JumpStart’s Minnesota hopes raise concern

Categories

JumpStart-Community-Advisors-MinnesotaA few weeks ago, we learned that JumpStart Community Advisors, a division of Northeast Ohio-based nonprofit VDO JumpStart, had released it’s preliminary  report for the MSP region.

This product was the outcome of a$2.5m grant that JumpStart received based on “impact” as measured over five years of existence within Ohio, at which point it had seen an estimated $50m in funding.  The grants purpose was to explore how “certain core elements of the successful JumpStart approach” could be potentially replicated within other upper midwest Knight Foundation Communities such as:  Ft. Wayne and Gary, IN; Detroit, MI; Duluth and Minneapolis-St.Paul, MN; and Akron, OH.

To date, JumpStart has received $70m over the past seven years, the majority of which — approximately $39 million — has come from Ohio taxpayers and is essentially borrowed to begin with.  The organization provides financial and operational assistance to startup companies, although in Ohio, the majority of funds disbursed have not gone directly into funding emerging companies, rather “services and overhead”.

Many have since read the v1 report to gain a better understanding of how JumpStart diagnosed the MSP region and what their proposed remedy would look like. One local stakeholder, who declined to publicly comment on the original article, was quick to point out that ‘this report is suggestive and no where near final’.

Obviously, considering the lack of substance; the report is riddled with questionable claims and unsupported presumptions.  The org seeks to raise $10m to fund 28 months of operation, largely from “government and philanthropic sources.” There is no hard earned, privately held smart money to be found for this plan and its easy to see why.

For example, a blatant “secondary market research” miscalculation used to justify the need for JumpStart’s services in MSP appears on page 16 where it’s reported that first round/seed investments made in 2010 was two.

chart

This early stage “first round/seed” research is nothing short of ignorant (how much was spent on this report?).  We know there were at least 42 early stage companies funded in 2010 with 60 already capitalized this year. It is safe to conclude that half of those companies were in “first round/seed” stage, considering the average investment amount ranges between $200k – $250k.  That’s 20 for 2010, a number that will be double to 40+ in 2011, not even considering the other tech verticals.

“Although these numbers are unlikely to include investments by angels, and may not even include all venture capital investments, they nevertheless present strong evidence that the thriving, high-­‐tech MSP region is not generating new, market-­‐ready opportunities at or near its potential,” says the report.  Now why would an analysis of early stage dealflow in Minnesota not include angel investments?

Overall, the report is biased to align with JumpStart’s goal of expansion, regardless of our actual circumstances. “Did you expect that they would come back and just say everything is ok, we’re not necessary here?,” quipped one observer.

But to dissect and isolate this plan misses the larger context:  no one –  not even the state of Ohioknows exactly what they’re getting after seven years with JumpStart.

Since publishing that original piece, a lot of people have come forward to weigh in.  Some aired their opinions out in the open while most preferred to keep their sentiments off the record.  As one credible and articulate Ohioan said:

“The questions and comments that arise from JumpStart’s critics are not about the concept of having a VDO, but how it has operated, as well as how it has reported its results.  Having been on both sides of the fence as both an entrepreneur and an employee of JumpStart, I believe JumpStart has added value to Northeast Ohio by helping entrepreneurs via its services and funding, but I also believe there is some validity to what its critics are saying.”

And there must be validity, considering that many of the dissenting voices around JumpStart’s MSP hopes are now coming directly from inside the group of local REAP Stakeholders itself.   Understandably so, considering that JumpStart has still yet to transparently report outcomes in Ohio, while at the same time, attempting to sell Minnesota on the basis of its merit.

Here’s to the notion that those same stakeholders have the courage to ask the right questions in pursuit of truth. This has clearly become an initiative disconnected from the same values our entrepreneurial community stands for.

Comments

  • Anonymous

    What disturbs me is that this region was granted $500k for the purpose of improving the entreprenurial ecosystem.  What did we get…??? “One local stakeholder, who declined to publicly comment on the original article, was quick to point out that ‘this report is suggestive and no where near final’.

    A half a million dollars and we got a “suggestive” report that uses misleading and inaccurate premises and the main foundation of their “suggestions”.  It is sad and tragic that we are wasting this money.

    Someone should call or write all the funders of this grant, point out why this was a waste of money, why this group has no cred in its own hometown and ask them to release the rest of the grant to local MSP to put together a real and not innaccurate and “suggestive” plan.

