State of Technology in Cleveland “Ready for Impressive Growth” Ohio Venture Association April 11, 2005

State of the Industry

“The Cleveland Tech Industry” According to NEOSA and TeamNEO, the Cleveland area tech-based community now includes 2,800 companies. Employees nearly 11,000 individuals. Enjoys $1.0B in revenues. Second fastest growing industry segment in Cleveland, behind health-care. Deep knowledge in software development, medical devices, biotech, MEMS, fuel cells, SEO, ICE and satellite systems, disaster recovery, managed security.

“The Cleveland Tech Industry” Concerns with the industry. –On average each Company has four employees and enjoys $357,000 in revenue. –Geographic dispersion. –Additional management/technical talent. –Continuum of capital. –Short-term liquidity.

“No Successes for Cleveland?” Third Frontier Action Fund –Cleveland (1) - $13,896,436 (38.4%) Bio R&D Transfer Trust Fund –Cleveland (1) - $34,347,478 (43.0%) Wright Capital Funds –Biosciences (2) - $19,765,170 (27.2%) –Non-biosciences (1) - $18,000,000 (45.0%)

“No Successes for Cleveland?” Fuel Cell Initiative Awards –Cleveland (2) - $1,827,044 (23.4%) Validation Fund/Seed Fund Initiative –Cleveland (T1) - $2,500,000 (41.6%) Third Frontier Internship Program –Cleveland (3) - $920,100 (21.9%) Ohio Research Commercialization Grants –Cleveland (1) - $1,216,813 (58.2%) Innovation Revolving Loan Fund –Cleveland (1) - $2,254,439 (70.0%)

“No Successes for Cleveland?” Since the Creation of the Third Frontier in 2002, the State has awarded $244,027,866. –Cleveland’s Take: $85,763,210 (35.1%) –Estimated to be over $90.0MM by the end of 2005

“The Emergence of the Seed Funds.” JumpStart (2004) - $9.0MM Case Technology Ventures (2002) - $5.0MM Ohio Innovation Fund (1997) - $12.5MM Early Stage Partners (2002) - $44.0MM Draper Triangle Ventures (1999) – New Fund $40.0MM Fund for Our Economic Future (2004) - $30.0MM Mutual Capital Partners (2005) SB180 and OVCA

“The Emergence of the Seed Funds.” Tech community should work with Nortech, JumpStart, NEOSA and other agencies to aid in capital aggregation. Potential goal should be $500.0MM by 2010.

The Strategic Vision

“The Path to Follow….” Heavily Recruit Tech Companies to Cleveland and Nurture the Companies Already Established Aggregate Capital to the Cleveland’s Tech Industry Create a Spectrum of Entrepreneurial Education from ‘Grade School to Grad School’

Recruit/Nurture Aggregate Tech Companies in Downtown. Target: Euclid, East Ninth, Huron, Prospect, West Sixth, West Ninth. Target: Street Level Space with Signage. Target: Company with seasoning, employees from 10-50, success in generating revenue. Discount smaller, entrepreneurial companies: Absolutely Not.

Recruit/Nurture Set of incentives –Loan Programs –Tax Abatements –Employment Tax Rebate (Legislation) –Grant Options Potential/Considered Incentives –R&D Tax Credit –Patent Credit

Recruit/Nurture Centers of Excellence –Disaster Recovery/Business Continuity –Search Engine Optimization –MEMS –Fuel Cells –Medical Devices

Recruit/Nurture Scorecard –18 Companies (Two from outside region). –1 has signed lease, three others negotiating letters of intent. –Discussions on three Centers of Excellence.

Capital Aggregation Support Angel Fund Initiatives –Discussions with two groups to date. New Market Tax Credit Fund –Next allocation secure $150.0MM in NMTCs. –Use NMTCs as an incentive to invest in emerging growth companies within the City proper.

Capital Aggregation “Plug-and-Play” –City will co-invest with venture funds and private equity funds on a non-equity basis. –Use of low-interest loans, tax abatements, etc., to enhance viability of the transaction.

Capital Aggregation Potential/Considered Strategies –Line of Credit Issues – Solve the short- term liquidity problems of tech companies. –Line of Credit Guarantee –Venture Bank – Either recruit a VB or establish a partnership with various banks to establish a VB.

Education Create a spectrum of entrepreneurial empowerment/education and technical training. –City Tech Certification –Cleveland Municipal School System –Entrepreneurial Academy E-City

Education Create a spectrum of entrepreneurial empowerment/education and technical training. –Venture Capital Institute –CEO Forum –“The Red Room Meetings”

Final Thoughts “Success usually comes to those who are too busy to be looking for it.” –Henry David Thoreau

Thank You Michael C. DeAloia Senior Executive for Technology Development (O)