Venture Capital in Columbus

Tim Fulton 0:07Ladies and gentlemen, welcome to the Confluence Cast presented by Columbus Underground. We are a weekly Columbus-centric podcast focusing on the civics, lifestyle, entertainment, and people of our city. I'm your host, Tim Fulton. This week we're talking about capital in the capital city. Venture Ohio helps to facilitate the entrepreneurial ecosystem in our state. Their annual venture report, which just came out, takes a detailed look at Ohio investment activity and the people and companies putting Ohio on the map. I sat down with Venture Ohio CEO Fallon Donahue and the co-founder of local startup CrossChecks to talk about the report, how venture capital works, and the opportunities available for entrepreneurs. You can get more information on what we discussed today in the show notes for this episode at theconfluencecast.com. Also, the Confluence Cast is on Patreon. Find out how to support this podcast on our website, theconfluencecast.com, or at patreon.com/confluence. The Confluence Cast is sponsored by Kepri, a full service web and mobile development company specializing in design and programming services. Defined through skill and innovation, Kepri works with their clients to create user-centric, technology-based products that innovate. Kepri provides complete technology solutions with a solid strategy to meet your goals and grow your brand. See examples of their work and explore what Kepri can do for you at kepri.com. Enjoy the interview. Sitting down here with Fallon Donahue, the CEO of Venture Ohio, and Brad Masco, the co-founder of CrossChecks. How are you guys?

Brad Masco 1:52Great.

Fallon Donahue 1:53Great. How about yourself?

Tim Fulton 1:54Doing well, thank you. We're sitting down here talking about venture capital in Ohio. Fallon, first of all, y- you guys just put out the 2017 venture report. Can you talk about that report a little bit?

Fallon Donahue 2:07Yeah. We at Venture Ohio release a report every year to get a better understanding of what Ohio's doing well so we can shout that from a rooftop, and get a better understanding of what we need to improve upon. So this year the results were very exciting, uh, very reflective of the momentum building in Ohio that we feel every day. Uh, we saw a 46% increase in investment activity over the last two years, so really excited to see the way those numbers shook out, especially considering venture capital has been declining nationally. So Ohio significantly out-bucked the trends this year.

Tim Fulton 2:41Okay. What's the difference? Why is Ohio, do you think, doing better?

Fallon Donahue 2:45I think there are a lot of moving pieces as to why Ohio is doing better. Uh, first you're seeing, uh, a migration toward the Midwest in general as a trend. Uh, companies understand, founders understand, investors understand that you no longer need to be situated on the coasts to scale a successful tech company. Though Ohio is full of very talented people, we have over 200 higher education institutions. We have a high concentration of Fortune 1000 companies also, uh, full of talented individuals, and these corporations can be your first customer, um, possibly acquire startup companies, and certainly provide a lot of mentorship and guidance from their executive officers to entrepreneurs in Ohio. And then this year, for the past couple of years, we're seeing a very significant increase in collaboration, and we believe that collaboration is a key element of our success in Ohio. So those corporations, universities, entrepreneurs, venture capitalists, angel investors are all working together, co-investing in deals, sharing ideas, sharing information, sharing our networks to help put Ohio on the map.

Tim Fulton 3:49Do you have any examples of that collaboration happening?

Fallon Donahue 3:52I, I mean, I think Venture Ohio is a key example of that-

Tim Fulton 3:55Okay

Fallon Donahue 3:55... and some of the initiatives that, that we've, we've launched. But it's, you know, Venture Ohio is really just a platform for the people in Ohio who are doing great things. So, uh, one example is the NextGen group. These are the young VCs from across the state. Uh, they're starting to get together on a regular basis to get to know each other, to share best practices, and to share deal flow. So, uh, entrepreneurs in Ohio, if they meet with one of these, uh, NextGen VCs, who are typically if you think about it, the top of the funnel for their s- for their fund. You, uh, as an entrepreneur don't typically meet the managing partner-

Tim Fulton 4:31Mm-hmm

Fallon Donahue 4:31... um, you know, during your first meeting. You're usually meeting with the associates, the analysts at these funds. So, uh, these guys get together on a regular basis and, uh, share deal flow. So the entire state-

Tim Fulton 4:42And defi- define that for us

Fallon Donahue 4:43This would be the funnel of companies.

Tim Fulton 4:45Okay.

Fallon Donahue 4:46So these will be companies from concept stage all the way through growth stage, and we have representation on these calls or on these meetings from funds across all different investment criteria, all different investment stages. So they all get a glimpse toward the great companies that are, that are building across the state, and it's no longer, uh, solely reliant on the entrepreneur's ability to just know what's out there and, and, and drive to these different VC funds and, and reach out to them.

Tim Fulton 5:15When you talk about deal flow, is it similar to... You keep saying funnel, and I, and so I think of sales funnel. Is it similar to that in that there are all these options for these venture capital firms to invest in, and then they're gonna qualify them and so the funnel gets smaller? Is that what that funnel is?

Fallon Donahue 5:32Yeah.

Tim Fulton 5:33Okay.

Fallon Donahue 5:33Yeah. So each venture fund has its own investment strategy-

Tim Fulton 5:37Okay

Fallon Donahue 5:37... uh, depending on the size of company that they're comfortable with, the industry that they feel comfortable with. Some venture capital funds invest solely in tech. Some have an even more targeted investment thesis, uh, outside of that. Some invest in seed stage companies and some invest all the way up to growth stage companies. So you're looking at a difference of between, you know, a low amount, 20 f- 25,000thousand, five hundred thousand, up to 30, 40 million, 300 million. You know, whatever the company requires for its growth.

Tim Fulton 6:06Gotcha. And I'm gonna let those terms stay there, but I'll come back to 'em too. Seed stage-

Fallon Donahue 6:12Mm-hmm

Tim Fulton 6:12... growth stage, and such. Brad, give us your background and tell us about CrossChx.

Brad Masco 6:17Sure. So I am from Ohio, but spent the last, uh, 10 years before CrossChx out in Washington, DC.

Tim Fulton 6:25Mm-hmm.

