JumpStart becomes target of criticism from local entrepreneurs

Can you ask Jumpstart to list all their funders and the amounts. I know that JS gets funded by Nortech and Fund for our Economic Future. As these two groups get most of their budget from the state as well, and they use it to fund JS, is she counting this amount?

I think it is relevant for them to show us the break down of their funding so we can see how much is coming from local, state and federal tax dollars.

Comment by Mike Burkons — March 7, 2011 @ 6:24 pm

I hope this finally sheds a light on all the misdirection we have been getting from Jumpstart. Finally, people are asking the hard questions.

I have another one. If the 3rd Frontier wanted Jumpstart to have more than they are already giving them directly, wouldn’t they just give them more. Why would 3rd Frontier give money to Nortech and Fund for our Economic Future and allow them to use this money to give to groups they already funded.

To me, this is a big almost criminal shell game these groups are paying to get more money from the state and disguise it so it doesn’t look like they are giving them as much.

Another thing you might want to check up on is the accuracy of Ray’s experience claims. I know since they have been called into question, he changed his JS bio but i found another one at this site. http://tei.clearmeeting.com/playpresentation.php?id=5

Can you ask Ray to list the “five high-growth entrepreneurial organizations” he claims he founded. The truth is he co founded one, which was sold to Multigraphics. Ten years later it is still around and employs under 10 people. Not that there is anything wrong with that, but I don’t think anyone would call this vast startup experience.

When you see how the CEO dishonestly portrayed his past, it isn’t a surprise that the organazation has no problem playing with facts and the truth. It obviously comes from the top.

So Cathy, can you answer if the 45% included money you recieved from other groups who get most of their money from the state?

Comment by Burton Dorion — March 7, 2011 @ 7:46 pm

If they are taxpayer funded, don’t they have to be transparent with how they get and spend their money? What is the hold up?

Since this state funded money is supposed to be benefitting this region, why isn’t the new county government asking these questions?

Comment by Jack Leach — March 7, 2011 @ 8:24 pm

Cathy,

According to Crain’s, you guys already got $6,3m directly from the state so far this year. If that is only 45%, does that mean your annual budget is over $13m?

Please let us know. Can you also let us know if you plan to answer Ron’s questions. If not, can you let us know why a taxpayer funded group doesn’t think it needs to be transparent?

Comment by Mike Burkons — March 7, 2011 @ 9:57 pm

To correct one of the errors in these comments, the Fund for Our Economic Future does not receive any money from the state of Ohio. The Fund is a collaboration of philanthropy in Northeast Ohio. Members of the collaboration — primarily foundations that serve Northeast Ohio — are listed on our web site. A few governmental entities choose to participate in our collaboration, but their contributions are less than 1% of the overall dollars.

The Fund for Our Economic Future does provide operating support to JumpStart and several other regional efforts that are working to strengthen the region’s economic competitiveness.

Comment by Chris Thompson — March 8, 2011 @ 8:05 am

Chris,

Thank you for correcting me. For some reason, I thought you guys got grants from the 3rd Frontier in the past.

This is why disclosing and transparency is important. For instance, your group’s latest 990 on guidestar is blank and doesn’t answer any questions. Can you post a link to your groups latest 990 so mistakes like this don’t happen again.

Thanks,

MIke

Comment by mike burkons — March 8, 2011 @ 8:30 am

The transparency is critical and non-existent. Unfortunately, its not in the interest of the 3rd frontier to highlight any of their failures. Also, do not pinpoint Jumpstart as the sole problem. From what I’ve read, they’ve received a very small sum of the overall money granted through the 3rd frontier. Other non-tax paying, non-profits, like the Cleveland Clinic, have received tens of millions of dollars with no accountability for deliverables. Much of this money appears to be spent on “Centers” from which it is unclear how there is a benefit to us taxpayers. The Cleveland Clinic lists several companies on their website but there is no additional information on any of them if googled – how many of these have received State funding and how many Ohio jobs have they actually created? I’ve been told that executives within the organization regularly invest State funds with no accountability to the public to report companies formed, jobs created or how they will repay the money. The truth is that even if reported, the numbers probably could not be validated. Further I’ve been told that they then use these state funds or returns from their investments to pay outlandish salaries and bonuses to their internal staff – many in the six figure range and some significantly greater. I’m sure that the Clinic is not alone in this practice. Potentially, even worse is BioEnterprise, which supports a staff of dozens without any clear understanding of what they do – a Plain Dealer article suggested their CEO makes greater than $400K a year!