    • http://tech.mn Jeff Pesek

      They were granted $2.5m to issue the report, not for directly “improving the entrepreneurial ecosystem”

      • Joe Serrano

        Jeff, as I recall you have an ongoing list of recent funded tech companies in Minnesota for the last few years that gives a much more transparent “report” of what is happening – and moreover has helped the tech ecosystem in tangible ways. Maybe we need techdot to start “techjump”.

        • http://tech.mn Jeff Pesek

          Joe, as I recall JumpStart asked us about that data months ago and we pointed them to it.

    • Anonymous2

      “…
      release the rest of the grant to local MSP to put together a real and not innaccurate and “suggestive” plan.”

      Seems a little drastic considering you are basing your opinion off of an unfinished report. 

      @TECHdotMN:disqus I'm curious as to why you have dedicated a second article to this topic.  I enjoy the variety of articles that you present, but I'm a little disappointed in this second article because it is redundant.  I would be interested in another critique of this topic once they release a final report.

      • http://tech.mn Jeff Pesek

        Anonymous2, thanks for the note.

        Drastic would be citing more than one example of the inadequacy that is this document. JumpStart had one year and hundreds of thousands of dollars to prepare.

        Why shouldn't media be talking about something that could potentially impact the startup community and taxpayers alike?

        • Anonymous2

          It isn't that you should be talking about it.  I'm disappointed that you wrote a second article about the same topic, but didn't offer any new value.  

          I'm not saying that JumpStart is a successful organization, but that you don't offer any sort of viable alternative.  I understand that based on the unfinished report that JumpStart looks like a bureaucratic waste of money. What organization should I be supporting and writing to my elected officials about?

          • http://tech.mn Jeff Pesek

            There is value in transparency.

            Critics in Ohio have argued that JumpStart looked like a bureaucratic waste of money before the MSP draft report was ever issued.  As time has passed, many of those same sentiments are now emanating from inside the tech community + REAP since the release of this draft report.

            Keep in mind that no-one actually knows what this organization as accomplished or has not. We're currently seeking objective evidence to identify and document this phenomena.

            As far as organizations to support in the MSP, I'd say that depends on your interests and objectives.  Look around – there's plenty of opportunities here.

            PS – why are you anonymous?

  • Ohio Taxpayer

    RUN AWAY. RUN AS FAST AS YOU CAN.

  • Mburkons

    Jeff,

    In Cleveland we have pointed out that many of the self-reported
    “facts” Jumpstart uses as the base of their argument, are misleading
    and outright false. Jumpstart's entire image, brand and claimed successes are a
    house of cards whose bottom rows are built on these misleading premises.  Hopefully having people like you draw
    attention to this will be the wind that knocks down this house of cards.

    You should contact the knight Foundation, Surnda Foundation
    and the EDA and ask to speak to the person or people who approved the grant to
    Jumpstart that’s purpose was to benefit the MSP.  Ask them why they think the JS approach is
    one that should be copied. 

    My guess is
    that they will point to all the wonderful work and results they have gotten in
    Cleveland/NEO.  You should then follow up
    with questions pointing out how flawed these JS produced reports are.   Then point out that MSP so far has gotten
    very little from this money outside of a “suggestive” report which uses false
    and misleading facts as the base and premise the report relies on.  You should then ask them to discontinue their
    funding to Jumpstart and to give the remaining funds directly to a group in MSP
    to finish this report accurately.

    Of course the report suggests MSP continue to engage
    Jumpstart to do their “back office” stuff. 
    What is this “back office” stuff that Jumpstart suggests they are needed for?  The only reason there would be any
    significant “back office” stuff is if you built up an VDO with a large overhead
    and oversized staff.  Can you ask the
    local stakeholders and get a more detailed answered on what “back office”
    stuff and other responsibilities they would be looking to Jumpstart to perform?

    Have you reached out to JS to comment on your articles and
    the criticism?  I am sure they will tell
    you they are too busy to reply.  Don’t
    accept that as they have an 8 person PR and marketing staff.   Please do and print their replies. 

    It is great someone is writing about this, asking the hard questions and then fact checking and verifying all the answers.  Great work.

  • Ernest Grumbles

    Jeff, the quote above on the concept and utility of VDO's versus how specific VDO's are implemented is the relevant question.  I expect you could find people for and against a variety of MSP non-profits covering a variety of issues based on performance v. mission. For those working locally on a possible VDO for MSP (I'm one of them), the endeavor is aimed at coming up with a localized and cost-efficient plan that harnesses the amazing resources we have present and works collaboratively and in a civic-minded way to make more risk capital available to startups.  Such a VDO would complement targeted VDO work done by the Norris Institute at St. Thomas and the OTC at the U.  As for the REAP document, it is JumpStart's recommended plan for MSP.  Fundamentally, it's information and analysis available for our common consideration.  However, any implementation of a VDO in MSP will, as noted above, will, perforce, be narrowly and cost-effectively tailored to fit and reflect local needs and local resources.  Expect more information and dialogue on this shortly.