Brad Masco 6:25Um, my co-founder and I went to undergrad together at Miami, and we had reconnected out in DC. He had, uh, gone into the Air Force and done a bunch of tours in Iraq and Afghanistan, and then had a company out there, and so we had reconnected. Uh, I was working on Capitol Hill, and, uh, and we started talking about wanting to start a company together, and CrossChx was one of a number of ideas that we had. And we actually, uh, you know, came back here and very randomly, uh, got connected with the right folks-

Tim Fulton 6:55Okay

Brad Masco 6:55... uh, got the initial funding that we wanted and, and got a first customer in Ohio. So I was living in Virginia. He was living in, uh, Maryland, and we picked up, and I moved here about three weeks after we got the company launched, and, uh, he moved, uh, a little bit after that. And we, uh, started here in Columbus with a first customer down in Gallipolis, which is down on the river.

Tim Fulton 7:16Yeah.

Brad Masco 7:16And, uh, that was 2012 that we started the company, uh, you know, kind of officially formed it here. And we grew it from, you know, two people to 100 plus, uh, you know, multiple offices. We're in, uh, CrossChx is in 30 plus states now, uh-

Tim Fulton 7:34And so what is CrossChx?

Brad Masco 7:36Yeah. So, you know, CrossChx is creating what we say the internet of healthcare.

Tim Fulton 7:40Okay.

Brad Masco 7:40So basically when it comes to, uh, to healthcare, if you think of all the electronic medical record systems that are out there at all these hospitals, basically every hospital is its own silo.

Tim Fulton 7:50Okay.

Brad Masco 7:51So, uh, if you have a, you know, name the system, Epic, McKesson, Cerner, any of those, when you put it into your hospital, you're really keeping all those records for those patients in that one hospital. So if you, if you think of, uh, you know, by the time you're 30 years old, and you've probably seen two dozen doctors over the course of your life, maybe more-

Tim Fulton 8:11Mm-hmm

Brad Masco 8:11... uh, if you had to go out and get your medical records, it's a huge pain. Um-

Tim Fulton 8:16Okay

Brad Masco 8:16... and so if you think of it when you're healthy and you wanna do that, and then you think of it when you're not healthy and, uh, and when you need to get that information quickly, so.

Tim Fulton 8:25Right.

Brad Masco 8:26So the idea of CrossChx is there is a, there is a world where people can, can control all the l- all of those records themselves. Um, and you can have access to it on your phone. Uh, so CrossChx has a number of different products from a biometric product to a kiosk to a mobile app, uh, and now to an artificial intelligence product that helps the hospitals be a lot more efficient, so.

Tim Fulton 8:47And so is the customer for that the, the hospitals and the doctor's offices to be able to access these records, or?

Brad Masco 8:55Yeah, that's, th- that's right. So the, so the, the customer is a hospital, but, you know, ultimately it's up to the patient to use it.

Tim Fulton 9:02Okay.

Brad Masco 9:03And so, uh, so we kinda serve both, both sides there. So there's over 1,000 different medical, uh, sites that use CrossChx, and over 10 million patients that have gone through the system. So, uh, you know, we're-

Tim Fulton 9:15This is similar to like a patient portal.

Brad Masco 9:18Mm-hmm.

Tim Fulton 9:18Like when I leave the pediatrician's office, I get a summation of, "Here's what y- we found about your daughter."

Brad Masco 9:24Yeah, exactly.

Tim Fulton 9:24Okay.

Brad Masco 9:24And so, you know, the, the idea is if you think of that medical form that you fill in every time you go to the doctor's office, it's, it's good information, but-

Tim Fulton 9:32Mm-hmm

Brad Masco 9:33... you have to fill it out every time. You do it fast, so you don't, you know, you don't do a complete job of it, and, you know, memories change and everything else. So, you know, the idea is it's 2017, that's not how you should be keeping your most important medical information. It's also not very secure to have that just kind of floating around that way, uh, and-

Tim Fulton 9:50Or sitting in a big cabinet of files behind-

Brad Masco 9:53Yep

Tim Fulton 9:53... the receptionist.

Brad Masco 9:53Yep.

Tim Fulton 9:53Right.

Brad Masco 9:54Exactly. Exactly.

Tim Fulton 9:55Is there some amount of compliance in your work in that... When was the Affordable Care Act passed?

Brad Masco 10:00Prior to, prior to us doing that, so-

Tim Fulton 10:02Okay

Brad Masco 10:03... um, uh, yes, there is-

Tim Fulton 10:04So i- is some of this a result of the Affordable Care Act in that medical records eventually are going to have to be digitized and shareable, and you guys are helping to provide that compliance?

Brad Masco 10:14Yeah. It actually goes even further back to HIPAA-

Tim Fulton 10:16Okay

Brad Masco 10:17... uh, which, uh, was 1996.

Tim Fulton 10:19Mm-hmm.

Brad Masco 10:19Uh, the Health Information and Portability Act. So the, the idea is that, you know, it, it was good intentions when HIPAA was put into place. Uh, I think to some extent, uh, people have taken that to, to the extreme on one side on security, uh, and can also be very lax at the same time.

Tim Fulton 10:37Mm-hmm.

Brad Masco 10:37So, you know, they kind of interpret it, everyone interprets it how they want to. But, uh, you know, really, we think HIPAA is enabling to a technology like this. The, the ultimate, uh, intention of HIPAA was for people to be able to have that information and make it portable.

Tim Fulton 10:53Okay.

Brad Masco 10:53Uh, so, you know, back then you were talking paper medical forms. You weren't dealing with a lot of electronic health records.

Tim Fulton 10:59Mm-hmm.

Brad Masco 10:59And then over the last decade or so, the federal government put billions of dollars into, uh, hospitals all over the country, doctor's offices, to be able to go out and subsidize and buy EHR systems. Um, the great-

Tim Fulton 11:12Electronic health records

Brad Masco 11:13... electronic health records.

Tim Fulton 11:14Okay.

Brad Masco 11:14The great thing that happened with that is you got a much more digital, uh, health picture.

