The “angels” in charge of Northeast Ohio’s newest venture capital fund have been flying below the radar.
But they have been busy.
Some investors involved with North Coast Angel Fund have formed their own venture capital firm: North Coast Venture Fund.
Over the past year, they’ve raised $5 million and invested in seven technology companies, including five based in Northeast Ohio.
It didn’t take them long to find those companies. All of them previously received funding from North Coast Angel Fund — which actually consists of two separate funds created by individual “angel” investors who work together to finance Ohio-based startups.
So what’s the difference between the two funds?
For one, the venture fund makes somewhat larger investments in more established companies.
North Coast Angel Fund typically only invests a few hundred thousand dollars into each company, though individual members sometimes kick in some extra capital. The venture fund usually aims to invest between $500,000 and $1 million at a time, according to John Knific, CEO of DecisionDesk, a Lakewood company that makes software designed to help colleges manage the admissions process. DecisionDesk recently raised cash from the venture fund.
The new fund is run by Todd Federman, and it aims to raise another $15 million, according to documents filed with the U.—S. Securities & Exchange Commission.
Federman also serves as executive director of North Coast Angel Fund, which he runs with managing partner Clay Rankin. Federman wouldn’t provide comments for this story, citing securities laws that sometimes drive investment firms to keep quiet about their efforts. However, Crain’s did get a few comments from Knific and Jeff Reedy, who runs an Akron-based WiFi technology company called 7Signal, which also recently raised cash from the venture fund.
The new fund was created to give investors involved with North Coast Angel Fund a way to “double down” on the most promising companies in their portfolio and to help them reach the point where they can receive larger investment rounds, according to Knific.
Nothing would prevent North Coast Venture Fund from investing in a company that didn’t previously receive funding from North Coast Angel Fund. But it makes sense that the new fund would focus mainly on companies that have already raised money from the angel group. Some of the venture fund’s investors already have a stake in those companies.
And they already know a lot about the companies and the entrepreneurs who run them, according to Reedy. The entrepreneur benefits from that pre-existing relationship as well, Reedy added.
“They get to know us. We also get to know them,” he said.
The new venture fund could help fill a gap: A few of Northeast Ohio’s most active venture capital funds — Early Stage Partners, Glengary and JumpStart — are not currently making new investments, though that could change if they succeed in raising additional capital. Early Stage and Glengary made larger “Series A” investments, which are typically north of a million dollars.
So now the region does not have an active, professionally managed Series A venture fund willing to invest in companies that don’t yet have revenue, according to Ray Leach, CEO of JumpStart, a Cleveland-based nonprofit that provides services to local startup companies.
North Coast Venture Fund makes somewhat smaller investments, but it could help fill the void.
“JumpStart is supportive of any individual and/or team of investors who want to work to help address this market gap,” Leach said.
The new venture fund has invested in five other companies: StreamLink Software of Cleveland, Neuros Medical of Willoughby, GenomOncology of Cleveland, Ahalogy of Cincinnati, and Great Lakes Pharmaceuticals of Broomfield, Colo.