    • Anonymous

      Earnest,

      It is great one of the locals stakeholders is commenting on this.  I have one major question.  Twice in your post you talked about “cost-effective”, however, this region was granted $2.5m for these efforts and we basically got a long winded report which contained many inaccuracies from a group with no credibility.  Now we hear this report is merely “suggestive”. 

      If you think this is a good start to convincing people that these efforts will be “cost-effective”, you have a long way to go.  I think this region and its Entrepreneur deserve better.

      • Ernest Grumbles

        The  2.5M reported above as to MSP is an error.  You can call JumpStart and ask (seriously).  And I also suggest contacting the many national foundations and the White House, which support JumpStart's efforts on behalf of startups, if you want a more complete assessment of JumpStart's credibility.  And call the 60+ startups that have received funding.  Not being flip.  Just need to consider all the facts.

        • Mburkons

          Ernest,

          I am one of the 60+ founders of companies who received JS funding.  I know many others who share the same concerns about Jumpstart's spending as well as their claimed results.

          As for National Foundations and the White House, just like your group in MN, they assumed the results JS told them they were responsible for creating were accurate and legitimate.  It was just this May that public rumblings started to surface and publications started to write about this.

          When this happened, it became public that the reports and results that JS issued and positioned as “independent” were in reality self reported.  It came out that they paid over $20k to a group to publish these reports but use the data they gave them without auditing or verifying any of it.  Even after this became public, and many major flaws were exposed in their reports, they still refuse to allow outside parties to verify their impact claims.

          Now that this has become public we will see if their funders still think this is such a great org.  The funding they received in the past was a result that no one asked hard questions.  That is no longer the case.

          I believe in the concept of Jumpstart and VDOs.  However, the impact that Jumpstart is actually responsible for after 7 years and $70m is a fraction of what they claim.

        • http://tech.mn Jeff Pesek

          Right, my understanding is that it was $2.5m for R&D (not for “improvement” as Anonymous was also wrong about earlier) across  4 – 6 regions.  That equates to between $416k – $625k per region.

    • http://tech.mn Jeff Pesek

      Thanks for the comment, Ernest.

      “the quote above ( “The questions and comments that arise from JumpStart’s critics are not
      about the concept of having a VDO, but how it has operated, as well as
      how it has reported its results…” ) on the concept and utility of VDO's versus how specific VDO's are implemented is the relevant question.”

      Agreed, this article is much less about VDO's in general, more so about this specific organization's model and surrounding uncertainty.

      A few questions for you, as someone “working locally on a possible VDO for MSP”:

      In your mind, what qualifies JumpStart to be a part of the conversation about MSP?  What have they done that we can learn from and apply here with any certainty of positive outcomes?  Might better options or approaches exists?

      If the possibility of JumpStart receiving federal tax dollars for 'startup stimulus' and regional expansion didn't exist, would you feel the same way about the org as it relates to MN?

      Do you know what tangible outcomes have been produced so far directly through JumpStart and at what cost? After seven years and $70m, how is ROI measured?

      Why do you think that reporting results in a clear, consistent and objective manner seem to pose a challenge for JumpStart?

      Are you aware that the majority of funding JumpStart has received is money that Ohio has borrowed against taxpayers?

      Again, as someone “working locally on a possible VDO for MSP”- do you feel that government should play a role in venture investing? How would the potential for bad judgement, conflicts of interest, and corruption be mitigated if the state were to take an active role in startup investment (indirectly through a VDO)?

      Lastly, why are there not more entrepreneurs at the table?

      Thanks!

      • Ernest Grumbles

        Jeff- 

        A few quick response thoughts.

        You correctly note that your critiques focus on JumpStart and how it has done business in Ohio.  We will be building a new organization here with its own unique structure and one reflecting local needs, local resources and local funding priorities.

        As for JumpStart's qualification for providing input on a VDO in MSP, they have built and run a VDO for 6+ years, they have extensively connected with other VDO's around the country and they have spent a substantial amount of time here connecting with folks from startup to VC to gov't.  That lead to the REAP, a framework for a possible VDO in MSP.  But it will be up to the local community to build and operate the VDO according to a localized plan.  

