The managing director of the Ohio Innovation Fund has just the background to lead the $40 million venture capital fund, where he also has built what he calls the top venture entrepreneurship training for students in the country.
When Bill Baumel was in business school at the University of Michigan, all his friends wanted to go into investment banking on Wall Street. It was the early 1990s and they were dying to get interviews with Goldman Sachs, Morgan Stanley, Merrill Lynch, Boston Consulting, Andersen Consulting and the like. Not Bill Baumel.
With a bachelor’s degree in accounting from Ohio State University, the Cincinnati native had spent two years following college at Deloitte & Touche in San Francisco, where he earned his CPA. There, he found himself doing due diligence for private equity firms. The experience was enough to draw him into the field of venture capital when he went to the University of Michigan for his MBA.
“Everyone was interested in working for Ford, and Procter and Gamble, and Microsoft, and General Electric in a leadership development program and what have you,” Baumel says. “And that gave me a real opportunity because I was probably the only one knocking on Professor Brophy’s door and saying, ‘Hey, I’m interested in startups and venture capitalists—I’ll be your TA.’ ” David Brophy, who did his doctoral work at Ohio State University, was a pioneer in the study of venture capitalism, founding what is today the Center for Venture Capital & Private Equity Finance at University of Michigan. His network of contacts in California VC was vast, and it helped Baumel land a venture associate job in Chicago with Brinson Partners when he was finished with his MBA. The firm had about $45 billion under management, with a small part of that invested in VC.
It must have seemed odd to some of his classmates that Baumel would forgo the fat paychecks, bonuses and pensions offered by America’s largest corporations for the chaotic life of a venture capitalist. “I was a lone wolf,” he says.Stay up to date with the region’s movers and shakers, top employers, philanthropic causes, real estate developments and thriving creative and startup scenes. Subscribe to Columbus CEO’s weekly newsletter.
For a startup, the price of short-term failure is going out of business instead of a missed quarterly revenue target. “I love that pressure,” Baumel says. “It’s a constant need to perform and get things done. And because of that, there can be no bureaucracy. You try and find problems. Every day. We don’t have time to just have meetings to talk about forming committees and then talk about forming a task force to talk about restructuring a committee. We just need to get stuff done and make it happen.”
And Baumel loved the chance to work on ground-breaking technologies that held the potential to change people’s lives and sometimes, the course of history. “Large companies have different issues,” he says. “It’s about maintaining market share, restructuring, optimizing margins. At Procter and Gamble, you’re focused on laundry detergent, or peanut butter, or health and beauty. Invest in a startup, you are completely focused on creating new industries. How do we disrupt an existing industry?”
That pioneering spirit led Baumel to spend more than two decades in venture capital, most of those years with Los Gatos, California-based RWI Ventures. He built a track record there that included investments in Big Data, cybersecurity, software-as-a-service and medical technology, with portfolio companies going public, being acquired for hundreds of millions of dollars, and one $1.2 billion valuation. By these measures, his career was a resounding success, and it’s clear he had fun doing it.
It shouldn’t be surprising that a person who built a career on defying the status quo did just that, once again: He moved home to Ohio.
Recruited on behalf of the leadership teams at Ohio State and Ohio University, Baumel moved to Columbus in 2016 to run the newly created $40 million Ohio Innovation Fund. The universities’ goal was to diversify their investments, create a pathway to commercialization for the work being done in their labs and give students a real-world taste of entrepreneurship.
“We felt there was a gap, [there wasn’t] a local fund [to] give some preference to technologies that came out of universities that participated in the fund,” says Mike Papadakis, CFO at Ohio State. The university invested $20 million, and Ohio University put in $15 million. They later were joined by Kent State University, which came in with $6 million, says Duane Nellis, president of Ohio University.
Talk of getting into venture capital had been going on at Ohio State since 2011, Papadakis says, and the university in 2013 set aside $100 million to invest over 10 years, kicking off its major venture involvement that year with a $50 million investment in the nascent Drive Capital. It’s spent $90 million so far, including the Ohio Innovation Fund investment and some pre-2013 funding “alongside” the former Tech Columbus (now Rev1 Ventures), Papadakis says.