It would be interesting to know if 3rd frontier pulled funding from these programs, how many six figure jobs would disappear because they are being directly supported by the taxpayers. Was this the goal of the program?

We will likely never know.

Comment by anonymous — March 8, 2011 @ 10:05 am

Mike, Our members use their philanthropic dollars to support efforts to strengthen the region’s economic competitiveness. The Fund was formed as an informal collaboration of philanthropy (informal, but organized) in 2004 and didn’t become a 501c3 until December 2009. That is why our 2009 990 is blank; there were no operations of the Fund as a legal entity in 2009. We will be filing our 990 asap and will post it online when it is filed.

We have detailed the history of our grantmaking on our web site and in our reports. And if you or anyone else has questions about our staff/operations, we’d be glad to answer them.

It is our intent to publish our 2011 operating budget after it is approved by our Funders Committee, which consists of the 50 plus entities that contribute a minimum of $100,000 over three years to our effort.

As a collaboration of philanthropy, the Fund is an unusual entity and doesn’t fit into a neat description like a traditional foundation or an economic development organization. So we make every effort to explain what we do, how we do it and why. If you or others have questions, we certainly welcome them and will respond promptly.

Comment by Chris Thompson — March 8, 2011 @ 10:55 am

Chris,

Thank you for your detailed response.

Mike

Comment by mike burkons — March 8, 2011 @ 11:20 am

Brandon,

Thank you for writing about this issue which is critical to our regions economic competitiveness.

Can you please reach out to Cathy at Jumpstart to find out if they intend to answer the direct questions posed in Ron’s email within five days prior to any forum.

Transparency is vital for this discussion and if they are not going to answer each of these questions, can you ask her their reasons why a taxpayer funded group like theirs doesn’t think the community deserves these answers.

Thank you.

Comment by Mike Burkons — March 8, 2011 @ 12:07 pm

Brandon,

When you speak to Cathy, also ask her to list the 5 high growth startups Ray claimed he founded in the link above. My guess is that the bio Ray posted is a strech.

It seems like this strategy of conveniently streching the truth is something that comes from the top.

From what I can find, he co founded one company about 10-12 years ago. They sold this company and in its current form, it employs 8 people. Do any of his claimed other starts up still exist and how many people do they employ?

If this one instance where he co founded a company company that currently employs less than 10 people is his only real startup experience, I think he has embellished heavily his experience.

Comment by burton dorion — March 8, 2011 @ 1:02 pm

Mike (and any others who may care)-
I’ve asked Cathy to comment, either directly on our site or through me, as to whether JumpStart plans to provide written answers to Copfer’s lengthy list of questions, and if not, why not. If I hear anything back, I’ll post it here.

Thank you for reading.

Comment by Brandon Glenn — March 8, 2011 @ 1:20 pm

Mike-
Here’s the question I asked Cathy: “Does JumpStart intend to provide a written response to Copfer’s lengthy list of questions prior to the meeting? If not, why not?”

Here’s her response: “Yes, we are. We strive for transparency and want to make the information available online for everyone who is interested. That’s why we’re using our website to post much of the material. We’ve already pointed out information provided on our site that answers some questions, and are in the process now of adding links to supplementary documents.”

Comment by Brandon Glenn — March 8, 2011 @ 3:43 pm

Brandon,

Please relay this response if Cathy doesn’t actually come on to this site.

Cathy, that is fine if you want to post stuff on this site but Ron questions were more specific than what you directed us to in your last email.

The best way to acheive the transparency you claim you strive for is under each question, provide the answer in a different color. That way, people can judge if you really answered the direct question that was asked. If you like, you can then post that Q&A on your website.

If the answers are as easy to find or already on your site as you suggest, this shouldn’t take much effort on your end.

This way, people can make their own judgments on whether you are being as transparent you claim you strive to be and if you answered the question that is asked.

Thank you,

Mike Burkons

Comment by Mike Burkons — March 8, 2011 @ 4:19 pm

I have to laugh at the irony. The PD and Crains are too scared to piss of the powers that be and write about this abuse of taxpayer money, but Medcity, who actually got investment $$$s from Jumpstart is the only one to touch this.

Good for you Medcity. Too bad hardly anyone reads this but I give you credit for having the balls to write about it. How do I see these questions that Jumpstart is afraid to answer?