        As for other options, there are many economic development tools available to help startups and many of them are in the works here in MSP.  Frankly, we are playing catchup.  It took 10 years to get an angel tax credit.  And aside from the Norris Institute, we lack a non-profit or public purpose entity with an ability to directly invest in startups.  Not clear how the public purpose of a VDO taints their ability to serve the public.

        The MSP VDO will not be a governmental entity.  Government employees will not be making investment decisions in the VDO.  Many states do have such a structure (such as Connecticut and Pennsylvania).  But this VDO will not. 

        Regarding JumpStart's ROI, that's not the measure.  They're a non-profit aimed at economic development.  The primary metrics are: (a) $ invested in startups; (b) follow-on funding; (c) # of startups they have assisted; (d) jobs created, with (b) being the most important to the national funders (who are exceptionally scrutinizing as to how their $ are used in this economic environment).  JumpStart portfolio and client company have raised over $402M (not bad).  And they've invested $21M in 56 companies.  I suggest calling the CEO's of the 56 companies as to their perspective on JumpStart.

        Lastly, as to entrepreneur input and involvement, there have been many involved, both from providing input during public meetings and working on the various advisory and stakeholder groups.  And everyone involved cares deeply about the entrepreneurial ecosystem.  No one sees this as a silver bullet.  It's one (important) tool in the toolbox.

        • Mburkons

          Ernest,

          It is clear
          you are getting your data from Jumpstart and I suggest you fact check it in
          order to get the complete story. Here are some examples.

          1. You
          wrote, “Regarding JumpStart's ROI, that's not the measure”. In 2004,
          they stated that it would only be a few years before they were self funded from
          positive returns on their investments. However, after it became clear that
          their ROI would be dissappointed did they claim they don't invest for returns.

          2. You
          wrote, “The primary metrics are: (a) $ invested in startups; (b) follow-on
          funding; (c) # of startups they have assisted; (d) jobs created, with (b) being
          the most important to the national funders (who are exceptionally scrutinizing
          as to how their $ are used in this economic environment). JumpStart portfolio
          and client company have raised over $402M (not bad). And they've invested $21M
          in 56 companies.” I will
          address them by the letters you assigned to them.

          a) $
          invested is very important but it should be in comparison to their overall
          budget. Each year, it has gotten more and more lopsided and last year, out of a
          $13.5m budget only $3.1m was invested into startups.

          b) many
          people feel that follow on funding shouldn't be considered. I am not one of
          them but I don't think it should be the main critieria. The problem with
          Jumpstart's claims on follow on funding is that they make it seem like their
          involvement is the cause all this follow on funding. Let me give you an
          example. If a company has been around for 4 years, already recieved over a
          million in investment and Jumpstart's $250k investment is part of a $1.5m round
          with VCs, do you think JS should take 100% credit for all jobs and 100% of all
          follow on funding from this company? This is how Jumpstart does their math and
          gets these numbers.

          c. as for
          startups assisted, I don't have the numbers in front of me but I think they
          claim it is something like 400 since 2004 however Jumpstart refuses to release
          this list of companies. Critic suggested that an independent auditor be given
          this list and pick 75 companies randomly to call them to inquire about
          Jumpstart's assistance and value. Once again, they Jumpstart refused and just
          hopes we trust that this number is correct and the assistance they provided was
          valuable.

          d. jobs
          created. The same issue as point b where they take credit for 100% of all jobs
          at every company they claim they assisted regardless of how minimal or valuable
          their assistance was to the company. Also, they refuse to allow these claims to
          be verified by a 3rd party.

          3. You wrote
          that national funders are “are exceptionally scrutinizing as to how their
          $ are used in this economic environment”. Really? Have you heard of
          Solyndra?

          4. You
          wrote, “I suggest calling the CEO's of the 56 companies as to their
          perspective on JumpStart”. I do suggest you do that but if you want to
          honest answers, I think you need to be clear with each person that their
          answers will be kept completely confidential from everyone including Jumpstart.
          It isn't in their interest to be publically critical of one of their past and
          potentially future funders.

          My problem
          isn't with the 56 companies. My problem is that if they didn't have a $10m
          overhead, they could have funded 156 companies.

        • http://tech.mn Jeff Pesek

          Your responses are appreciated and are already helping to provide more clarity for myself and others who, like the MSP REAP, also care deeply about the local entrepreneurial ecosystem. 

          How would you answer the rest of them?

          If the possibility of JumpStart receiving federal tax dollars for 'startup stimulus' and regional expansion didn't exist, would you feel the same way about the org as it relates to MN?