For Baumel, the decision to take the job came with excitement, to be sure, and also a certain level of trepidation. He had visited friends and family here in the summers and being the investor he is, he’d put some money into an angel fund here. The companies did not impress him. “I remember there was a particular company... and I looked at this company and thought wow, I know 15 companies in Silicon Valley that are already doing that better and some are already doing $50 million in revenue.
“My heart brought me back to visit to convince my mind,” Baumel says. “It was purely a heart thing to come back and visit [while weighing whether to take the position] because I was like, please, please don’t be as bad as it was before.”
It wasn’t—Baumel is thriving in Columbus, enjoying success with the 15 companies (four in Columbus) he’s identified for Ohio Innovation Fund support. As a group, they’ve won culture awards, been identified as top startups by industry organizations and formed partnerships with top global corporations. They include:Aware, formerly known as Wiretap. Founded in Columbus in 2017, it makes security software for large global enterprises using major chat platforms including Facebook at Work, Microsoft Yammer and Slack. For as long as such communication platforms have existed, they’ve presented legal and safety concerns to employers who couldn’t control them or even monitor employee activity on them, presenting the risk that intellectual property and security could be compromised. Athens-based Stirling Ultracold, a maker of energy-efficient deep freezers Baumel says is a $50 million company with a following among the bioscience community that has potential to be four times that size. Enable Injections of Cincinnati, a drug delivery platform patients can wear that’s doing business with pharmaceutical and biotech giants Sanofi and Genentech. Complion of Cleveland, with a cloud-based workflow and document management software for clinical trials that’s compliant with U.S. Food and Drug Administration rules.
One of Ohio Innovation Fund’s unique characteristics is that students from the participating universities can do internships at the fund and also at the companies it invests in. This education component suits Baumel, who is a natural at explaining complex business concepts.
“I honestly believe our program is the top venture entrepreneurship training for students in the country,” Baumel says. “They spend 10 weeks in the summer learning about term sheets and due diligence and all that, and then you go live, you’re actually going to board meetings, working with our executives.” Each year, 50 students from Ohio schools come through the program, and another 50 are placed in internships at partner startups. Several of the students who work in the fund’s office have gone on to hold jobs there, including venture associate Faith Voinovich; marketing director Katie Coulter; and Matt Benson, former venture associate who launched an online hub for esports and video games professionals, eFuse, that in November announced it had secured a $1.4 million investment from Ohio Innovation Fund.
Such an outcome is exactly what the universities that funded the Ohio Innovation Fund envisioned. They’re also looking forward to the potential for typical rates of return offered by VC, which can be in the realm of 15 percent to 20 percent, well above average returns from the stock market.
“I think it’s going about as well as we could have hoped,” Papadakis says. “Over the course of the next couple of years, we obviously would hope to start to see some opportunities to get some return back to the university as well.” VC is a commitment for OSU, he says. “It’s not something that we’re just going to do one set of funds and then move on. I think the startup ecosystem is really built around having a strong long-term strategy and executing it every year for a long period of time.”
Baumel says the plan is to raise a second fund at the end of the first five years, which comes in 2021. He sees a second fund, like the first, being no larger than $100 million. “If you get too large, you start making compromises on deal quality,” he says. He expects exits in the range of $200 million to $500 million.
One of the things OSU and OU looked for when they sought a leader for the new fund was someone who had ties to Ohio. It was a good strategy, Nellis says.
“Bill’s done an amazing job,” Nellis says. “His wealth of experience that he brings to us from Silicon Valley, but also the fact that he knows Ohio. He’s from Ohio. He understands the Midwestern culture and dynamics, and he also understands how to leverage the resources we have through the fund in ways that elevate companies.”
Many of the companies Baumel has encountered here need his support with strategy, messaging, customer awareness and staffing decisions. “I think pretty early on and contrasting his experience on the West Coast, a lot of the startup leaders [in Ohio] didn’t necessarily have experience in a startup environment,” Papadakis says. “So they needed a lot more coaching and a lot more hands-on attention than what he was initially anticipating. And so Bill has been a very collaborative leader. He spends a lot of time with his executive teams really trying to push them to achieve results.”
