Category Archives: Southeast Economy

The NVCA’s letter to the President-elect

The National Venture Capital Association (NVCA) has sent a letter to President-elect Donald Trump outlining how the entrepreneurial ecosystem is the key to creating new jobs and economic opportunity for Americans who feel left behind by the modern economy.

startup_trendsThe letter outlines an agenda crucial for supporting entrepreneurship and building a strong economy in all areas of the country, including: a tax policy that encourages new company formation; making capital markets work for small-cap companies; encouraging talented immigrants to build or work at American startups; making life-saving medical innovation a reality; increasing basic research investment; and other key policies that would bolster the entrepreneurial ecosystem and foster new company creation.

The NVCA’s letter opens with a brief paean to entrepreneurship:

Entrepreneurship is the key to expanded economic opportunity in the United States.  From FedEx to Genentech, entrepreneurs have fueled growth and expanded opportunity across the American economy.  America’s venture capitalists have been hard at work supporting these startups with tremendous growth potential in areas like personalized medicine, next-generation computing, 3D printing, and synthetic biology.

Young companies, many of them venture-backed, create an average of 3 million new jobs a year and have been responsible for almost all net new job creation in the United States in the last forty years.  In addition, venture capital has backed nearly half of all companies that have gone public since 1974, which have collectively been responsible for 85 percent of R&D investment during this period.  In short, while a small industry by relative standards, venture capital is mighty in its outsized role in supporting economic activity and creating growth and economic opportunity.

27,000 U.S. venture-backed startups have received $290 billion in funding—and 11,000 of those received funding for the first time—since 2012.  To put this into perspective, that calculates to about $170 million invested into 15 startups each day.  An underappreciated truth is that startup activity has proliferated in the middle of the country in recent years.  Since 2012, nearly half of all startups receiving venture capital backing have been based outside of California, Massachusetts and New York.  Specifically, about 12,900 venture-backed companies in the other 47 states have raised $83 billion in funding since 2012.  What’s more, the collective annual growth rate of companies receiving funding in these states (10.1%) has exceeded that of the top three states.

We highlight/excerpt three of their recommendations below, but we also encourage all our readers to check out the NVCA’s letter in its entirety.  (We also provide a few links to some of the relevant Greatest Hits here at Navigating Venture.)

1. Support tax policy that encourages new company formation.  Since the Reagan Administration, our tax code has been relatively effective at encouraging patient, long-term investment, but on net has been hostile to entrepreneurial companies.  For example, punitive loss limitation rules punish startups for hiring or investing in innovation, while benefits such as the R&D credit are inaccessible to startups.  Unfortunately, tax reform conversations in Washington have ignored these challenges while at the same time proposing to raise taxes on long-term startup investment to pay for unrelated priorities.For instance, carried interest has been an important feature of the tax code that has properly aligned the interests of entrepreneurs and venture investors since the creation of the modern venture capital industry.  Increasing the tax rate on carried interest capital gains will have an outsized impact on entrepreneurship due to the venture industry’s longer holding periods, higher risk, smaller size, and less reliance on fees for compensation.  These factors will magnify the negative impact of the tax increase for venture capital fund formation outside of the traditional venture regions on the coasts.

2. Reform the regulatory state to bolster startup activity.  When Washington piles on new regulations it is startups who are most adversely affected because these young, high-growth companies do not have the resources to navigate the regulatory state like large companies.  At the same time, government red tape is inhibiting government entities from tapping into venture-backed innovation in fields such as cybersecurity due to challenges with the government acquisition process.

3. Make life-saving medical innovation a reality.  The future has never been brighter in terms of scientific and health care discoveries that are on the horizon.  Venture capital is investing in revolutionary medical innovation and groundbreaking treatments and cures that are aimed at diagnosing, treating, and curing the deadliest and costly diseases.

Unfortunately, medical innovation is at risk unless policymakers adopt modern approaches to development, regulation, and reimbursement for medicine and medical devices.  Progress has been made to streamline the regulatory approval process at the Food and Drug Administration, particularly for novel technologies, but more improvements are needed.  In addition, we need to establish pro-innovation approaches to reimbursement at the Centers for Medicare and Medicaid.