Tim Fulton 11:20Mm-hmm.

Brad Masco 11:20Uh, the bad thing that happened with that is because there was good competition around it, you created, you know, 500 plus EHR systems out there.

Tim Fulton 11:27Got it.

Brad Masco 11:28Uh, and so that's why, you know, name a hospital, it has its own version of a electronic health record. It has its own database. It has its own information that it's storing there. So even though it's become digital, it still, uh, is missing-

Tim Fulton 11:43It's siloed

Brad Masco 11:43... the piece. Yeah.

Tim Fulton 11:44Right.

Brad Masco 11:44It's still missing that portability, so it's still siloed.

Tim Fulton 11:46And so you guys are providing essentially, for lack of a better term, the integration solution for those systems to talk to each other if they are with CrossChx, basically.

Brad Masco 11:56That's right. That's right. Yeah. So we created... We always thought of it as piping. Uh-

Tim Fulton 12:00Okay

Brad Masco 12:00... so if you're gonna build the internet, you're gonna have to create those servers out there, and, uh, you're gonna have to create that infrastructure.

Tim Fulton 12:08Mm-hmm.

Brad Masco 12:08Uh, and so that's really what CrossChx spent a lot of time on, was creating a nationwide infrastructure, both the databases that we have and the algorithms that we built, but also just kinda that piping so that we could tap into any one of these hospitals and, and help them move records.

Tim Fulton 12:25Gotcha. There's your overview of what CrossChx-

Brad Masco 12:27Sure

Tim Fulton 12:27... does. Let's talk about what was it like when you guys were getting going, first of all, defining the amount of money that you needed, and then what was that process like, and what did, what did you learn along the way? 'Cause you hadn't gone through that process 'cause you were in essentially politics before, right?

Brad Masco 12:42Right.

Tim Fulton 12:42Okay. First of all, how did you set out to define what, what's that number we need to get going?

Brad Masco 12:47Sure. Yeah. It's iterative. You learn throughout this entire process.

Tim Fulton 12:51Okay.

Brad Masco 12:51And, uh, so my partner, Sean, and I, uh, neither of us had raised money before. Um, he had bootstrapped his company. Uh, I was in, uh, I was in politics.

Tim Fulton 13:00Correct me if I'm wrong, but he was in, like, a government c- ... contractor sort of company was what he was doing before?

Brad Masco 13:05Yeah, so w- uh, when he was in the Air Force, he w- was a, uh, he was assigned to the NSA.

Tim Fulton 13:11Mm-hmm.

Brad Masco 13:11And as part of the NSA, they built a, uh, a wireless, uh, network basically, and so they would... If you think of a big cellphone tower, they took a cellphone tower and shrunk it down into a box-

Tim Fulton 13:21Mm-hmm

Brad Masco 13:22... that you could basically, basically put on a Humvee, and then they created the software so that they could move that around anywhere in Iraq and Afghanistan. So, so when he created a company when he got outside of the, uh, the NSA and the Air Force-

Tim Fulton 13:34Mm-hmm

Brad Masco 13:35... it was a software services company back into the government basically to, uh, to kind of run that software and maintain everything that they were building, so.

Tim Fulton 13:43Gotcha.

Brad Masco 13:44So we both had a, had a government connection.

Tim Fulton 13:47Okay.

Brad Masco 13:47Him from the military and DOD side, and myself from the political side. Uh, and so when we decided to start CrossChecks, neither of us had any experience with venture capital.

Tim Fulton 13:58Uh-huh.

Brad Masco 13:59Um, it was a foreign concept to us, so we had a very unique way that we ended up getting the initial funding for the company, which was, uh, uh, some grant funding that we got from the state.

Tim Fulton 14:10Okay. Of Ohio?

Brad Masco 14:12Yeah, from the-

Tim Fulton 14:12Okay

Brad Masco 14:12... state of Ohio. They actually wrote a, wrote a pilot project for our, uh, for a first customer. Um, and then the first customer also did a seed investment on top of that. So that got us basically, you know, call it eight or nine months worth of burn, worth of, worth of what we were gonna need to, to kick the company off. And that took us about three months to go through that process. We at no point knew whether or not people would even use the product. Um, you know-

Tim Fulton 14:38I mean, you hoped, you hoped they would.

Brad Masco 14:40We hoped they would. That's right, yeah. No, but, you know, there's good lessons in how not to get ahead of yourself on a, on a product side too-

Tim Fulton 14:47Right

Brad Masco 14:47... um, as we launched that and as we, uh, got it out there. And then, and we were fortunate then to, to, to meet some folks here, um, locally in Columbus, um, Mark Quamme, uh, who had just started Drive Capital-

Tim Fulton 15:02Mm-hmm

Brad Masco 15:02... and his partner Chris Olsen, um, uh, met with us and kind of saw where we were at from a very early traction standpoint, and they saw big opportunity out of that-

Tim Fulton 15:12Mm-hmm

Brad Masco 15:12... for the, for the company to make a big impact. They were very forward-thinking in, in, in what we were gonna be able to do with CrossChecks. And, uh, so from that point, they were our first real investor. They did our, what's called our Series A.

Tim Fulton 15:25Okay. So from, let's say the moment that you guys founded the company to that grant-

Brad Masco 15:31Mm-hmm

Tim Fulton 15:31... from the state of Ohio, about how long was that?

Brad Masco 15:34Uh, so it was about three months, uh-

Tim Fulton 15:36Okay. That's fast

Brad Masco 15:37... maybe four months. Yeah, it was, it was actually pretty fast. I mean, we, uh-

Tim Fulton 15:40How did that happen? How did you... Y- you had some connections having been in politics. You reached out to some people you knew, and you said, "Hey, we have this idea. Can you help us out?"

Brad Masco 15:50Yeah. We completely tripped into it really.

Tim Fulton 15:53Okay.

Brad Masco 15:54Uh, we, Sean and I had started coming back to Ohio. Um, uh, again, I was in Virginia. He was in, in, uh, Maryland.

Tim Fulton 16:00Mm-hmm.

