Periods of market and technological upheaval tend to catalyze financial innovation. Given the confluence of geopolitical tensions, the acceleration of next generation technologies, the implications of AI and reshoring for energy demand, the severe imbalances in the housing sector, and, most recently, the radical scaling back of federal government programs and policies heretofore seen as sacred and invincible, an era of financial experimentation should now be upon us.
The result of this tumult is that cities and states are starting to work harder for themselves. We are particularly impressed and intrigued by an effort underway in Ohio. There, a group of leaders and investors has created and capitalized The O.H.I.O. Fund, focused on Ohio’s High-Growth Investment Opportunities.
The funds being raised by The O.H.I.O. Fund team are noteworthy for their size, locally sourced capital, and multi-sector investment focus.
The O.H.I.O. Fund aspires to be large, aiming to raise at least $500 million from various in-state private institutions, corporations, foundations, and family offices. The Fund team is dedicated to generating significant financial returns by leveraging and advancing Ohio’s distinctive economic strengths.
To that end, The O.H.I.O. Fund’s investment portfolio is designed to be spatially varied and sectorally diverse, focused on investing in Ohio’s most promising and well-developed, later-stage companies, numerous privately held businesses that have significant opportunities for growth, as well as real estate projects (comprised of land, multifamily, industrial, and commercial) and infrastructure projects. The founders estimate they will invest 25% of the raised funds in and around each of the state’s largest metropolitan areas, respectively (i.e., Cincinnati, Cleveland, and Columbus), with the remaining 25% spread across the rest of Ohio. The fund will go where the opportunities are, as long as they are based in Ohio.
This multidimensionality reflects how the economy functions, raising the prospect of catalyzing and benefiting from the “flywheel effect” of disparate investments that fuel each other’s growth.
By drawing from its investors’ knowledge, expertise, and the vast relationship networks of institutions and people they interact with, the Fund identifies a pipeline of projects that match the investment objectives.
While the Fund’s limited partner investors are focused on generating significant financial returns, the Fund’s founders have added a second priority for themselves — a plan to donate 25% of the general partnership’s profits to a newly formed Ohio Fund Foundation. The foundation will focus on supporting economic and community development projects across Ohio that are consistent with the mission of The O.H.I.O. Fund and important to the state’s financial future.
The Fund’s existence reflects a bet on Ohio’s economic tailwinds and a belief in capital as a connector across networks and industries. This is the networked economy in action.
Origin Story
The O.H.I.O. Fund is the brainchild of two individuals with long-standing involvement in Ohio’s economy. Mark Kvamme, the CEO and Chief Investment Officer of The O.H.I.O. Fund, was the architect and inaugural director of JobsOhio under Governor John Kasich, and Co-Founder and past Managing Partner of Columbus-based venture capital firm Drive Capital. Ray Leach, the Fund’s President and CFO, was the Founding CEO of the Cleveland-based “venture development” entrepreneur support organization and investing organization, JumpStart.
Mark and Ray have amassed over 32 years of experience investing capital in hundreds of Ohio businesses and serving as CEOs of significant organizations foundational to Ohio’s economic development ecosystem. JobsOhio and JumpStart are national “best practice” non-profit economic development models.
Their founding team includes two additional partners with deep knowledge, experience, and networks. Jill Meyer, the former CEO of the Cincinnati USA Regional Chamber and Mike Venerable, the former CEO of Cincinnati-based startup investment firm CincyTech.
Since its official launch in June 2024, The O.H.I.O Fund has raised $240 million from 114 investors, including Ohio headquartered banks, insurance firms, corporations, foundations, family offices, and high-net-worth individuals. The fund’s mission inspires each of these investors and reflects a compelling economic opportunity to better aggregate and leverage local capital to generate significant financial returns. The fund’s limited partners focused on these double-bottom-line returns comprise the foundation of The O.H.I.O. Fund Network.
