Have you ever wondered what drives the innovation and entrepreneurial spirit in a city? Especially a city in the middle of the country? Well, in this episode of The Angel Next Door Podcast, we dive into the world of entrepreneurship in Columbus, Ohio, and explore how the city has become a hub for startups and angel investing with guest Parker MacDonell. In this episode, we learn about his involvement with Rev One Ventures, a nonprofit organization that not only invests in startups through its startup studio but also manages a series of investment funds. Throughout the conversation, Parker shares his insights into successful and not-so-successful investments, and how he found his niche in B2B software and life sciences companies. He also highlights the role of collaboration among angel investors and the importance of learning from others with different expertise. Whether you're an aspiring entrepreneur or an angel investor yourself, you won't want to miss Parker MacDonell's fascinating journey and his contribution to the vibrant startup ecosystem in Columbus.
Have you ever wondered what drives the innovation and entrepreneurial spirit in a city? Especially a city in the middle of the country? Well, in this episode of The Angel Next Door Podcast, we dive into the world of entrepreneurship in Columbus, Ohio, and explore how the city has become a hub for startups and angel investing with guest Parker MacDonell.
In this episode, we learn about his involvement with Rev One Ventures, a nonprofit organization that not only invests in startups through its startup studio but also manages a series of investment funds. Throughout the conversation, Parker shares his insights into successful and not-so-successful investments, and how he found his niche in B2B software and life sciences companies. He also highlights the role of collaboration among angel investors and the importance of learning from others with different expertise. Whether you're an aspiring entrepreneur or an angel investor yourself, you won't want to miss Parker MacDonell's fascinating journey and his contribution to the vibrant startup ecosystem in Columbus.
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Marcia Dawood:
Hi, Parker. Welcome to the show.
Parker MacDonell:
Thanks, Marcia. Appreciate the invitation.
Marcia Dawood:
I'm excited to have you here talking about all things happening in Columbus, Ohio. And as you know, the Angel Next Door podcast is all about how anyone can be an angel, and we like to talk about how people found out about it, how you got started, and how you got to where you are now. So why don't you start by telling us a little bit about your background.
Parker MacDonell:
Well, I have been in Columbus, Ohio since 1987, when I moved here out of business school to work for Bank One. And about 15 years into that banking experience, I started dabbling in angel investing. I don't remember exactly what my first couple of investments were other than to say, in retrospect, I made all the rookie investments that I've seen others make since I got more deeply into angel investing. One of the investments that I made failed in about three. And so then what happened fortuitously was that a fellow here in Columbus named John Houston started the work of forming an angel fund. I went to one of the early meetings that he hosted to sort of gauge whether there was enough interest in Columbus to start a fund. Fortunately, he determined that there was enough interest. And I looked around the room and I said to myself, parker, if you're going to keep being an angel investor, you better do this with some other people who are smarter than you are and who work harder and who have more time to put into it. Because at the time, I was working kind of typical 50 or 60 hours work week as a commercial banker. So I got into it because I stumbled in I don't know exactly how I got into the first couple, but once I stumbled into it, I realized that I wanted to keep going and I wanted to do it with others rather than be a solo angel.
Marcia Dawood:
And that makes so much sense. So tell us a little bit about our friend John Houston. We miss him very much. He passed away last year, and he started these funds, the Ohio Tech Angel Funds. Am I getting all that right?
