Startup Ecosystem Profile: Cincinnati
The Queen City draws closer to its first breakout startup success that will open the floodgates for the city’s entrepreneurs
Cincinnati’s startup ecosystem sits on the precipice. A handful of high-growth companies are raising money, building momentum, and jockeying to be the first to reach venture building’s ultimate goal, a major exit. The exit usually occurs when the startup “goes public” or gets acquired, and it is a key catalyst for most entrepreneurial ecosystems. It mints a generation of newly wealthy angel investors, demonstrates the area’s viability to outside investors, inspires future founders, and acclimatizes the local community to startups. But Cincinnati’s skipping that step--for now. Instead, a handful of entrepreneurs are building fast-growing companies without that foundation. This strategy was borne of necessity rather than choice and has led to some natural growing pains, but it also illustrates the “Queen City’s” gritty, underdog mentality.
In this week’s edition of MidBest, we’ll dive into Cincinnati’s corporate-dominated history, profile the startups currently racing to the finish line, and explore what needs to happen next for the city to reach its full potential.
Fortune 500s powered Cincinnati’s rise and anchor it today
Cincinnati sits nestled among the hills of Southwest Ohio on the banks of the Ohio River. This prime location along a critical 19th-century trade route fostered a bustling industrial economy. For a time, the city was known as “Porkopolis” due to its prominence in the meatpacking business. This industry generated a vast supply of leftover tallow that William Procter and James Gamble used for the soap-making startup they established in Cincinnati in the mid-1800s. Today, the corporation bearing their names is worth over $340 billion.
In addition to P&G, the city is also home to Kroger, the second-largest retailer in the U.S., and financial power players Western & Southern, American Financial Group, and Fifth Third Bank. This cadre of business titans has provided Cincinnati with a powerful economic base and a pipeline of talent in the financial services and consumer packaged goods sectors. However, some of the city’s former corporate leaders have struggled in recent years. Multiple local Fortune 500s have dropped off the list, and Macy’s closed their Cincinnati headquarters in 2020. Despite this adversity, Cincinnati led Ohio in job gains in 2019 and was one of three metro areas in the state to gain population over the last decade.
Experienced entrepreneurs are building a startup community still waiting for its first breakout
Cincinnati’s startup economy was unique among those we visited on our trip. Unlike Chicago, it is building its ecosystem from a much smaller economic base; unlike Detroit, it lacks a singular billionaire benefactor providing vision and guidance; and unlike Columbus, its venture investing ecosystem is still in its early stages of development. Yet, despite these challenges, multiple high-growth tech startups have emerged and are rapidly and organically reshaping the city’s entrepreneurial ecosystem as we speak.
Leading the pack with $86 million in funding is Physna, a geometric deep-learning and 3D search company that’s redefining how computers interact with the physical world. Astronomer, which helps businesses easily deploy and adopt Apache Airflow, is hot on its heels after raising $57 million during the pandemic and over $68 million in total. The third most well-funded startup in Cincinnati is VNDLY, an HR software platform that helps companies manage their contractor workforce and has raised over $60 million.
Unlike the corporate world, Cincinnati’s startup ecosystem is not top-heavy. For example, Coterie, a tech-enabled small business insurance company, Losant, an internet-of-things development platform, and OROS, a startup applying NASA technology to winter jackets, have raised around $20 million each. At an even earlier stage is Hearty, a recently launched referral network for job hunters and recruiters, which has raised just $1.1 million.
The fact that Cincinnati has so many startups growing so quickly without the benefit of a prior ecosystem-empowering exit is a testament to the city’s scrappy ambition. The majority of the founders we interviewed had previously founded successful service-based companies but now wanted to take big swings at big problems. This mentality breeds unicorns.
Maximizing Cincinnati’s potential and identifying the first winner
There are still issues the Cincinnati ecosystem must address if it wants to maximize its potential. The first is diversity. All of the companies mentioned above are helmed by men, all but one of whom are white. If less than half of the population is getting the opportunity to lead, then we’re leaving money on the table. Elizabeth Edwards, founder and managing partner of H Venture Partners, is focusing her Cincinnati-based fund’s investments on women- and minority-led startups in the consumer space, but she can’t be the only one.
Additionally, many of the founders we spoke with expressed frustration with the local investor network, which they say moves slowly and is uncomfortable with the risk inherent in venture investing. Comparatively, founder-friendly investors in Silicon Valley, driven by the fear of missing out (FOMO) derived from the region’s countless massive successes, move quickly and take risks. Entrepreneurs in the Valley utilize FOMO to expedite the investment process and cultivate buzz for their ambitious endeavors. In Cincinnati, many of the region’s investors come from non-tech backgrounds and have yet to see a Valley-sized exit, so they don’t have that same fear. This gap slows startup growth and discourages ambition. As a result, many of the founders we spoke to had to raise funds outside of the Midwest.
But there is a solution. Within the next three years, at least one of the companies mentioned above will make the leap and become that region-defining success. The exit will engender FOMO in local investors, energize the workforce, and accelerate the startup ecosystem. The question is not when or if this will happen; the question is who it will be.