For Aware, that translates to “somewhere between 10 to 20 emails and maybe 20 to 30 texts and five phone conversations per week,” Baumel says. “Bill is one of the first calls I make on large decisions or complex issues,” says Aware co-founder Jeff Schumann. “We wouldn’t be where we are without his mentorship. Bill is very transparent—that’s one of the things I love so much about him. He tells me how it is, and sometimes that works in my favor, and sometimes that works against me. But I know that’s Bill and appreciate that because there’s no politics there.”
Schumann knows all about politics, having worked for large corporations early in his career. And after knocking on many doors looking for funding and failing to secure it, he’s been buoyed by Baumel’s brand of California optimism in addition to his what-you-see-is-what-you-get nature. “Midwestern investors, they have a tendency, everyone wants to hug each other when you’re leaving a room and you don’t want to say things that might hurt somebody’s feelings,” Schumann says. “But there’s a way to provide constructive feedback that can yield a positive outcome. And I think what the Silicon Valley-based VCs and even East Coast-based VCs are so good at is understanding that if we don’t make these sorts of hard decisions [such as firing someone who’s not a fit or upending the business model entirely], and we don’t come into this with humility, we are going to fail.
“Midwestern VCs are much more like, ‘I don’t want to say something that might upset somebody,’ like this is their baby—we should just keep our opinion to ourselves until they figure it out themselves. By then, it’s too late.”
It is frustrating, Baumel says, to watch Midwestern companies with great ideas fail to realize their vast potential because they’re discouraged by people in a position to provide funding and business advice. The culture here is very much one that eschews risk-taking, which is a necessary component in building giant companies quickly—spending large sums of money upfront on as-yet unproven ideas. “If [the founders] try to think big, they’re told don’t think big, get back in your hole and you just grow slow and steady forever,” he says. “But we are dealing with fast-changing markets and technology and all that new opportunity that’s out there. If we don’t chase that opportunity, someone else in Silicon Valley, Austin, Seattle, Boston, China, India, Israel, England, Europe is going to do that.”***
Bill Baumel shares his thoughts on the startup environment—what it's like and who it's right for.
The characteristics that make someone successful as an entrepreneur or a venture capitalist may not make them a good fit in a 9-to-5, suit-and-tie environment where things move very slowly.
"I don’t know if I could thrive or survive, either one, in a larger entity. I just wouldn’t want it. I think I’d be too blunt. I think I would be too rash in my decision-making. In Silicon Valley, it’s a lot easier to find those people because everyone either has someone in their family or someone they know that’s in a startup. So they understand that culture."
Speaking of being blunt, it’s all for good:
"If a person at a large company would hear the conversations I have with our CEOs and management teams, those conversations would be considered the most perhaps brutal, leading-toward-termination conversations. So for a lot of startup CEOs and entrepreneurs in Ohio, they just need to realize hey, we’re all in this together. We’re not looking to blame anybody. We’re looking to grow this together."
Being honest and transparent at all times is critical:
"You can’t be looking in the mirror each day and trying to fool yourself saying, ‘Oh, my gosh, look how much hair I have.’ [Startups have a] fast-paced and iterative nature and [need] radical transparency and openness. I need to admit mistakes immediately and change course immediately. I can’t let things linger for a week, a month or a quarter."
Millennials have a natural affinity for the startup environment:
"I would describe the younger generation as inexperienced, they don’t understand entrepreneurship to a large extent. On the other hand, they’re eager to learn. They want to be innovative. They want to be impactful. They want to make things happen. And they take the startups phenomenally well. They love the culture. For those that had been through corporate America for a decent period of time, it’s a tough cultural adjustment. They’re used to things in a certain way. It’s almost uncomfortable."
Bill Baumel knew when he was in college that the startup life was for him. He explains why:
"I don’t know if I could thrive or survive, either one, in a larger entity. I think I’d be too blunt."