Ray Leach is a different kind of dealmaker. As a former entrepreneur, he understands the challenges of turning an idea into a viable business. As the founding CEO at JumpStart Inc., he blends that experience with the expertise of public, private and philanthropic leaders to drive economic growth across Ohio.
Between 2010 and 2016, companies assisted by JumpStart and its partners have gone on to generate more than $4.5 billion in cumulative economic impact for Ohio. One of the best examples of JumpStart’s impact is CoverMyMeds LLC, which JumpStart helped get off the ground in 2008. In January 2017, the company was acquired by McKesson Corp. for upwards of $1.1 billion, making CoverMyMeds Ohio’s first tech startup “unicorn.”
“Twenty years of experience of being an entrepreneur and understanding the challenges and issues of growing a young company has helped me understand not just the financial dynamics of investing in early-stage companies, but also the realities of running a company, being a founder, having a vision, struggling to raise money and struggling to grow the business,” Leach says. “So it’s really the collective of that operator experience that has served me well in this role at JumpStart.”
A critical part of Leach’s role is his ability to identify individuals who are in a position to build a strong business and advance the economic prosperity of Northeast Ohio. Perhaps just as important, however, is his ability to engage with established business leaders who can help his startups.
We spoke with Leach about how he builds relationships, creates networks and makes deals that have created a healthy startup environment for Cleveland entrepreneurs.
Misconceptions and challenges
There is a cultural disconnect to the importance and vitality that younger startup companies can create in a community. It surprises me every day that many business leaders in our economy do not have a full understanding and appreciation that every year, the net new jobs in the United States are created by startup companies. One of the reasons why there is a disconnect is that the churn of those companies is so significant. When you lay it all out, the job growth in large companies, medium-sized companies, small companies and startups — it’s those startups and the churn that those startups have that create all the net new jobs. It’s been that way in the U.S. economy for more than 30 years.
It’s a very lonely existence being a solo entrepreneur. One of the biggest challenges for an entrepreneur is identifying partners or significant leaders in their business to share the strategic and tactical work of growing the business. In a young company, there are 1,000 things to do when you’re undercapitalized. As the leader, it’s incredibly important that the leader has the IQ and the EQ — the emotional intelligence — to be able to start and grow a young company. A piece of advice I give to young entrepreneurs is to find a partner or partners, someone you deeply trust that complements your skills. The reality is you’re probably looking at a 10- to 15-year challenge to get to a really significant outcome.
Taking that first step
A lot of our companies start almost as projects. We meet with entrepreneurs all the time who come to us and have an early-stage company looking to raise the first round of capital and they perceive they need to have a comprehensive business plan. That’s actually not the case. The kinds of companies we’re typically evaluating and investing in — we’re investing as little as $250,000 and as much as a couple million dollars. Sometimes that will be part of a larger round, so we’re co-investing. We’re not the sole investor. The most important set of work is probably 10 to 15 pages that lays out not only what the vision for the company is, but how you are going to use the money that is going to be invested in the company. How will the outcomes of that money dramatically impact the valuation of the business for the next round or ultimately over time, at the exit? The most important piece is the use of funds and how it correlates to a material increase in valuation for the follow-on investors.
Study dozens of companies in your industry who are wanting or needing to raise capital in the same way that you intend to raise capital. If you think you’re going to raise all your capital from angels, they’ll be one valuation. If you anticipate you’re going to start with angels, but then go on to professional venture capital investors, they’re going to have a different set of eyes and a different perspective on the valuation of the business. We see scenarios all the time where entrepreneurs raise capital from investors who have a much higher valuation for the business, either because they think incredibly highly of the entrepreneur or maybe are a less-experienced investor in an early-stage company. That ends up creating a whole new set of challenges for entrepreneurs when they go to raise the follow-on capital from that angel round or that previous investment round.
The DNA or the attributes of successful entrepreneurs have evolved and have changed. The attributes that we look for now in Cleveland and Ohio were the attributes of the most successful entrepreneurs in California in the ‘80s and ‘90s. We’re looking for entrepreneurs who have this innate curiosity and a passion for learning. These are likely to be the individuals who generate the greatest economic impact, including financial return. On the one hand, those characteristics and attributes are not new in the U.S. economy. They are just a lot more new in the Midwest.
Entrepreneurs create a lot of jobs in our community and they may not change the world. But they could change their family’s life, generate a great return for their investors and be important pillars to our neighborhoods and to our communities. About 30 to 40 percent of our work is with entrepreneurs who are employing lots folks and have the potential to employ even more folks and maybe don’t want to exit their business. We’re finding ways to help grow those businesses because those have been the mainstay businesses of our economy in Greater Cleveland over the last 50 years.
The Last Word
When I reflect on the last 13 years or so at JumpStart, the advice I’d give myself is to be bold. When I originally got involved in this work, I had high hopes. But I didn’t have a lot of confidence that we could generate the kind of impact we’ve been able to play a part in. Have confidence in Clevelanders and Ohioans who want to start companies. We have had a perspective on ourselves that there aren’t great individual entrepreneurs here in the tech space and that’s just not true.
We’ve seen these first-time entrepreneurs in Ohio that have built incredible companies. Lean forward, be aggressive. The law of large numbers is incredibly powerful. When we’re involved in companies, we don’t know which one of these companies or which of these entrepreneurs are going to be game changing and make a large impact. Figure out a way to assist the greatest number of entrepreneurs that you think are addressing the biggest market needs and invest in them in such a way to give them an opportunity to start their businesses. The right entrepreneurs will generate the greatest amount of progress and then you can follow on and invest in them.
How to reach: JumpStart Inc., www.jumpstartinc.org