Brad Masco 16:01We came back and spent some time. We were gonna take a week. We're both Miami grads, so we were gonna take a week and go down to Miami. And, and in that first, uh, you know, kind of trip back here, we, we met with some folks. Uh, he had a, you know, network of folks and so did I, and we just started to talk to people about some of the ideas we had for creating a business. And one of 'em, we had every, every idea... I mentioned the other day, one of our, one of the ideas was a chopped salad restaurant. So, uh, you know, it had every, uh-

Tim Fulton 16:29Okay

Brad Masco 16:29... there were probably a half dozen ideas for what we, what we wanted to do together. Um-

Tim Fulton 16:33Okay. You j- you guys just knew at the core that you wanted to work together.

Brad Masco 16:37Yeah.

Tim Fulton 16:37Okay.

Brad Masco 16:37Yeah. And really what we had with, uh, CrossChecks, um, it was the initial concept of CrossChecks was because Sean had put a, uh, a office of his software firm in Gallipolis.

Tim Fulton 16:49Mm-hmm.

Brad Masco 16:50And being from Gallipolis, uh, Sean's from Gallipolis, we knew, uh, and trying to hire people there, we knew that, uh, how bad prescription drug abuse was.

Tim Fulton 16:59Okay.

Brad Masco 17:00Uh, and so that was the initial concept of the company was, uh, we, we didn't, we, we didn't set out to start a company. We set out because we knew that there was a problem with opiates and prescription drug abuse. And we said-

Tim Fulton 17:11Okay

Brad Masco 17:11... "We would love to find a way to stop, stop doctor shopping," and that's how we started the idea of CrossChecks, and that's what our initial conversations were, where we just said, "We believe there's a way to, uh, to combat doctor shopping"-

Tim Fulton 17:24Okay

Brad Masco 17:25... uh, and to make it-

Tim Fulton 17:25Well, and what your artificial intelligence product is, is that. It's a predictive system that allows doctors to sort of be able to tell these records are too similar. This is probably the same person getting pills, right?

Brad Masco 17:39Yeah. That, that's, th- that has a, that has a piece of it, yeah.

Tim Fulton 17:41Okay.

Brad Masco 17:42And that's now where healthcare is going, and the, again, the more that you take that network that you've built and the more that you can learn from that-

Tim Fulton 17:50Mm-hmm

Brad Masco 17:50... um, you know, we've had 10 million patients come through our system, but we have 70 million medical records that, uh, that are in the hospitals and a, and, and a part of our network.

Tim Fulton 17:59Okay.

Brad Masco 18:00So we get to learn a lot from that. Uh, so now y- now you can see... And, and early on when we said we were gonna look at doctor shopping, what we realized as we got into the hospitals and as we had our first customer and we did a pilot with them-

Tim Fulton 18:14Mm-hmm

Brad Masco 18:14... what we realized looking at that was, uh, this problem, doctor shopping is, is one piece of the problem, and it really comes down to not knowing who the patients are and not being able to identify them and understand-

Tim Fulton 18:26Right

Brad Masco 18:26... when a person is taking, you know, multiple conflicting prescriptions or if they're going to different ERs to, to get, uh, you know, quick opiate prescriptions, that sort of thing. So it really came down to not knowing who a patient was. So-

Tim Fulton 18:37Right

Brad Masco 18:38... that became the bigger concept of, of CrossChecks, um, which was how w- how we were able to go into the world where we would need venture capital-

Tim Fulton 18:47Mm-hmm

Brad Masco 18:47... because w- in order to build out that network, we were gonna, it was gonna require a lot of capital-

Tim Fulton 18:53Right

Brad Masco 18:53... to, to build that out nationwide.

Tim Fulton 18:55So talk about that vetting process that you had to go through with... Drive was an investor, right?

Brad Masco 19:00Yeah.

Tim Fulton 19:00Okay.

Brad Masco 19:00So they were... So Drive did our Series A investment.

Tim Fulton 19:03Okay.

Brad Masco 19:03Um, they've done every investment, you know, been a part of it since then. But they were our first investor, so we m- met with them early on. And again- Two people that didn't know anything about venture capital at that point, so-

Tim Fulton 19:15Right

Brad Masco 19:15... uh, I've shown people our 45-slide pitch deck, uh which is, which is probably 35 slides too many, uh- So, you know, full of numbers and, uh, and wild ideas of, of what this market could look like.

Tim Fulton 19:31Mm-hmm.

Brad Masco 19:31Um, somehow Mark and Chris were able to see through that and understand that with a, uh, a relatively small investment, they, that we could create this network, this, you know, kind of foundational network that we needed to, to start CrossCheck, so.

Tim Fulton 19:45Knowing what you know now, for the aspiring entrepreneurs listening, what should that pitch deck have had? And what messages should you have been trying to communicate?

Brad Masco 19:57Yeah.

Tim Fulton 19:57And frankly, what should you have left off?

Brad Masco 20:00Man, I'd have to go through a lot of slides. So, you know, I think, um, we made a lot of guesses, and, and the good thing was because we didn't come to it having done this before-

Tim Fulton 20:11Mm-hmm

Brad Masco 20:12... we were, um, we were pretty transparent that we didn't know what we were doing-

Tim Fulton 20:16Okay

Brad Masco 20:16... uh, when it came to those decks, and-

Tim Fulton 20:17Do you think your naivety was cute, or like-

Brad Masco 20:20You know, I think it actually helped. Um-

Tim Fulton 20:22It charmed them a bit.

Brad Masco 20:23Yeah.

Tim Fulton 20:23Okay.

Brad Masco 20:23Yeah. Uh, um, you know, maybe we're charming people, I don't know.

Tim Fulton 20:26I, I would imagine that, being in politics.