I look forward to seeing the curtain pulled back on Jumpstart. They have spent a ton of money, mostly on their own salaries and the only thing they have done well is use the rest of their money to spin their poor results and claim they are responsible for every job in the city. Keep asking the hard questions and don’t stop until you get answers.

This won’t be pretty.

Comment by John Mayoff — March 8, 2011 @ 8:19 pm

John,

Below are the questions from Ron Copfer’s email that we asked to answer at least 5 days prior to any public forum.
——————–
Questions for Jumpstart

Before any public forum is held about our concerns about Jumpstart, it is imperative these questions are answered in writing. To make it easy for Jumpstart, we put these questions in word form so under each question, you can reply in red.

1. In Ray Leach’s email response to me and Marc, he mentioned that ratio of the overhead in 2008 ($9.1m) to the amount invested ($3.1m) was dictated by the funders. Can you list all funders who dictate this requirement to JS, specifically? We think this is important as the community can then reach out to these individuals to explain why they feel this overhead vs. investing ratio is the optimal use of JS’s budget relative to its core mission of “creating new businesses?”

2. It’s been stated that JS has invested $19.3 Million in companies as of December 31, 2010. We ask again, what has your total funding been from all sources, to-date, since the formation of JS in 2004? Not just investments made, as this is material to the argument being put forth; have we created a bureaucracy or are we supporting entrepreneurs with capital to start new businesses?

3. Can you please publish or attach to this response all the IRS Form 990’s that Jumpstart has filed to-date with the IRS? What were the total staff salaries in 2009 and 2010 and total operating costs as well as total investments made for those years?

4. How do you reconcile the 2-400 numbers of companies that JS states have been assisted by JS since its inception and the 3,000 figure that the President spoke of last week? Who in our community or JS gave the President those numbers? Can the 3,000 figure be validated or proven?

5. Ray also communicated new job numbers (828) that JS has helped create are aggregated monthly by staff and audited externally annually. If any are indirect, your economic impact claim is subjective if you consider them a “result” of JS investing; we would prefer to let the entrepreneurial community come to their own conclusions on that matter.

A) Of the 828 jobs created, how many are direct and how many are indirect jobs?
B) Can we please see all the audits ever taken?
C) Who performed them?
D) How were they performed?
E) How much were the external auditors paid for this work?
F) Of those 828 jobs, how many are currently active toady and paying payroll taxes? (Taxes are what pays back the original funders; the taxpayers of the State of Ohio.)
G) Can you please provide the community (since it’s done monthly by staff; this should be rather easy to gather,) a list of all companies ever existing that have been funded by Jumpstart and their respective employment level gains (or losses) since they have been funded? Please distinguish between staff that existed prior to JS investing and those jobs created after JS investing and please list by company so that they may be validated.

6. Much has been made of the fact that many in our community feel that Ray Leach’s annual compensation of nearly $500,000, in light of the lackluster performance of Jumpstart (Ohio) on the whole, and the target community he is supposed to be assisting, is not just inappropriate, but reflects a fundamental lack of Board oversight and a contempt for Ohio taxpayers and Northeast Ohio entrepreneurs who struggle to start new businesses here. In Ray Leach’s email response to Marc Canter and myself, he claimed that his compensation was determined by the Board of Directors of Jumpstart (Ohio) using a number of factors including results and comparables of other organizations as well as an external firm.

A) Can you please list the other regionally focused economic development non-profit groups, who get a majority of their budget from state or local government dollars that were used in the board’s comparable compensation decisions?
B) Can you publish the recommendation document?
C) What external firm produced the recommendation to the board?
D) How much was this firm paid.
E) Who paid that firm?
F) Does the board have a governance or compensation committee?
G) If it does have a compensation committee, can you please publish a list of the members and the minutes of all discussions and decisions of that committee (or entire board if that be the case) relative to the compensation levels for Mr. Leach and senior staff of JS?
H) Again, please publish the complete compensation level for Mr. Leach and other senior staff including base salary, bonuses (if any, for producing results… and those attendant result thresholds) and complete benefits packages for the year 2009, 2010 and budgeted for 2011?

7. To argue why Jumpstart may not want to change their model rather than continue what your public, private and philanthropic partners insist you keep doing… despite some evidence that it may not producing the desired results… Ray previously mentioned that the current model of support that JS provides in the entrepreneurial space in Northeast Ohio has been proven by statistics and he uses that notional argument as leverage to why JS should not be an alternative model that many entrepreneurs in this community would love to see JS become. Will you please provide us those statistics and their sources?