Parker MacDonell:
It's right. Exactly right, yeah. Which I may refer to colloquially then as otaf. That's the acronym for them. Yeah. John was from Western Pennsylvania but had been in Columbus, and like me, he was a recovering banker. He'd had a really storied career as a banker and had retired early and decided that he was interested in helping entrepreneurs as a banker. So why not do that as an angel investor and put equity into them and maybe give them some advice? And he had a similar journey, as it turns out, to mine. He made a couple of early investments and recognized that there might be a community of other people around Columbus who might prefer to do investing in concert with others rather than be a solo investor. So he did form Ohio Tech Angel Fund and went through the slightly more complicated process of figuring out how to form an investment fund. It's obviously more regulated than forming an angel group, which is simply a membership organization. And when John got into this, what he recognized was that one of the things that he really liked doing was constantly was he was, I think, often maybe, if not a night ahead of the rest of us. He was a week ahead of us. And learning all the nuances around angel investing that make it more interesting and that if we do it right, make us more so. John not only founded this angel fund otaf and went on to raise four of them subsequently, he also spent a lot of time creating educational materials which he used to educate angels here in Columbus. And then eventually he took that on the road and educated people elsewhere much in the same way that now ACA is really doing an exceptional job, in my opinion, of taking angel education on the road. So that was John Houston. I could talk a lot more about him, but that's how he got started and also how I got started as his Acolyte.
Marcia Dawood:
And how big are the otaf funds?
Parker MacDonell:
In all, we had five otaf funds. We raised them about three years apart and in all, the funds totaled about $30 million of total assets. We invested essentially about 80% of that and kept 20% of it for the management fee. The real key to the success of those funds as they were successful and the success that we help some entrepreneurs have is that for every dollar that the fund itself invested from an otaf fund, the members of the fund co invested alongside otaf. Another dollar, $0.20, let's call it. So the members got some leverage from their management fee and most importantly, the entrepreneurs got essentially double the money by participating in the process that otaf laid out for them.
Marcia Dawood:
And you had quite a bit of help and kind of backing from the state of Ohio, too, if I remember right.
Parker MacDonell:
He did the state just about the time that John decided to form Angel Group, the state of Ohio decided that the manufacturing economy that had been one of the two backbones of our economy, other being agriculture, had diminished somewhat because of offshoring and that those manufacturing jobs probably weren't going to come back. So under Governor Bob Taft, the state decided to create something called the Ohio Third Frontier Fund. And in two tranches, the state sold about $2.4 billion worth of bonds to finance the formation or the furtherance of an innovation economy in Ohio. And the money went a lot of different places at first until the state did some analysis and figured out that it was really the angel funds and other seed stage investment funds that were creating the bulk of the jobs and the payroll taxes that the state was looking to generate through this Ohio Third Frontier Fund. So pretty soon, all the money went either into matching into the funds themselves and matching the amount that private investors had invested in the funds or into fomenting the growth of a series of entrepreneurial centers in the seven population nexuses of the state to help entrepreneurs learn how to run startup companies.
Marcia Dawood:
I love that. And so when John first got started putting the people together who were going to be investors in the group or the fund, in this case, how did he go about finding them? Was it kind of the same stories that we usually hear where one person knew another person and they kind of all networked through that?
Parker MacDonell:
John already had a network. He did something that I thought was really smart. And when he retired from banking and decided that he was going to become an angel investor, he actually set aside a specific amount of money that he was going to put into this asset class over a specified number of years, which is what we should all do before we ever write our first check. And after he wrote his first couple of checks and realized he wanted to do this as a group, he said, I'm going to take some of the money that I allocated for investment in this asset class. And instead I'm going to host four really great parties at my country club and use those parties to both attract people who might be interested, but also to test the market. To understand whether the I hate to sound didactic, but whether the features and the benefits of this product he was designing, called the Ohio Tech Angel Funds, would be appealing to potential customers. He invited companies to present at those meetings, but not to make investment pitches. He didn't want to cross what he thought was a line at that point in time. So the presentations were simply there to give the attendees, his guests a flavor for the kinds of companies that they could help in the Columbus area. And John was an outgoing guy. He made friends easily and was such an interesting character and dynamic personality. He just attracted people like I won't say like flies, but he attracted people who just were fascinated by him and wanted to sit and listen to him talk for an hour. I mean, he was just that kind of charismatic person.
Marcia Dawood:
He was extremely charismatic and he always had a good story. So what were some of the early companies that were invested in by the otaf funds?
