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Comeback Capital is Poised to Take Advantage of a Midwest VC Boom

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Buying into a sense of untapped opportunity in America's heartland, venture capitalists looking beyond coastal hubs in Silicon Valley and Boston for lucrative gains are hungering for a piece of young and innovative Midwestern startups.

Offering them a seat at the dining table is Cleveland's Comeback Capital.

"There are many more people outside this region who want to invest in early stage companies here than actually do because we don't have good vehicles for doing so," said Comeback founder Scott Shane. "Comeback is the vehicle for that. The idea is you get coastal VCs and others using us as a scout fund, which is a model that doesn't really exist through much of Ohio or Northeast Ohio today."

Perhaps more importantly, investors feel the development of an outfit like Comeback could invigorate Ohio's lackluster VC ecosystem, which many startups have fled in search of capital and support in past years.

"Historically, there just has not been a lot of VC dollars in places like Ohio," said Chris Berry, president of OhioX, the state's trade association for tech companies. "So something like this is much needed and very important for Ohio."


VC funds invested $156 billion in U.S. companies in 2020, which was a banner year for the industry, according to data from Pitchbook. About 80% of that was concentrated on firms in the coastal VC hubs. Less than 1%, or about $1.1 billion, was in Ohio.


Activity is picking up this year, however, with nearly $1.2 billion invested in the Buckeye State through the first half of 2021, according to Pitchbook. Nonetheless, Ohio's share of the VC engine remains paltry in the scope of the country at large in what could be another record-setting year for the industry overall.

"In the Ohio market and greater Midwest, there should be 10, 20, 30 Drive Capitals. But you need to create an environment of risk capital," said Mark Kvamme, co-founder of Columbus' Drive Capital, which raised $650 million in new VC funds in early 2020. "If we did that, this region would just explode, in my opinion."

With its early-stage focus, Comeback, Kvamme said, is a small step in that direction.

Through its debut demo fund in 2018, Comeback backed Path Robotics, a startup founded by Case Western Reserve University students (Shane also is an economics professor at CWRU's Weatherhead School of Management) that is developing AI-powered solutions for robotic welding. Drive followed Comeback's lead with an investment of its own, prompting the startup's move to Columbus.

This spring, the business announced another fundraise — led by New York VC firm Addition and featuring Drive — amounting to $71 million raised for Path to date.

"What Comeback is doing, we need more of that," said David Croft, an attorney with Meyers, Roman, Friedberg & Lewis who works closely with tech startups. "And we need many more funds like this if we want to change the investment mentality in this area."


Comeback's name is a callback to the spring 2018 "Comeback Cities Tour," which has been described as a sort of Rust Belt safari for investors from Silicon Valley, New York and elsewhere looking to meet local officials and promising startups in the Midwest.

The tour was designed to sell angel and venture investors on opportunities in regions like Ohio. According to the New York Times, which documented "coastal elites" longing to relocate to cheap homes in Detroit and South Bend, Indiana, its mission seemingly was a success. By the end of the tour, the Times reported, many investors had "caught the heartland bug."

A few months later, Shane publicly unveiled Comeback and its debut $2.25 million demo fund for early-stage companies during a fall 2018 event at the Youngstown Business Incubator.

Many of Shane's investors are from the coasts. Some of his limited partners include names like Bloomberg Beta head Roy Bahat and Long Journey Ventures investor Cyan Bannister.

The inaugural fund deployed its last bit of capital, which has flowed to portfolio companies like Path Robotics (Columbus), FloatMe (Texas) and Paxafe (Wisconsin), this May.

On the luxury bus that made stops for the Comeback tour not just in Michigan and Indiana but also Akron and Youngstown — with congressmen including Ohio's Tim Ryan and California's Ro Khanna in tow — was Patrick McKenna, founder of HighRidge Ventures, nonprofit One America Works and investment manager Facet Wealth.


McKenna recently joined Comeback as a general partner as it launched additional funds this summer. Those include a $10 million rolling fund hosted through AngelList and the $3 million Comeback Capital Ohio Pre-Seed Fund.


McKenna, who previously said he's "a little over San Francisco," feels the potential for big gains from investments in startups in Ohio and across the Midwest can't be understated. And it's something the broader VC community has only become keen to in recent years.

Comeback's Pre-Seed fund, bolstered with a $1.5 million match from the state via the Ohio Third Frontier Commission, primarily will focus on accelerator studio companies. Those will be set up by gener8tor and The Brandery in Cincinnati, and begin with their fall cohorts. Its main focus is software companies with applications in business and health care.

The core $10 million fund will focus on slightly later early-stage companies in Ohio and across the heartland, which Comeback defines as pretty much anything between the coasts.

There will be a focus on Ohio, though, and Greater Cleveland in particular.

Shane indicated Comeback is close to investing in a couple Cleveland-area startups, though he's not ready to announce those yet.

"We are seeing some companies, including in Cleveland in particular, that look so attractive to use we might invest from both funds," Shane said.


Though company valuations here are about half of what is drawn in stronger markets, the cost of doing business here is cheaper. Capital stretches much further in Ohio than in California or Boston.

"You need $10 million just to get started in Silicon Valley," McKenna said. "In Cleveland, if a startup has $1 million to $2 million, they can go much further into solving their problems."

The Midwest also has problems to solve that are much different than those coastal regions.

With its focus on AI-powered robotic welding, Path Robotics is an example of a company built for the industrial Midwest, compared with businesses out West focused on internet and social media applications.

"From an investor perspective, investing in the U.S. heartland is a bit like investing in emerging markets," McKenna said. "You know what you get in (Silicon Valley). You get some good returns. The heartland is a bit more volatile with lower prices but higher upside. Investors interested in that are the investors interested in Comeback."

Sharing his thinking is Frank Amato, a private angel investor in Cleveland and co-founder of Block5, a blockchain capital investment firm.

"What fascinates me about Comeback is they are super early stage," Amato said. "They're investing at the idea stage, writing $100,000 checks for companies of $1 million to $3 million in valuation. They're the grease that oils the initial wheels. That's where Comeback is situated."

Michael Cavanaugh, a Chicago venture capitalist and managing partner of Regiment Alpha, loaded up an RV for the six-plus hour drive to Youngstown with reps from six startups to network in Mahoning County during the 2018 Comeback tour.

He's among investors hungering for exposure to early-stage Midwest companies and excited about the menu Comeback Capital will put together.

"I think Scott and his team at Comeback are positioned incredibly well for what I think is going to be a huge boom in Midwest VC, similar to how auto manufacturing found its way to other places because there was an economic edge presented in other geographies," he said. "That's just what Comeback is doing. They're moving quickly. They found an economic edge. And it's not just about the cost of living for employees. There is a whole bunch of factors that play into the Midwest being a perfect hub for a VC boom."

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