Brad Masco 20:28But, you know, I think, uh, I think it helped that we were able to say, "Listen, we don't, we don't know entirely, but we know that, we know that there is a, there is a world where people should be able to have this, um, this technology, and we don't know what the right dollar amount is for it. We don't, you know..." But we could guess what it was gonna cost to build it. We didn't know what the total market was gonna be, and-

Tim Fulton 20:50Mm-hmm

Brad Masco 20:50... but we had done some things very early on to make sure that the product that we would get, you could answer some of the very early questions. Are people gonna use it? Do people want this? Um, something that I think a lot of people when they're, when they're thinking about this, they probably jump way too many steps ahead, um-

Tim Fulton 21:07Right. Well, 'cause you wanted to make sure you were crossing all your T's and dotting all your I's so that you were, 'cause you knew that you were going to need the investment, and just making sure that you continued to be in that position ready to take it.

Brad Masco 21:18Yeah.

Tim Fulton 21:18You guys intended on moving back to Ohio, right?

Brad Masco 21:21Yeah.

Tim Fulton 21:22Okay. It wasn't just like you were gonna be here for a week at Miami to party.

Brad Masco 21:25You know, I, we only intended on it at the end when we-

Tim Fulton 21:28Okay

Brad Masco 21:28... realized, um, you know, up until then, so we did the first week and had conversations and said, "Boy, these went pretty well," so.

Tim Fulton 21:35Better than expected, right.

Brad Masco 21:36Yeah, let's do this again. And, and again and again, and it just, you know, week after week we kept coming here. You know, we both had families out on the East Coast, and we came here and talked to anyone we could talk to, basically. Um-

Tim Fulton 21:47What was the perception of the venture capital scene in Ohio that you got on the East Coast? What is the perception, and what's the difference?

Brad Masco 21:54You know, honestly, I couldn't even say because we didn't know, we didn't know anything about it, so we weren't having that initial conversation.

Tim Fulton 22:02Okay.

Brad Masco 22:02We were talking to folks in the government because we didn't, we didn't know anything about venture capital-

Tim Fulton 22:07Okay

Brad Masco 22:07... so we wouldn't even know who to tap into. We didn't, you know, we didn't know about groups out there that we could, uh, start asking questions-

Tim Fulton 22:14Mm-hmm

Brad Masco 22:14... of. Uh, we just, we came back and started talking to anyone who could be a, a customer, anyone who could be, uh, an advocate, you know, an, an, an, an ally or, or an enemy, uh, and just trying to understand what their, what their reaction would be to what we wanted to do from a, you know, marketplace perspective.

Tim Fulton 22:35Gotcha. Fallon, can you talk about sort of the structure of Venture Ohio? Is it a membership-based organization? Is it an advocacy role? Is it a networking? What boxes do you have to check each quarter?

Fallon Donahue 22:47It is all of those things.

Tim Fulton 22:48Okay.

Fallon Donahue 22:49Yeah. Venture Ohio's in its third year. Um, it was founded to provide a unified voice for venture capitalists-

Tim Fulton 22:56Okay

Fallon Donahue 22:56... in the beginning. Uh, since then, you know, we've grown to include voices from entrepreneurs, from service providers who help build the entrepreneurial ecosystem, and also of course the angel investors and, and venture capitalists as well.

Tim Fulton 23:10Okay.

Fallon Donahue 23:11So, a big component of what we do is collaboration. It's our role to ensure-

Tim Fulton 23:14So that's the networking events.

Fallon Donahue 23:16Yeah.

Tim Fulton 23:16Okay.

Fallon Donahue 23:17Yeah. It's our role to ensure that everyone who should meet each other has the opportunity to.

Tim Fulton 23:21Okay.

Fallon Donahue 23:22So that's part of our next gen group. It's part of these quarterly meetups we have. We have a big annual event called the Venture Dinner where we celebrate entrepreneurship, give out awards for the top, uh, companies in early stage, seed stage, growth stage. We give out, um, an Entrepreneur of the Year Award.

Tim Fulton 23:36Okay.

Fallon Donahue 23:37So it's just an opportunity to bring everybody together, and also to bring people from around the country, really around the world, who have an interest in Ohio VC and Ohio entrepreneurship to come here and take a look at what we're building.

Tim Fulton 23:50You guys receive your funding from your members-

Fallon Donahue 23:52We do, yeah

Tim Fulton 23:52... from the state.

Fallon Donahue 23:53It's all private.

Tim Fulton 23:54Okay.

Fallon Donahue 23:54It's members and sponsors.

Tim Fulton 23:56Okay.

Fallon Donahue 23:56You know, and so in addition to that, you know, advocacy is a big part of what we do. Really at the end of the day, our goal is to increase the amount of capital being invested into Ohio companies year over year. So there are a lot of ways to accomplish that goal. Um, one way to, uh, increase access to capital is to change the investor laws that stunt startup growth.

Tim Fulton 24:16Okay.

Fallon Donahue 24:16So we spent, uh, some time in DC a couple of weeks ago talking to senators about entrepreneurship in Ohio and the Midwest, and some of the investor laws that are impacting growth of entrepreneurship and, and venture capital in the Midwest.

Tim Fulton 24:30Can you give an example of that, a national law that somehow adversely affects Ohio?

Fallon Donahue 24:34Sure. So, um, Dodd-Frank is a great example of this.

Tim Fulton 24:38Okay.

Fallon Donahue 24:38A piece of Dodd-Frank's called the Volcker Rule, and while it's a great rule and there are a lot of reasons why it should be in place, uh, what we're advocating for is just a different interpretation of the law, because it says that financial institutions can't invest in venture capital funds.

Tim Fulton 24:52Mm-hmm.

Fallon Donahue 24:53And so that had a really harmful effect on venture capital in Ohio. On the coasts, they've been doing this for a lot longer than we have-

Tim Fulton 25:02Mm-hmm

Fallon Donahue 25:02... and their LP set is very diverse. They have a lot of sources of capital for venture capital funds around-

Tim Fulton 25:08LP?

Fallon Donahue 25:08... the coast. Uh, limited partners.

Tim Fulton 25:10Got it.

Fallon Donahue 25:10Uh, organizations and peoples who, people who invest in venture capital funds.

Tim Fulton 25:14And so what you're saying is the coasts have the virtue of having these long-established firms-

Fallon Donahue 25:19Mm-hmm

Tim Fulton 25:20... but also having, and we keep throwing it out, angel investors, wealthy individuals who invest, but also mentor to an extent companies that they invest in that tend to be at, like, the startup/early stage. Is that fair?