8. When Ray has spoken about Jumpstart America, he has mentioned that it is a separate 501(c)3 organization from Jumpstart Ohio, it would be separately funded, and its existence wouldn’t take any money or resources from Jumpstart Ohio. As Ray is now working to launch Jumpstart US, and it truly isn’t using any of Jumpstart OH’s money or resources like he claimed, how long has Jumpstart US been paying Ray’s salary, office space and expenses while it has been being formed?

9. If Jumpstart is going to use their claimed results and impact as the main response to critics, we think it is important that these claims be scrutinized to make sure they are accurate and not misleading. Due to this, we believe the follow questions need to be answered…

A) The contact info for the group or groups that published all of JS’s economic impact reports each year since JS’s inception?
B) How much JS paid each year for each of these reports to be published?
C) How did the groups who published these reports obtain the data on the jobs and salaries created with all of the JS assisted companies?
D) Although JS claims they invest in pre-seed companies that are too young to attract other investment, if you look through all 53 investments, only a small percentage (15-25%) fit those criteria. Although I am pointing out that Jumpstart’s claims are different from reality, I am not saying they shouldn’t be investing in these types of companies. My question is… if Jumpstart invested in a 3 year old company that had 7 employees and already had $300k invested into it prior to their investment, JS invested $300k along with 5 others in a $1.5m round and 2 years later, that company has 20 employees and other positive growth numbers, what criteria does the group publishing JS’s impact report use to determine how much of this company’s existence is due to JS’s involvement?
E) Do these reports distinguish from local/regional jobs created by JS portfolio companies and jobs created outside of NEO?
F) Can you let us know of a way we can verify these job claims?

Comment by Mike Burkons — March 9, 2011 @ 7:39 am

What do you have to hide Jumpstart?

Comment by Stuart Ratner — March 9, 2011 @ 8:00 am

Wow,

Now I can see why Cathy is stalling. You can’t claim you want transparency and not answer these questions.

The best question is the 1st one. JS claims their funders dictate they must 75% of their budget on their salaries and overhead? Who are these funders? Who are the exact people at these groups that think this is how you should spend your budget? Please tell or is this a half truth or full out fabrication like your work history?

Mr. Thompson of Fund for our Economic Future, You guys are funders of Jumpstart, can you verify that Mr Whitehead dictated that JS spend their budget like this. I guess when Mr. Whitehead is bringing in a $300k+ salary, he isn’t going to call out his a fellow CEO of a non profit for enriching himself.

I hope all the groups that fund your group see this and it discourages them from supporting you in the future.

Comment by Seth Sable — March 9, 2011 @ 8:22 am

Great questions.

I would love to know how Ray will justify his salary and those of this top people. You should have asked for other comparison salaries outside of charities funded by 3rd Frontier. If they used each other as a benchmark, they all have salaries around the same level. My contention is the entire 3rd Frontier is spent wastefully. I would like to see them show other similar salaries of CEOs and not funded by 3rd Frontier.

Good luck finding too many even in the same ballpark as what these people pay themselves with our tax dollars.

Comment by John Mayoff — March 9, 2011 @ 9:13 am

I find it interesting that the #1 issue raised to the president and cabinet was “availability of capital”. Making sure that Jumpstart is accountable for the capital that they receive is of primary importance. It is marketed as capital for entrepreneurs, not large salaries for a select few. If Jumpstart Ventures is going to behave like a VC (in all of their arrogant glory) then they should be accountable for their results, which we all believe is dismal. If they are risk adverse and have low IRR then they are not doing the region any good, in fact they are injuring us by wasting resources and marketing themselves as the savior of all things entrepreneurial in the region… nut hey, that’s just my two cents! ;-)

Comment by Ron Copfer — March 10, 2011 @ 7:01 am

Seth,

The Fund for Our Economic Future has provided about $10 million in operating grant support for JumpStart since the Fund was organized in 2004. In fiscal 2011, the Fund (which is a collaboration of more than 50 philanthropic entities) awarded $1.3 million to JumpStart, which I understand represents about 10% of their operating budget.

Our grants to JumpStart are considered general operating grants and are not restricted in terms of how they are used.

I do know that other funders, including the State of Ohio, do place strict restrictions on how the money they contribute to JumpStart is spent. Those grants generally fund specific programs or projects.