Parker MacDonell:
Well, we invested broadly in three areas. These were all high growth, high tech companies, all of which were built around a product. And all of these companies were born to be sold. But we invested in It companies, in life sciences companies, and in materials sciences companies. Why those three? Well, they were all able to attract venture funding, but they're also the three areas of focus. The Ohio Third Frontier Commission asked John and other people who started angel funds in Ohio about that same time to focus on. We had some early successes with B to B SaaS software companies, but we invested in a pretty broad range of life sciences companies, from therapeutics to devices to a couple of pharmaceutical companies. And I would say that as I look back over the history of otaf, which is now basically the story has almost been written on otaf. We still have two funds outstanding, but we're fully invested in those funds and are in the harvest. But I would say that in general, we were more successful in investing in B, two B SaaS companies that could get to an exit than we were in life sciences companies. And I'll give you an example of one of the early investments that we made that was a success. And when people say, what's your favorite otaf company? I say. Well, it's called a Surex health. What did they do? Well, the problem they solved was that if you're a mental health care doctor and you're trying to help your patients, you know a couple of things, one of which is that there are no medicines that work reliably for a patient who has a certain condition. It's also true that if you pick a medicine that works for that patient today, it might not work for them nine months from now or six months from now. So you're kind of constantly playing a bit of a guessing game. So what A Surex Health did was to use a patient's DNA to determine which medications probably would not work to treat their conditions based on their DNA. And therefore, it narrowed the field of potential treatments from which their doctor could pick to try to find the next best medicine to help them. And that company, at the time that it sold had served just over a million patients through its testing, and it also sold for $440,000,000. So there was a case where I felt like we were doing a lot of good for the world, which is a big reason why I got into the angel investing space. But we also did well. We didn't get $444,000,000 ourselves. In fact, the final take was more like $300 million. But we got a really nice return on our investment, and we're still looking to replicate that.
Marcia Dawood:
Wow, that's a great story. I love hearing about when, especially things that are helping people with their health, because it's so hard that those life science companies, to your point, are just very capital intensive. It takes a long time. There's lots of.
Parker MacDonell:
We're lucky here in Columbus. We've got three really good partners in our endeavor. It's partners from the healthcare industry, and one of them in particular Columbus, our nationwide children's hospital has a very successful research arm that's come up with a lot of great ideas for a very specific type of healthcare company. Not healthcare, it, but basically treating patients through understanding their DNA. That turned out to be more of a focus for the investments that we did later in the life of otaf and that we're doing now at the place where I hang my hat, a place called Rev One Ventures.
Marcia Dawood:
Yeah. So tell me a little bit about Rev One Ventures and how some of the otaf things kind of turned into or came into what Revone is today.
Parker MacDonell:
Well, thanks. Rev One Ventures is one of those seven places that I talked about that really got formed based on the support from the Ohio Third Frontier Commission. It's what we call an investor startup studio. Other people might call it a venture development organization, but we're actually a nonprofit organization that both helps entrepreneurs learn how to take their idea and turn it into a successful business. And also we have a series of investment funds that we operate that are for profit. And we can invest those funds not exclusively, but primarily in the companies that come to us for the startup studio help. So just as that ball was getting rolling, john Houston came to me one day and said, parker, you may think I was going to do this forever, but I would like to retire from this at some point, and I'd really like for you to be my successor. Of course, I was really flattered by that, but John and I spent a lot of time debating whether the best way to do that was for John to name me as his successor as the manager of those funds, or whether we ought to ask Rev One Ventures to become the name manager of the funds. Well, my great friend and CEO of Rev One Ventures, Tom Walker, was really interested in the latter outcome. And I judged that way of taking otaf as the higher probability we'd be able to sustain otaf and its mission. And in fact, that is what so we are one of the funds that's a series of funds that's managed by Revone Ventures. Rev One has other funds with limited partners who are mostly so it's part of the funding that we can bring to bear or we could bring to bear when otaf is still actively investing in the companies that we're helping to develop here in the Columbus market.