Fallon Donahue 25:34Yeah, for sure.

Tim Fulton 25:35Okay.

Fallon Donahue 25:36But specifically, you know, regarding the Volcker Rule, when banks were no longer able to invest in venture capital funds in Ohio-

Tim Fulton 25:43Mm-hmm

Fallon Donahue 25:44... that hit Ohio VC pretty hard-

Tim Fulton 25:46Okay

Fallon Donahue 25:47... because banks were a major investor in Ohio funds, and they were often the first investor in an Ohio venture capital fund. If you think about it, banks have the ability to conduct due diligence on these venture funds that perhaps an individual doesn't have the time or the resources to conduct that due diligence.

Tim Fulton 26:03Well, that's what they do. I mean-

Fallon Donahue 26:05It's what they do

Tim Fulton 26:05... that's how they give mortgages.

Fallon Donahue 26:07Exactly.

Tim Fulton 26:08Right.

Fallon Donahue 26:08So when a bank puts their seal of approval on a venture capital fund, it's much easier for that VC then to raise the remainder of their fund because, uh, a major financial institution has said, "We think this is, uh, a great investment opportunity. Now you can go out and raise the remainder of your fund from individuals, foundations, corporations, et cetera."

Tim Fulton 26:26And I think it is important here to note that the intention of the Volcker Rule is to reduce risk.

Fallon Donahue 26:32Right.

Tim Fulton 26:32Totally understandable. However, you're making the argument that banks have the ability to identify and mitigate that risk.

Fallon Donahue 26:40Right. No bank has gone under from making an investment in a venture capital fund. So when these venture capital funds weren't able to get that first capital in and grow out their funds-

Tim Fulton 26:50Mm-hmm

Fallon Donahue 26:50... that had a harmful effect. Now, we've since recovered and, and are, you know, making tremendous strides toward a healthy venture capital ecosystem, healthy entrepreneurial ecosystem. Um-

Tim Fulton 26:59But it could be better.

Fallon Donahue 26:59But it could be better. It could be bigger.

Tim Fulton 27:02Now talk about, and I'm familiar with them a little bit just because of past work that I've done, but talk about those funds because that's now an- a whole nother avenue for companies, primarily growth stage companies, to get money, right?

Fallon Donahue 27:16Typically in the life cycle, your first capital is friends and family.

Tim Fulton 27:21Okay.

Fallon Donahue 27:21If, if you have friends and family, I guess- ... that have that kind of money. Next, you'd go to an angel investor, and these are individuals. Uh, Columbus actually boasts the second largest angel fund in the entire country. Uh, OTAF does an incredible job.

Tim Fulton 27:34The Ohio Tech Angel Fund.

Fallon Donahue 27:34It's Ohio Tech Angel Fund. Yeah.

Tim Fulton 27:36Right.

Fallon Donahue 27:36And angel investors not only provide critical financial capital, they also provide mentorship, guidance, helping these entrepreneurs see around the corner. They can provide strategic introductions to their first customers or other-

Tim Fulton 27:49Mm-hmm

Fallon Donahue 27:49... mentors. So they're a really critical component of the entrepreneurial ecosystem.

Tim Fulton 27:53Well, and it should be noted there they have a vested interest in the success of the company that they've-

Fallon Donahue 27:57Absolutely

Tim Fulton 27:57... put money towards. Right.

Fallon Donahue 27:58Absolutely. The angel investors help these companies, help the entrepreneurs grow to the point where they'll need venture capital, and that's larger sums of money. Uh, some of the major funds in Columbus are NCT, Drive Capital, and Rev1.

Tim Fulton 28:12Mm-hmm.

Fallon Donahue 28:13The venture capital funds then are, are similar to angel investors in that they provide strategic guidance and financial capital. The main difference being angel investors are investing their own money.

Tim Fulton 28:25Mm-hmm.

Fallon Donahue 28:25Venture capitalists are investing out of the fund that they've raised.

Tim Fulton 28:28Is it fair to say that a venture capital firm is essentially managing just a venture capital fund?

Fallon Donahue 28:36Yes.

Tim Fulton 28:36Okay. We wanna make sure we're getting all the terms out and-

Fallon Donahue 28:38Yep

Tim Fulton 28:39... making sure everybody knows what we're talking about, basically. Talk about the types of industries that have been successful in Ohio.

Fallon Donahue 28:47Well, Ohio is very uniquely positioned in this next wave of technology and entrepreneurship. If you think about companies that have found success over the last 10 years or so, your, your LinkedIn, Facebook, Twitter, you were able to successfully scale these companies without any interference from existing industries, without needing to work with politicians. There was no disruption of an industry in order to make these companies grow in scale. You could create Facebook from your dorm room.

Tim Fulton 29:14Mm-hmm.

Fallon Donahue 29:15The next phase of entrepreneurship will likely be focused on disrupting existing industries, so CrossChx is a great example of that. CoverMyMeds is a great example of that.

Tim Fulton 29:26Mm-hmm.

Fallon Donahue 29:26So Ohio entrepreneurs have a- having access to the hospital network, the universities, uh, in Columbus, having state government located here, and some US senators, you know, from Ohio who are, are leading the charge in, in innovation and entrepreneurship at the federal level. So you'll see healthcare, IT is a, is a strong emerging, uh, industry for entrepreneurship in Ohio. I think fintech is certainly one that's emerging as well. And you see the, the launch of the Fintech 71 accelerator.

Tim Fulton 29:56Mm-hmm.

Fallon Donahue 29:57And then in Columbus, of course, Smart Cities is kind of the, the giant here in town.

Tim Fulton 30:01Mm-hmm.

Fallon Donahue 30:02You have the, the Columbus Partnership and everyone working together to, to bring that win here to Columbus. I think we're gonna see a lot of companies launching in that space.

Tim Fulton 30:09Great. You had noted in your report, I think, that while the coasts have the internet, Ohio has the things.

