New Blood Needed In Ohio Third Frontier ESP Program

Ohio Third Frontier Logo

For the past 15+ years the grant money given to Entrepreneurial Signature Programs (ESPs) in the various regions in Ohio has been locked down to only a select few organizations.  Each subsequent request for proposal has kept this virtual monopoly intact and no new organizations have been allowed to apply for State of Ohio money.  If new organizations wish to get some of this state money to help develop their own entrepreneurial programs, they have to go through their region’s ESP and be a sub-grantee.  Some of the ESPs are very good at sharing and spreading money around to their sub-grantees.  Other ESPs are not so friendly.  This leads to a disproportionate allocation of funds to other organizations and can actually hurt the region’s entrepreneurial ecosystem. Within the ESP grant system, there is no mechanism to allow for other organizations to gain access to funding if the ESP in a region is not in a sharing mood or has a history of taking external ideas and redeveloping them internally.

Additionally the Ohio Third Frontier needs to rethink the industries they plan to target.  Focusing on only a handful of high-tech industries attracts additional carry-on capital to a particular industry vertical, but leaves other industries within the State grasping for capital from private sources.   Historically manufacturing, logistics, and retail has been left out of the Third Frontier RFPs as industries to target. These industries have been some of the backbone industries to the State. This industry neglect leaves many to wonder what would the face of Ohio’s economy be if there was a more even distribution of dollars in industries that typically require less money to fully capitalize and have a shorter time to market than high-tech.

The Ohio Third Frontier was intended as a job creation program.  However, most of the jobs that have been claimed to have been created through the program have actually turned out to be in companies that have be acquired by larger companies and have exported those jobs to other states.  The latest major exits that were reported by VentureOhio, were all acquisitions by larger out of state corporations.  The original concept was that the program would get their payback from corporate and income taxes from the new companies and new jobs that have been created.  In recent years, this has changed to getting paid back the money that was staked into investment funds and ESP programs.  This has changed the focus of OTF from being a high-tech job creator to just another institutional investor.

I believe that the Ohio Third Frontier needs to make a few changes to spur innovation and attract capital to other non-high-tech ventures.

  1. Open up the ESP grant process to other organizations that can fill in the gaps into under-served areas that the other ESPs have not been able to actively engage.
  2. Even though there is a mandate to only invest in tech-focused startups, there is nothing stopping Ohio Third Frontier to be a champion of other industries.  OTF is a major platform. They need to leverage its voice.
  3. Tell the venture community publicly how long they plan to keep investing – reports say there is only about 2 to 3 years of money left.  Let the venture community and the public know how long OTF plans to be active, so we can keep moving to fill the gap.
  4. Be more transparent about the successes and failures so that we can learn.  Everything that Ohio Third Frontier gets is considered trade secret and cannot be shared.  Entrepreneurs learn from failure.  These failures have to be reported so that the community can learn and be better.
  5. Hold ESPs to the same Ohio Ethics laws that they are.  Some employees of ESPs are also Directors of investment funds that received OTF money and some board members of ESPs also get their startups funded from the ESP and serve as CEO’s or technical co-founders of those same companies.  Two critical things that need to be fixed.
  6. Broaden their mandate and begin looking at additional industries and start focusing on more public-private collaborations and to help the earliest stage companies find capital to launch their ventures.

The Ohio Third Frontier has generated a lot of great things in the tech sector and has helped start some great companies.  The next step is to share what it has learned – both the good and the bad, to help foster the next generation of startups and to help diversify the kinds of startups that are wanting to call Ohio home and grow into the next long-term, sustainable job creators.  The last thing Ohio needs to do is invest in promising startups that will just be acquired and suck the innovation, talent, and jobs to another state.