Marcia Dawood:
That's great. So the ecosystem in Columbus has really expanded and evolved over the years. I don't know that people would necessarily from other parts of the country, think to themselves, oh, Columbus is like entrepreneurial hub, but you've got a lot going on over there. So tell us more about that.
Parker MacDonell:
Well, thanks. I mean, I think we've been lucky to sort of pull together in the right direction and we've had some luck along the way. But Columbus is a place that's, first of all, it's basically the only real growth story among medium to large sized cities in the midwest. A number of those cities are still contracting somewhat. And I'm talking about not just the city itself, but the metro area. And we've been able to do that because our economy, local economy, is pretty heavily based on professional services. The Ohio State University and the state of Ohio were the two biggest employers in Columbus. And although they're not recession proof, they're less cyclical than manufacturing or other types of industries, agriculture. So we've always had that at the core of our always, because Ohio State is a huge school and graduates a lot of people every year, and a number of them stick around here and want to get into knowledge worker types of jobs, and some of them form their own companies. A lot of them go to work for the bigger companies in town, basically learn how the business world works. But they generate an idea at their big company that either the big company is not interested in developing or that the employee wants to just go off and do on their own anyhow because they don't want to work for the big company anymore. So that's created a number of startups here in town. And of course, as we see in Silicon Valley, a lot of the companies that get started here have customers that reside in or around the Columbus area. At least their marquee first customers are here in Columbus. Cardinal Health is the second or third biggest distributor of medical supplies and goods. They're headquartered here. They've been an important first customer for more than just a few of our companies. So that's a little bit about our ecosystem. There's also been a pretty conscious effort for us to continue the types of public private partnerships that I described earlier with the Ohio Third Frontier Commission. And I would say that at this point, a number of us could probably wean ourselves away from the public support if the public sector decided that they wanted to withdraw that. And I think that the state has done in the large part what they've set out to do, which is to create more of an innovation economy. And the heart of that is here in Columbus. It's really strong in Cleveland and Cincinnati as well. Don't get me wrong. Those are two great cities with their own strengths and opportunities. In Columbus, we've got a certain set of strengths that we bring to the business, and I think we've been able to capitalize on those pretty well.
Marcia Dawood:
That's awesome. And in May of 2024, the ACA summit is coming to Columbus. We are super excited about that. Can you tell us, give us any hints or previews?
Parker MacDonell:
Well, I sure can. We are so flattered that you and the board of the Angel Capital Association chose Columbus as a place to host this important annual meeting called the Summit, which in the pre pandemic days attracted at least 800 attendees. And I think we're going to be closer to that than we ever have been since the pandemic happened, when we get to Columbus next year. But we're excited to be able to show off some of these things that I just talked about. Certainly the university is really important not only to the health of the city in itself, but to the innovation economy here. It just has tremendous resources, starting with human resources. So I think that people who come will learn more about how Ohio State invests in the community in total, but in particular in the innovation economy. One of their graduates who started not one, but two successful software companies, both of which went public, has just given a landmark gift to the university to help it grow its ability to educate people about software software companies and how that part of our economy works. So I think you'll hear a little bit from Mr. Timashev, who's that Ohio State alum has been very generous. And the other thing that's happening in Columbus right now to help our ecosystem is that intel chose the Columbus area as one of the places to build its next chip fab plant. So there's a huge plant rising up out of the ground on the northeast side of Columbus, and we know that that's going to bring and create more knowledge workers here in Columbus. And so we're hoping to partner with intel in lots of ways, one of which is to get them to talk about how they, as an innovation company, work with startups and work with ecosystems like the one that they're joining here in Columbus.
Marcia Dawood:
That's pretty neat. That's going to create tons of jobs and really add to the overall economics of the area. Right?