Fallon Donahue 30:17I did note that, but to, to just be honest, that's Mark's phase. I did steal that from Mark Kwame.

Tim Fulton 30:22Okay.

Fallon Donahue 30:22But we liked it a lot.

Tim Fulton 30:24Got it. That's fair. Brad, back to you. What advice would you give to an entrepreneur who is where you and Sean were when you were starting CrossChx?

Brad Masco 30:33It's a good question. You know, I think there's a lot of different things that we would do the same and that we would do differently, and I think, uh, being reflective now on what we... how we set up CrossChx, I think there were... We got very lucky on a lot of things.

Tim Fulton 30:46Mm-hmm.

Brad Masco 30:46And, uh, you know, in talking with other entrepreneurs, you know, I certainly spend a lot of time talking with them about what their first products are like, what they look like, how, uh, how they, how they can do it with the, the least cost, uh-

Tim Fulton 30:59Mm-hmm

Brad Masco 30:59... so that you can get your company off of the ground with friends and family and a angel investment, and understanding the stages that a company has to go through. I mean, it, you know, you're not gonna start off as LinkedIn today or Facebook today. You have to-

Tim Fulton 31:14Mm-hmm

Brad Masco 31:14... you know, and they didn't start off that way.

Tim Fulton 31:15Right.

Brad Masco 31:16So you have to understand the history of a company, and you have to understand that, that you have to, you have to crawl before you walk, before you run.

Tim Fulton 31:22Mm-hmm.

Brad Masco 31:23So CrossChx certainly went through that. We went through stages of growth from, you know, two people to 10 people to 30 people to 100 people. Uh, and, and all throughout that, the products changed. The needs of the company changed. The, what we needed from a venture capital side changed. It changed how we had to get venture capital. Uh, you know, it's, uh, Ohio, we've, we've been able to, uh, raise significant amount of investment. Uh-

Tim Fulton 31:51Mm-hmm

Brad Masco 31:52... you know, north of $40 million now. But we had to go to California to do some of that. We had to go to Texas to do some of that. And I think there are good lessons in how to do a fund raise, and I think there are also good lessons in how, as an investment community, we can support entrepreneurs here in a way that makes it easier so that they can anticipate some of, some of what they're gonna have to do to go through-

Tim Fulton 32:15Mm-hmm

Brad Masco 32:15... to get those investments, and also to be able to do as much of that investment here as you can because any time we did a, a, a round of capital, it's a multi-month process.

Tim Fulton 32:26Right.

Brad Masco 32:26It meant moving to California for, you know, four to six weeks. Uh-

Tim Fulton 32:31Okay

Brad Masco 32:32... it's very, it's a, it, it's a, it's a big distraction to go through that, so.

Tim Fulton 32:35Well, 'cause you're supposed to still be running a company too.

Brad Masco 32:37That's right. That's right. Yeah.

Tim Fulton 32:39Right?

Brad Masco 32:39So, you know, y- I, I tell people not to glorify what it looks like because, you know, this is, it's, it's, it's-

Tim Fulton 32:45It's a grind

Brad Masco 32:46... it is a grind.

Tim Fulton 32:47Right.

Brad Masco 32:47It's a real deal. You're building companies and, um, you know, I think sometimes- Uh, you read a blog post about how everything goes great. Well, it doesn't go great. You know, business is- doesn't come in a straight line, so.

Tim Fulton 32:57Right.

Brad Masco 32:58Uh, so I think it's important for people to understand and to anticipate what some of those hiccups are gonna be and how hard it's gonna be to go through that. But that's not to tell them not to do it.

Tim Fulton 33:07Right.

Brad Masco 33:07It's to tell them, you know, how to, how to anticipate and plan for that. And here in Ohio, as you look at the venture capital world and you look at what opportunity is there for companies and what opportunity we, you know, we hope is coming here so that people can continue to raise the rounds of capital that they need to be able to grow their c- grow their companies.

Tim Fulton 33:26Right. What I hear you saying a lot is sort of, you know, make sure that you have all of your ducks in a row, but make sure that you're ready to change those ducks' direction as well as the company's evolving an- and depending on the need of the funding that you are trying to get as well.

Brad Masco 33:40Yeah, exactly. I w- Mark, Kwame, and Chris would, um... They told us something really early on that actually, um, was-

Tim Fulton 33:47Guides you still.

Brad Masco 33:48Very true, yeah.

Tim Fulton 33:49Okay.

Brad Masco 33:49Um, we called it the rules of ones to threes, and the idea was whatever you do at one is gonna be broken by three. So if it's one customer, the processes that you use to get one customer to go to three is gonna break.

Tim Fulton 34:02Okay.

Brad Masco 34:02Um, if it's, uh, if it's one employee to three, your process is gonna break. From, you know, one to three to 10 to 3,100. Roughly in those, uh, in those phases we saw it. You know, CrossChx grew to 100-plus employees, and at every point of that something breaks.

Tim Fulton 34:18Mm-hmm.

Brad Masco 34:18Uh, w- you know, whether it's we grew from one state to 30 states, um, your processes break as you do that.

Tim Fulton 34:24Right.

Brad Masco 34:25So, you know, I think it's, it, the, it's natural. It's just a matter of knowing you don't have everything figured out throughout that early, early on you can't do everything for one customer or one employee or one state that you are gonna need to do at 30, and you just have to anticipate it.

Tim Fulton 34:41Mm-hmm. Falyn, would you... Because I imagine a lot of our audience would put themselves into the mindset of an aspiring entrepreneur rather than an aspiring venture capital associate, are there mentorship opportunities within either your group or within Ohio or, frankly, within Columbus that people can reach out to in order to learn about these processes, learn about the growth stages of a company, even understand what an exit means and, and how that should go? What are those resources?

Fallon Donahue 35:12I would say the network in Columbus is growing every day, and I would encourage Columbus entrepreneurs or entrepreneurs-to-be to look outside of Columbus as well-

Tim Fulton 35:20Mm-hmm

Fallon Donahue 35:20... and take advantage of the great resources in Cleveland and Cincinnati, and even get out to New York and Silicon Valley and Chicago and, and learn from people outside of the city. Uh, Columbus is full of brilliant entrepreneurs who have been there, done that, and every one of them is more than willing to give back, so that's very unique about this city as well. Uh, some examples, you know, we're here in the Idea Foundry right now.

