Venture Capital (VC) loves supporting fast-moving startups—mostly sexy digital endeavors that can turn a quick and hefty profit.
In contrast, physical product technologies have a much tougher time than startups in gaining traction in the VC world, notes Onas Bolton, founder of Cleveland chemical manufacturer Octet Scientific.
Octet, which develops additives for zinc-based batteries used in energy production, received federal grant funding upon its 2017 launch. Yet Bolton soon found that operating in a unique corner of manufacturing did not grab the attention of new investors—particularly in a larger marketplace that typically favors digital service providers on the coasts.
Onas Bolton, founder of Cleveland chemical manufacturer Octet Scientific.“The biggest challenge was lack of fundraising experience,” says Bolton, who is a veteran of the specialty chemicals industry with a PhD in materials science. “So much of the venture capital space is driven by software and the idea that you can move very fast with investors getting huge exits quickly.
“It’s like a lottery, and how fast you can exit on an idea,” adds Bolton. “Those lessons don’t translate to hard tech.”
Filling this critical gap is the Ohio-focused Advanced Manufacturing Fund, a multimillion-dollar seed fund for early-stage advanced manufacturing startups. The fund is an effort among the Manufacturing Advocacy and Growth Network (MAGNET), Cleveland business development service organization JumpStart, and a group of private stakeholders.
In its first iteration, the fund allocated $2 million to six companies in late 2021, including Bolton’s Octet Scientific. The other five companies are live streaming and wearable technology firm ActionStreamer; transportation, infrastructure, and construction solutions provider Asynt Solutions; SweatID, a developer of technologies that measure the user’s sodium concentration in real-time to develop a personalized hydration plan; Agile Ultrasonics; and food automation manufacturer Insitu.
In this second go-round, the AMF will double its total allocation to $4 million to accelerate the growth of early-stage manufacturing startups.
Ultimately, the AMF serves a dual purpose: Equipping entrepreneurs with crucial resources and cultivating an investment network specifically interested in hard product technologies.
“Physical product companies have larger capital needs than digital service businesses and have longer development times because they’re prototyping and modifying their products,” says MAGNET president and CEO Ethan Karp. “We’re creating a healthy pipeline across Northeast Ohio for this funding.”
A foundational technology
With an average allocation of $300,000 per business, the AMF’s structure in its initial round inherently limited the number of entrepreneurs it could support. Doubling the previous funding will bring even more businesses into the fold, says MAGNET board chairman Felix Brueck.
“The biggest thing we learned was that our original idea of investing about $100,000 per company to make a meaningful difference was wrong,” Brueck says. “It requires around a $300,000 investment for us to be of relevance and help shape a company.”
Investment from the AMF allowed Octet to expand its product suite to include chemicals for large-scale batteries used in wind and solar power.Octet’s AMF funding went mostly to product development and customer outreach, says founder Bolton. The startup originally hired interns for lab work, but the company recently brought on full-time technicians to test its products. The investment also allowed Octet to expand its product suite to include chemicals for large-scale batteries used in wind and solar power.
“People get excited about nimble markets like software, but making smart investments in energy is something we need as well,” Bolton says. “These are foundational technologies with a strong regional appeal. Hard product technologies take longer to get to market, but they’re a safe bet for the long term.”
Telling their story
Launched in 2022, the AMF grew out of MAGNET’s MSPIRE pitch competition, which similarly centers physical product startups. As the fund came into being, MAGNET asked investors to learn about the types of companies that need the most assistance. The clear solution was to open up another path for hard-tech entrepreneurs to compete.
“VCs dislike product and manufacturing startups because the capital requirements are high, and the time to get meaningful distribution is long,” says Brueck, the MAGNET board chairman. “Venture capital is also underrepresented in the middle of the country. So, I reached out to several friends as well as JumpStart, and we were able to launch a $2 million fund in conjunction with matching funding from Ohio’s Third Frontier program.”
The AMF team also learned to define its focus areas more crisply, says MAGNET’s Karp. Though the fund invests in a range of businesses, it avoids healthcare startups or business-to-consumer enterprises.
Nor does the region need a fast track of “unicorn” startups to build its economic prowess, adds Karp.
“From a development perspective, we don’t need unicorns to get good returns and have an impact on the local economy,” says Karp. “Innovation in our manufacturing ecosystem is not as robust as it should be. Startups are those innovators.”
Though Octet might not be developing the latest trendy app or e-commerce platform, owner Bolton has found success within his established chemical production expertise. He is currently collaborating with customers on numerous projects, representing a Northeast Ohio region already deeply rooted in the maker space, he says.
“More customer projects mean more revenue, which gives us runway for more funding,” Bolton asserts. “We make a chemical that goes into a battery, so we need to tell our story to a lot of people in our orbit to make sure it’s understood.
“You have to be persistent, not just submit for funding online and think the job is done,” Bolton continues. “It’s a much more thoughtful process.”