Parker MacDonell:
It will. It's kind of astounding to think about this, but this one enterprise and the suppliers that want to colocate with it are going to add they estimate it's going to add about 30% to 32% to our gross local product, which is the same as a gross domestic product, except it's just our statistical metropolitan area. And we've had that happen one other time in recent memory when Honda of America built a big manufacturing plant in the Columbus market, not right in the city that added about 25% to whatever the size of the local economy was then. This is going to add 30% to 32% to an even bigger economy than we had when Honda came here. So we're pretty excited. Of course, as an old banker, I was taught to worry about customer concentration risk, so we're all rooting only for Honda to keep doing well, but for intel to continue to do well. And they've just turned the corner and become profitable again after a few quarters of not being profitable. So we're happy to hear that.
Marcia Dawood:
That's great. So before we leave, you do have so much experience helping early stage companies. You've been on tons of boards. You were also, of course, on the ACA board with me for a while and you were the treasurer. Okay, you have to tell me about this company Rap Chat because after I did the two rap battles for the ACA, I have to know about this guy. I did not know that Rap Chat existed.
Parker MacDonell:
Well, it is a good story and I kind of wondered if you're going to ask me about that since you did such a great job with your rap battle. Most of our successful investments have been in B, two B software companies and in a narrowed field of life sciences companies. We didn't do much with material sciences after our initial foray into that and we typically shy away from B to C companies, from consumer based companies. And so these two young guys came in and said that they'd come up with this idea for Rap Chat in their dorm room. And the idea behind Rap Chat is that if you are an amateur or want to be professional rapper and you want to practice, you can use your smartphone basically as a recording studio. Rap Chat will provide beats and you can build raps on top of them, you can record them and oh, by the way, if you like what you've recorded you can press another button on your smartphone and share it with a million monthly active users that they've cultivated around their community. So pretty attractive. Something like this would have been great for me when I was 21 coming out of college, playing the acoustic guitar, writing songs and thinking I was going to be the next James Taylor. But there was nothing like that back then. So we got kind of interested in this company even though it was outside of really of our area of expertise and we were attracted by the charisma and drive of these two co founders, both of which, I should tell you, were cherryback looking white guys from the suburbs of Columbus. Okay, just to put it in perspective. So we invested in the company and I served on the board and what I learned was that even though I'd been a musician, I didn't really understand the world or the industry in which Rap Chat was operating, which is really more social media, the app business. So to so we made an initial investment in the company. It needed more capital. We made the painful decision not to invest because we and I in particular really liked the co founders. And so eventually the company found some investors in New York City who really knew this industry that they were in and not only put more money into their company but gave them the kind, know, governance, help and direction that they really needed. So we had the opportunity to sell our shares in Rapchat to that new investor and we gladly did that. Now they've got a cap table that's really aligned with what they do and I hope they go to the moon and I won't say to myself if they do it. I won't say, God, I'm so sorry, we sort of sold our rapjet chairs instead. I'm going to say we're really proud of you guys, and we're proud to have had a little bit of a part of your story when you were just first getting started, because they wouldn't exist if we hadn't led the initial round of seed funding for them. I think they were probably pretty close to shutting it down. So that's probably a longer story than you were looking for.
Marcia Dawood:
But that's awesome.
Parker MacDonell:
You asked me what time it is. I'll tell you how the watch is.
Marcia Dawood:
I love that. The rap chat story is a really good one from the standpoint of there are so many companies that if angels didn't step in early on, when they're so fragile and they have a really cool concept and they're trying to get it off the ground, and they just can't do that without some kind of funding. So I think you're absolutely right. When they do go to the moon, you just have to say, yep, I was there to help them. And that's awesome. Well, Parker, thank you so much for coming on the show today. I really appreciate it.
Parker MacDonell:
Thank you for inviting me. It's been a pleasure.
Marcia Dawood:
And we will look forward to hearing more and more about what's going to happen with the ACA Summit in Columbus in May of 2024 as the agenda is formed. We will be looking for that and be able to check it out on the Angel Capital Association's website.
Parker MacDonell:
That's right. And if by chance you're interested in at least marking it on your calendar so you've held it, it's going to be May 13 through 15, 2024. So we look forward to seeing you in Columbus.