Development guru points local investors to Phylogy
June 16, 2006

Crain's Cleveland Business by Leslie Stroope

In his role as the former chief development officer for the city of Cleveland, Tim Mueller was charged with the job of attracting businesses to Cleveland. But his latest achievement has been helping a California-based tech company raise $7.6 million — 85% of which came from Northeast Ohio investors.

Mr. Mueller, who since last November has been the Cleveland-based president of Phylogy Inc. of Santa Clara, Calif., also has been rewarded recently with the chief executive title at the seven-employee company. Phylogy has developed technology that increases data delivery speeds over digital subscriber lines (DSL) and is expected to help telephone companies compete with cable companies.

KOVentures, a Chicago-based venture capital firm, led the financing round. The money will be used to fund the company's next-generation products and for marketing and sales, Mr. Mueller said.

Kurt Oelerich, managing member of KOVentures and a member of Phylogy's board, said he knows Phylogy "is going to be successful."

"They have outstanding technology, a mature and seasoned management staff, and they have the potential for amazing growth," Mr. Oelerich.

In an interview with Crain's Cleveland Business, Mr. Mueller said some 30 investors were involved in the financing round. He personally contributed a "healthy amount," though he would not provide a specific figure. He also would not identify local investors or how much they put into the deal.

Mr. Mueller, who during his two-year tenure with the city of Cleveland forged relationships with some of 

Cleveland's most powerful business leaders, including Albert Ratner, co-chairman of Forest City Enterprises Inc., said the money he helped raise for Phylogy was "relationship based."

Asked if Mr. Ratner was among the investors involved in the deal, Mr. Mueller declined to comment.

If Phylogy becomes a success, it might benefit Cleveland beyond adding a handful of back office jobs here, Mr. Mueller said. If local investors with the appetite to invest in high-risk deals are rewarded, they might be more willing to invest in startups with full operations in Cleveland, he said.

"If this is successful, it shows there is some good talent in the Cleveland area that can run businesses that are based anywhere in the country," he said.

Michael DeAloia, senior executive for technology development for the city of Cleveland, agreed and said it did not matter that Mr. Mueller was raising money for a California-based company.

Mr. Mueller "is a case study of a serial entrepreneur," Mr. DeAloia said. "Tim did a hell of a job in the city and we're pleased he's out in the private marketplace doing it again. ...This fits into the mission that the city put out a few years ago. We wanted to help ensure a continuum of capital is available in Cleveland. The only way you can do that is to create more companies."

Mr. Mueller acknowledged that his presence in Cleveland while the company is in California is an "odd scenario." Because he had signed a long-term employment contract as CEO, there was not pressure from investors to relocate the company's headquarters to Cleveland from its current location in Silicon Valley — the heart of the semiconductor industry.

It's common for investors to stipulate that a company move as part of an investment deal. But Mr. Mueller said that usually is the case because investors want access to company executives for meetings. In Phylogy's case, a move to Cleveland is unlikely because Mr. Mueller already is in the same area as the company's Northeast Ohio investors.

Mr. Mueller said he and the other members of Phylogy talked "long and hard" about the logistics of running a California-based company from an office in the Warehouse District. While Mr. Mueller said he has no plans to move to California, he is racking up some serious frequent flyer miles.

Being in Cleveland also means he is centrally located to Phylogy's primary contract manufacturer and distributor, which are both based in Chicago. His location in Cleveland also helps because Phylogy's target market is east of the Rocky Mountains.

Prior to joining the administration of former Mayor Jane Campbell in 2002, Mr. Mueller made a name for himself in the Northeast Ohio technology community as a co-founder of Cleveland-based web development firm VantageOne Communications. The firm was sold to FutureNext Consulting Inc. of McLean, Va. Company officials never disclosed the sale price, but people close to the deal have said it was sold for about $15 million.

Online Editor Jeff Stacklin contributed to this story.

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