Chris

Comment by Chris Thompson — March 10, 2011 @ 8:02 am

Chris,

Thank you for responding. Just to be clear, when you say, “Our grants to JumpStart are considered general operating grants and are not restricted in terms of how they are used”, this means you are NOT one of the funders in which Ray claims are responsible for dictating that they spend 75% on overhead and 25% investing in companies?

I am just trying to find out which of these funder dictate the money they give them only be spent on overhead and not investing in companies. I am correct that JS was able to use your funds to invest in companies? Thanks and please clarify.

Comment by mike burkons — March 10, 2011 @ 9:25 am

Mike,

JumpStart is able to use the money provided by the Fund for Our Economic Future to invest in companies.

Chris Thompson
Director of Funder and Regional Engagement
Fund for Our Economic Future

Comment by Chris Thompson — March 10, 2011 @ 1:51 pm

Thanks Chris,

I am interested to hear from the other funders like Ronn Richard of the Cleveland Foundation if they dictated their grant to Jumpstart only allowed them to use the money for overhead and not for investing into companies.

For any funder that required this, I would like to know who speficially at these groups made this requirement and their rational behind it.

Comment by Seth Sable — March 11, 2011 @ 2:03 pm

One important point of clarification regarding the world of grantmaking:

While the Fund’s operating grants to JumpStart aren’t restricted, JumpStart does use our grants (with our support) to meet “match” requirements for funding by the state. Match requirements generally work something like this: I agree to grant you $10 dollars, but only if you raise $10 from someone else first.

In such cases, the terms of the first grant (such as restrictions) could ultimately apply to the matching grant.

In the case of JumpStart, we are aware that the state does place restrictions on how its grants (and the corresponding match provided by the Fund for Our Economic Future) are used.

For people interested in learning more about why there may be value in “venture development” services beyond investing, you may want to read this interesting article from Governing Magazine:
http://www.governing.com/topics/economic-dev/State-Governments-Latest-Venture-Capitalists.html

Here’s an interesting quote: “In their eagerness to jump-start entrepreneurial activity, governments frequently race to hand out capital,” Josh Lerner writes. “This is equivalent to serving the main course before setting the table and unlikely to lead to a successful dinner party.”

And Seth, I cannot speak for other grantmakers. I only know that some of the state grants awarded to JumpStart cannot be used for investment.

Comment by Chris Thompson — March 12, 2011 @ 2:11 pm

Chris,

It seems the strategy of defending these practices and their overhead is to blame other groups or policies in hopes that we will be satisfied out get tired of asking questions. Unfortunately for them, entrepreneurs in general are persistent people. We will follow the trail to find out who the specific people are who make these decisions and policies, demand accountability and their reasons why this is the best use of state monies.

I am still interested to know if any non state funders specifically dictated that their funds not be used to invest in companies. If so, I am interested in understanding why they feel this is the most effective use of their monies.

Thanks for your response Chris,

Mike Burkons

Comment by Mike Burkons — March 12, 2011 @ 4:28 pm

Mike,

I am not blaming others. I am simply trying to clarify the record and the practices of philanthropy.

The Fund for Our Economic Future believes that our region should always be examining the quality of the economic interventions that we are involved in and whether there might be alternative interventions. So rather than hoping people stop questioning our work, we hope that more people will become involved and participate in the process of developing the most vibrant economic region in the country.

However, I cannot speak for other funders.

Chris

Comment by Chris Thompson — March 14, 2011 @ 7:25 am

In conducting research on venture development organizations, which Jumpstart is considered as a model or case study by many subject matter experts, I came across this article and commentary. While I understand that there are always critics – of everything – I must ask those who so openly share their criticism of Jumpstart if they understand the concept of “biting the hand that feeds you?” Please tell Ray Leach and the entire staff at Jumpstart that my region, Minneapolis-St. Paul, would be happy to send a fleet of moving trucks to transport them here. If you folks keep thinking and acting like losers, well, then you’ll keep losing…

Comment by Anonymous — June 21, 2011 @ 5:31 pm

Dear Anonymous; I truly hope there is some decent intellectual capacity in your region other than yourself. No real entrepreneur would continue down a path that loudly signals that there is a large cliff just ahead. Don’t worry, we will continue to ask the tough questions that produce (or doesn’t) evidence on whether there will be any losses in your future. And BTW, I’ll pay for the truck that will move JS to the twin cities!

Comment by Ron Copfer — August 16, 2011 @ 4:18 pm