Tim Fulton 35:41Mm-hmm.

Fallon Donahue 35:41This is a great place just to be, just to hang out. I think there's a lot to learn just from being in the space. There's a lot of people coming through here and a lot of, uh, really cool program at Idea Foundry. Rev1 is also a great resource. Regardless if you are, you know, they invest in your company or you're part of their network, you can still get a lot of great mentorship and advice through their, uh, expert network.

Tim Fulton 36:01Mm-hmm.

Fallon Donahue 36:02There are a lot of great events happening throughout Columbus as well. Startup Grind is fantastic. Startup Weekend is a really great place to start if you are brand new to the entrepreneurial ecosystem. You spend about 48 hours learning how to build a company.

Tim Fulton 36:15Mm-hmm.

Fallon Donahue 36:15In the meantime, you get access to a great network of mentors. There are a lot of people floating around. Uh, I believe the next one is the end of June at Idea Foundry-

Tim Fulton 36:24Mm-hmm

Fallon Donahue 36:24... uh, for the Maker Edition. You've got access to a great mentor network, and you've got access to a great group of people who share your interest. So it's a great place to meet your future co-founder as well.

Tim Fulton 36:34And just a last question. What do you think Ohio specifically and, and the community here can do better? Where are the opportunities?

Fallon Donahue 36:42You know, there's always opportunity. I would say one of the low-hanging fruits is just change the way we talk about ourselves.

Tim Fulton 36:48Mm-hmm.

Fallon Donahue 36:49Columbus is awesome. It's a city on the rise. It's, it's really an amazing place to be. I personally w- can't think of anywhere else I'd wanna be during this time. It's a great place to start a company, it's a great place to live, and I would say that about Ohio in general. So changing the way that we view ourselves. If we don't change the way we talk about ourselves, the way we view ourselves, no one else will.

Tim Fulton 37:12Right.

Fallon Donahue 37:12So stop talking about how cheap it is to live here. "It's a great place to start a business because it's cheap." No, it's a great place to start a business because there's access to incredible talent.

Tim Fulton 37:21Mm-hmm.

Fallon Donahue 37:22There's access to first customers. We have a great corporate base, and we have a great network of mentors, from the CEOs of the Fortune 500 companies to people like Rich and Mark and the other entrepreneurs and venture capitalists in Columbus who are willing to roll up their sleeves and get in the trenches with you and help you be successful.

Tim Fulton 37:39Great.

Brad Masco 37:40One thing I'd add to that is CrossChx has gone through multiple rounds of, uh, fundraising. And so when we did our... We, we've now raised a C round. When we d- when we did our B round we were about 30 people, and at that point we went out to California to, you know, start our fund raise and get it priced and everything. And as we did that, we had a lot of venture capitalists out there that, uh, that thought that we wouldn't be able to scale CrossChx to the size that we needed in Ohio. So-

Tim Fulton 38:08Oh, okay

Brad Masco 38:09... um, so we were, we were offered deals, but the requirement of the deal was we were gonna have to move to California.

Tim Fulton 38:15That was a contingency of it.

Brad Masco 38:16That was a contingency.

Tim Fulton 38:17Okay.

Brad Masco 38:17And, uh, and we disagreed. Uh, we firmly disagreed. We-

Tim Fulton 38:22What was their reasoning?

Brad Masco 38:23Their reasoning was that they didn't, uh, they really didn't think we would get the talent that we needed here.

Tim Fulton 38:27Okay.

Brad Masco 38:28And they didn't think that... They thought that we needed the tutelage that they would give us at XYZ venture capital firm-

Tim Fulton 38:35Right

Brad Masco 38:35... in California versus what we got here in the Midwest. And again, we just, we disagreed. We knew that we couldn't get to, we can get to the customers that we need to here. Uh, we are logistically and operationally in a really good space.

Tim Fulton 38:50Mm-hmm.

Brad Masco 38:50Um, we have access to fantastic talent. I mean, we've, you know, we've hired 100 people, uh, you know, plus 25% of our workforce we've hired from other states and brought into Columbus.

Tim Fulton 39:01Mm-hmm.

Brad Masco 39:02Uh, so we've been able to be a, an attractant and a, and a draw to talent.

Tim Fulton 39:06Mm-hmm.

Brad Masco 39:06But there is amazing talent here, and there's amazing, uh, you know, smart people coming out of universities in Ohio, universities all around the Midwest that we were able to tap into. So we knew that wasn't true. And, you know, to Falyn's point, you know, when people talk about Columbus as, or Ohio or the Midwest and say that it's cheap, that's such a surface answer-

Tim Fulton 39:27Right

Brad Masco 39:28... for why to start a company here. That is not the reason to start a company here. That's a added benefit of the fact that sure, you can get an office for less than you would pay in San Francisco.

Tim Fulton 39:39Right.

Brad Masco 39:39But that's not the reason why you start your companies here. You start it here because of the people you find, the talent, the work ethic, the access to customers. You know, it's a fantastic place to start a company and, you know, I know that because we started one here, and I know, uh, I'm confident it would not have, uh, gotten to the, to the place that it did if we tried to do that anywhere other than Ohio.

Tim Fulton 40:05Great. Brad, Falyn, thank you.

Fallon Donahue 40:08Thank you so much.

Brad Masco 40:10Thanks.

Tim Fulton 40:17Thank you for listening to the Confluence Cast presented by Columbus Underground. Again, you can get more information on what we discussed today in the show notes for this episode at theconfluencecast.com. Please rate, subscribe, share this episode of the Confluence Cast with your friends, family, contacts, enemies, your favorite angel investor. If you're interested in sponsoring the Confluence Cast, get in touch with us. We can be reached by email at info@theconfluencecast.com. Our theme music was composed by Benji Robinson. I'm your host, Tim Fulton. Have a great week.