to a history of Ohio State University, the nuts are inedible and the tree itself has “few other attractions.”
In general, the trees and their nuts are of little practical use: the wood does not burn well, the bark has an unpleasant odor, and the bitter nut meat is mildly toxic. Still, the tree has grit. It grows where others cannot, is difficult to kill, and adapts to its circumstances.
The Boomerang Effect
Grit is a word that often gets associated with Ohio, and its people. And that raw determination and can-do spirit translates to the entrepreneurial community as well.
Everyone knows that startups are hard — nothing comes easy when you are trying to build a business from nothing. And, if anyone knows hardships, it is the beaten down Ohioan. Even with the perception issues plaguing the state, people who fled are coming back.
Take entrepreneur Brian Zuercher. He grew up in Columbus, moved away for undergrad and then didn’t come back for more than 10 years. But in 2008, Zuercher decided it was time to return to his home state, part of what has been dubbed the “boomerang effect.”
“There is a generation of people that have left and are coming back and looking to lay down roots, but in new stuff in tech and entrepreneurial things,” said Zuercher. “I am a study in that.”
Zuercher said that he wanted to be closer to friends and family, but he was also motivated by a lower cost of living that would help him start a company. He thought about bootstrapping his business in New York City, but realized the costs were just too high when they’d have a “roller coaster ride of income” for a few years.
That new blood (really a re-circulation of old blood) is bringing new energy to Columbus. For Zuercher, Columbus — a town he said was not really that interesting in his youth — almost represents a fresh slate.
“We don’t have any legacy baggage in the entrepreneurial ecosystem here, because there really was nothing,” said Zuercher, one of the speakers at next week’s Startup Week in Columbus. “It is not like we are reinforcing a system, there just wasn’t a system. Sometimes that is a longer building cycle, but we are able to sort of lay the blueprint down now.”
That blueprint is being laid by both newcomers and old-timers who see promise in the 11-county region of two million residents. A collegial approach to business in Columbus also is helping, with venture capitalist Yancich noting that the entrepreneurial community is “very well organized” with meetups, accelerators and other events.
“Columbus is very congenial,” said Yancich, adding that power struggles don’t typically exist and people roll over backwards to welcome outsiders in a genuine way. “People realize that a rising tide lifts all boats, and you don’t have to be cut-throat to make a killing so to speak.”
For newcomers like venture capitalist Kvamme, there’s also the promise to build something fresh. His Silicon Valley friends still think he’s a little crazy for choosing Columbus, but for those who visit they seem to get it.
“They see the quality of life that I have here, where you can actually buy a house for something that is not a billion dollars,” he says. “Everyone understands it when they come here. In fact, I am so far batting 1,000 for everyone I have tried to recruit here.”