International Inspiration
Temasek, the Singaporean sovereign wealth fund, inspired the creation of The O.H.I.O. Fund. Since its establishment by the Singapore government in 1974, Temasek has amassed an estimated $400 billion international portfolio. Temasek was and remains a permanent capital vehicle.
Before developing into an international powerhouse, Temasek was focused exclusively domestically on Singapore’s economic development. Its initial US$180M portfolio invested in a hotel, naval yards, an iron and steel mill, and a startup airline, among other investments.
Today, Temasek invests approximately one-third domestically and two-thirds internationally. Temasek sees being faithful to and exporting “Singapore’s DNA” as part of its core strategy. Despite its international expansion, it retains a focus on place-based activity.
Temasek was not just a bet on Singapore’s growth; its investment supercharged that bet.
Investment Thesis
Building on Temasek’s lessons, The O.H.I.O. Fund is designed to leverage Ohio’s competitive assets, which have been revalued by macro market dynamics, while addressing some of the structural challenges that have impeded growth.
Ohio is a large, diversified economy with ample competitive assets and advantages. In the past decade, it has been on the receiving end of some of the most significant reindustrialization decisions in the country. The decisions by Intel, Anduril, and others to select Ohio reflect strong fundamentals around logistics, manufacturing, university assets, and housing affordability. In addition, JobsOhio and metro business organizations like the Columbus Partnership, REDI Cincinnati, and Team NEO are nationally recognized as economic development entities with the capital and orientation to get deals done. Furthermore, the state government has recognized the energy demand for new technologies and industries and supported investments in data centers and other enabling infrastructure.
The confluence of these factors means that there is a broad range of investment opportunities, including but not limited to the acquisition of land to support industrial expansion and data centers, as well as the production of multifamily housing to address worker demand and preserve affordability.
The Fund, however, also invests in high-growth companies and privately held businesses with revenues of $50-500MM that typically rely on traditional private equity, resulting in local owners no longer owning most of their business. The private equity status quo often results in significant business disruption and, occasionally, considerable downsizing of local employment, or worse. The Fund also invests in later-stage technology businesses that may have received local capital from angel or seed investors but would typically become overly reliant on venture capital from the coasts upon needing to raise more substantial capital.
The O.H.I.O. Fund is focused on addressing Ohio’s structural imbalance and believes it can create a virtuous cycle of investment returns that substantially strengthens Ohio’s long-term economy. The O.H.I.O. Fund aims to keep local owners in control positions and home-grown companies and their employees in the state.
The O.H.I.O. Fund aspires to help address the gap between early- and later-stage capital. As Bob Pavey, one of The O.H.I.O. Fund’s founding investors and a highly respected venture capitalist with 40-plus years of experience investing in both Silicon Valley and Ohio, smartly observed:
“Silicon Valley developed as it did because it had some winners. We need major winners here, and we don’t need them moving elsewhere when they need later-stage money. We want them to stay here and spin off new projects. It’s these winners located in Ohio that will transform the state into a more exciting and even better place to do business and start companies.”[i]
Investments and Impact to Date
Since its launch on June 21st, 2024, The O.H.I.O. Fund has invested $130 million in 19 companies or real estate projects. The Fund targets 30% to real estate and infrastructure, 35% to “growth equity” (private equity-like investments in stable, growing companies), 30% to “growth venture capital” (technology companies with significant revenue but still pre-IPO), and a total of 5% to other diversified Ohio-based funds or earlier stage businesses. The 5% target allows the Fund team to get diversified exposure to companies and industries that may not otherwise fit the Fund’s investment thesis, like earlier-stage startups showing promising signs of strong growth potential.
The Fund has invested in many compelling companies and projects. A standout investment is Eagle Electronics, the first U.S. company to manufacture 4G cellular semiconductor modules in the United States. As a result of a unique licensing arrangement with Quectel, a Chinese firm that is one of the world’s largest and most sophisticated cellular semiconductor module companies, Eagle represents a dynamic reshoring opportunity, illustrating how Ohio can play an increasingly important role in national efforts to bring manufacturing back to the U.S.