          Do you know what tangible outcomes have been produced so far directly through JumpStart and at what cost? [Assuming your response - (a),(b),(c) and (d) - are JumpStart's measures of economic development]

          Why do you think that reporting results in a clear, consistent and objective manner seem to pose a challenge for JumpStart?

          Are you aware that the majority of funding JumpStart has received is money that Ohio has borrowed against taxpayers?

          Thanks!

          • http://tech.mn Jeff Pesek

            And for you, JumpStart and the community to consider:

            Why didn't the report include the data on 2010 capital investments made in Minnesota tech startups (referenced above) which show at least 20 first round/seed stage startups funded?

            Is this not (a) accurate (b) relevant and (c) timely data which could have made for a more factual report?

            JumpStart seemed to think it was at the time, which is why we emailed it to Venture Partner Mark Smith and (then) COO Beth Fitz Gibbon back in February when they were here conducting R & D.

  • Anonymouscolumbus

    Jeff,

    Please keep writing about this and exposing this. I am from Southern Ohio and we have been disappointed that the State of Ohio continues to fund Jumpstart as their true results have been terrible (not the ones they self report).

    Jumpstart basically takes credit for anything startup that happens in the Northern part of the State, even though the majority of it would have happened without them. Jumpstart claims without them, this 'amazing ecosystem and culture supporting startups wouldn't exist as well as the angel funding they have developed and put together in the area.

    Jumpstart's problem is there is a huge elephant in the room.  Between Cincinnati, Columbus and Cleveland, Cleveland by far has had the least angel investments.  See this article from last week http://www.medcitynews.com/201

    Cinci & Cbus both have VDOs similar to Jumpstart but they have only existed for half as long, have a 1/3 of the budget, staff, salaries and overhead.  However, both of these groups have garnered better results in a shorter timeframe, with less money than Jumpstart.  Also, Cleveland has a major advantage bc they have two world class Hospitals that put a strong focus on tech transfer and creating new companies.

    I find it funny that other regions are paying Jumpstart millions to learn from their widsom.  However, in Ohio, out of three major cities, they are a distance 3rd in every measurable way while having 3x the funding, salaries, staffs and overhead of the VDOs of Cinci & Cbus. 

    Hopefully the State of Ohio will read these articles you are writing.

  • Chuck Soder

    I've written a few times about the issues JumpStart has with its critics and expect I am not done writing about the topic, so anyone who would like to talk to a reporter in Cleveland can email me.

    The above link to the first story I wrote for Crain's is a link to our mobile site. The story shows up better in this link.

    Here are two follow-up stories. The first is on a meeting JumpStart had with its critics, and the second is on how JumpStart changed (and did not change) the way it measures its impact following all the criticism.

    Don't mean to promote my own stuff (too much), but I figured readers might appreciate the links!

    Chuck Soder

    • Chuck Soder

      Seems the links didn't show up. Anyway, my email is csoder@crain.com.

  • http://twitter.com/casey__allen Casey Allen

    What I find equally as intriguing is why not a single person from the Jumpstart team jumps on to clarify, add to, or if warranted, re-direct the conversation here in the comments. Their non-participation is a little disappointing.

  • http://techbytes.biz techbytes

    I would love to see an itemized accounting of the 2.5 million spent. There in is the truth about this boondoggle.

  • Anonymous

    Anyone who says Jumpstart isn't using their money, time and other resources wisely hasn't seen their holiday message.  (http://www.jumpstartinc.org/en

    Amazing that they spend so much time and effort to put together such a complex video bragging about their accomplishment but they won't let anyone outside Jumpstart audit these claims.

    I have two thoughts about this.  If they did this completely in house, why does a taxpayer funded VDO have this video equipment and software to produce this and why do they have so many marketing employees with obviously so little to do that they can spend countless hours producing this.  My guess it was at least a 60-100 job to write this, get all these employees together to shoot their lines/scenes, and then edit this.  

    If they spent any money on this shoot, it is another example of their budget going to promote themselves instead of actually helping entreprenuers. 

    If a 50 person for profit company makes a holiday video, it is basically people looking into the camera and saying “happy holidays” with Jingle Bells playing.  Not Jumpstart as their 8 person marketing team has to find new ways to self promote.  Money and resources isn't an issue as it is taxpayer money meant to help entreprenuers.  No one will notice that it is being wasted.

    • Anonymous

      the link didn't go through.  go to jumpstartinc.org and go to the blog section to see the video

Sponsors