Entrepreneurs powering Cleveland makeover

CHICAGO Wed Mar 2, 2011 11:33am EST

1 of 2. Phil Brennan, CEO of Echogen Power Systems, is pictured in this undated handout photo taken in Akron, Ohio.

Credit: Reuters/HO/Echogen Power Systems

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CHICAGO (Reuters) - Aaron LeMieux grew up hearing his native Cleveland used as the punchline for jokes such as "the mistake on the lake." But the city is attempting to shake its downtrodden image - enhanced by a history of sporting futility - and entrepreneurs like LeMieux are leading the charge.

"To live in Cleveland you have to be tough," said LeMieux, 35, who attended the University of Toledo and started Tremont Electric in the basement of his home in 2007 following a career as a corporate engineer. "Things don't always swing our way but we don't give up the fight. We dig our heels in; we know we're going down the right path."

For Lemieux that means turning kinetic energy generated by walking into backup power for cell phones and other handheld devices. His company makes an 11-ounce hand-held charger, called the nPower PEG, that fits into a backpack and will retail for $160.

"It's just a lot easier to do things here," said LeMieux, touting the low cost of Cleveland's commercial real estate, in addition to the short commutes and thriving cultural scene as some of the key reasons he decided to stay local. His six-person staff now works out of a downtown gallery space. "We're able to get a relatively low-cost product and assemble it in a lower (cost) labor area."

POPULATION PROBLEM

City backers are counting on small businesses like LeMieux's to reverse troubling trends in this rustbelt city, which has seen its population shrink by more than 50 percent since its heyday during the steel industry boon in the 1950s. That migration continued during the recent recession, when Cleveland was hit hard by the housing crisis and saw foreclosure rates spike.

Despite the exodus, Cleveland, dubbed the Forest City, is emerging as a hotbed of innovation in areas such as healthcare and IT. Last week President Obama chose the city to launch his Startup America tour aimed at fostering entrepreneurship across the country.

"We have an incredible infrastructure for making things," said Steve Millard, president of the Council of Smaller Enterprises (COSE), a local small business association. "We have to reorient that infrastructure to the new kinds of things that have to be made."

According to the Venture Capital Advisory Task Force, a consortium of local investors, private investment in the region rose 121 percent to $221 million last year, compared with 2009. That topped the national increase of 19 percent on average, the group said. Healthcare companies accounted for 60 percent of the investment.

"You've got world class work being done in scanners, world class work in back implants," said task force chairman Kevin McGinty, managing director of Peppertree Capital Management. Growth in the sector has been bolstered by the Cleveland Clinic, he said, noting it's been able "to attract and retain world-class physicians."

Consider homegrown AxioMed Spine Corp, the maker of an artificial spinal disc offering a surgical alternative to spinal fusion for people suffering from degenerative disc disease. Its product is now being marketed in parts of Europe, and is close to finishing a study in the United States.

"We built our manufacturing facility with a loan from the state of Ohio," said CEO Patrick McBrayer, whose company, founded in 2001, has raised some $45 million in total, half from local sources. "I get on the soapbox, but I feel fortunate where I am."

McBrayer is particularly proud of AxioMed's supply chain, more than half of which is sourced within the state, and includes some legacy suppliers to the auto industry.

ENTREPRENEURIAL ECOSYSTEM

Cleveland's backers refer to the creation of a planned ecosystem that facilitates coordination among local resources and has led to successful public-private partnerships between VCs, foundations and government.

"The reality is that this is the outcome of about eight years of very focused effort by this region," said Ray Leach, a former serial entrepreneur who now heads JumpStart, one of several local nonprofits providing economic support and mentoring to startups.

JumpStart has assisted thousands of entrepreneurs and invested more than $20 million in local startups since 2004. Federal funding is now allowing the group to provide assistance to nine other regions, including Detroit, Buffalo and Rochester, New York.

"The issues and the challenges of the upper Midwest are now the issues and challenges, at least from an employment point of view, of almost the whole country," Leach said.

Entrepreneurs from outside the area have also tuned into the Cleveland region. Phil Brennan, the Irish-born CEO of Echogen Power Systems, said he consciously chose Cleveland over a host of U.S. cities to base his venture. Echogen, which Brennan described as a "scrap metal dealer of energy," takes thermal waste heat from smokestacks and repurposes it, creating electricity for other uses.

"As an entrepreneur, you're looking at where can the dollars stretch the farthest," he said, noting Echogen has raised close to $20 million in funding since launching in 2007. Brennan said he plans to expand his staff of 18 to 45 by year-end.

So far his decision to set up shop in Cleveland is paying off.

"It's really hard to match."

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