Another signature investment is Sundays for Dogs, a human-grade, stress-free, nutrient-preserving, direct-to-consumer dog food company headquartered in Cleveland that is growing fast. Sundays is a perfect example of an Ohio firm that had never received investment capital from an institutional Ohio investor but sought capital from The O.H.I.O. Fund to change that.
The O.H.I.O. Fund has also invested in partnerships that own 3,400 acres of land in Central Ohio, which has quickly become one of the country’s fastest-growing data center locations over the last five years. As a result, land values in central Ohio have dramatically increased over time. The O.H.I.O. Fund intends to benefit from these rising values and the opportunity to locate its portfolio companies on these lands should it make sense to do so.
Unique Structure
The Fund’s structure and mandate contradict many tenets of aggregated global capital. Investors demand that many private equity, venture capital, real estate, and infrastructure funds available in the market be closed-end (having a limited period to invest and return capital), single-sector focused, and control focused.
The Fund has bucked these trends, creating a capital vehicle that connects the state’s geography and sectors. The bulk of the Fund’s capital is permanent and long-term. Its founders are building the Fund to exist for 100-plus years. The Fund invests across industries, creating a cascade of positive outcomes via accessing compelling investments targeted at generating 20% annual IRR returns. Finally, the Fund most often takes non-controlling, non-lead positions in its assets, fostering partnership and, in turn, supporting the broader investment ecosystem.
The Fund is compensated via management fees and carried interest, similar to other investment vehicles (the market’s accepted “2 and 20”), allowing it to attract and retain competitive talent. Investment decisions require unanimous approval from the Fund’s founding partners.
Finally, the Fund’s founders have committed $26MM+ of their own capital to invest while contributing 25% of their carried interest compensation to The O.H.I.O Fund Foundation. The Fund’s leadership acknowledges that not every Ohio challenge can be solved through its market-investing approach. Together with philanthropic efforts, state and local government collaboration is essential to complete the picture.
The Power of Networks
The superpower of place is the power of networks. In a complex world and dynamic environment, relationships of trust matter.
The founders of The O.H.I.O. Fund understand how networks of people with a strong and shared commitment to a place can source projects, raise capital, and deliver impact. The Fund’s 2023 Prospectus language articulates a profound theory of place-driven economic growth.
“By networking with our investors, research universities, entrepreneurs, and business leaders, the O.H.I.O. Fund can create an interconnected ecosystem that leads to better investment returns and economic growth across Ohio. In addition, by bringing together these different groups, it is possible to leverage their respective strengths and create new opportunities for collaboration and innovation.
Investors can provide the capital necessary to fuel new ventures and support existing businesses, while universities can offer research expertise, technology transfer, and talent development. The O.H.I.O. Fund Network will provide networking, mentoring, and collaboration opportunities while helping identify and support promising investment opportunities across Ohio.”
As Mark Kvamme observes: “We are very excited about our investments and believe they reflect the power of The O.H.I.O. Fund Network. Our ability to collaborate with investors across Ohio provides capital and incredible access to deal flow and local insights that inform our investments and maximize their potential for returns.”
Conclusion
The O.H.I.O. Fund reflects the distinctive characteristics of the Buckeye State and the talents and energies of its founders. However, the model of a place-based fund and the networks that enable and fuel it can be adapted to other states and metropolitan areas.
Networks of leaders recognize that the locus of seizing and capitalizing on economic opportunities is shifting from the federal to the state and sub-state levels.
Creating a place-based fund will likely become a differentiator in state economic development in a very short period.
[i] Jeremy Nobile, “The O.H.I.O. Fund is getting off the ground – and its founders have big plans,” Crain’s Cleveland Business, August 14, 2024
Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Michael Saadine is Managing Partner at Invisible Group, an interdisciplinary real estate investment platform.