BPV completes successful exit from Tower Cloud

BPV portfolio company Tower Cloud has been acquired by Communications Sales & Leasing, Inc (NASDAQ: CSAL) in a stock and cash deal valued at $230 million plus milestone payments.  

Here is today’s write up from the Tampa Bay Business Journal:

St. Pete fiber optics firm acquired in $230 million deal

tcloudSt. Petersburg-based Tower Cloud is being acquired by Communications Sales & Leasing Inc. (NASDAQ: CSAL) in a stock and cash deal valued at $230 million.

Tower Cloud, founded in 2006 and backed by private equity investors, operates a fiber optic network in 15 markets in the Southeast United States, with nearly 6,000 route miles connecting large markets and Internet hubs with smaller markets and rural areas.

“Tower Cloud significantly expands our backhaul network and greatly accelerates our entry into the high growth small cell and dark fiber businesses,”Kenny Gunderman, president and CEO of Little Rock, Arkansas-based CS&L, said in a statement. “We continue to grow our wireless carrier relationships across all asset classes and are seeing an increasing number of opportunities arise as carriers densify their networks and look toward the deployment of 5G and related technologies.”

In an investor conference call about the deal Monday morning, Gunderman said, “Tower Cloud is very complementary to our strategy of acquiring and building mission critical communications infrastructure and becoming more and more relevant to the national wireless carriers in particular. The deal makes CS&L one of the largest owners of fiber in the country,” Gunderman said.

“We think that fiber is and will be the most critical component of the communications network going forward and Tower Cloud is an established provider of two of the biggest growth areas within fiber including dark fiber deployments and small cells,” Gunderman said in the call.

The acquisition expands CS&L’s national wireless carrier relationships because more than 90 percent of Tower Cloud’s revenues are from national wireless carriers. The deal also advances CS&L’s diversification strategy by increasing its exposure to the national wireless carriers with long-term contractual revenues.

Tower Cloud’s recent dark fiber and small cell awards with national wireless carriers will accelerate the company’s initiatives, the company said in a statement. Tower Cloud is currently constructing dark fiber routes in Florida and Georgia with total contractual revenues of $175 million.

Last November, Tower Cloud signed a contract with one of the “big 4” mobile carriers to expand its fiber network infrastructure and bring high-speed connectivity and capacity to Augusta, Georgia. It also announced last September that it would expand its fiber network into Jacksonville.

Florida Basks in a Texas-Style Resurgence

In case you missed it in last weekend’s Wall Street Journal, Florida is now “the showcase of America’s red-state prosperity.”  Hit especially hard by the collapse of real estate values in the last recession, the state…

(C)ut a variety of taxes, including those on businesses and property, no small feat in a state without an income tax. [The state government] also slashed 3,000 regulations and shrunk state payrolls by 11,000.

The WSJ article is entitled “Florida Basks in a Texas-Style Resurgence” and those of us fortunate enough to live in the growth corridors of the high-tech South easily recognize the reasons:  growth-oriented tax policieslower public sector debt burdensstronger job creation, excellent climate for entrepreneurs, and a superior overall business climate.  (The actual climate happens to be conducive to a great quality of life as well.)

BPV announces two new growth equity investments

PowerChord – St. Petersburg, FL
Provider of digital brand management software and services – Ballast Point Ventures has led a $10 million equity investment in PowerChord, Inc. Founded in 2001, PowerChord, Inc. provides a suite of internet brand management and digital marketing services for major brands and their dealer networks in the United States and Europe. PowerChord’s Software-as-a-Service offering allows major brands to maintain brand consistency down to the local dealer level. The Company’s customer engagement platform creates a universal online brand experience for national and international brands with consistent content, data, and messaging at the local dealer level. Today, there are over 9,000 individual dealers on the PowerChord platform. PowerChord is led by CEO Lanny Tucker and Founder and Chief Strategy Officer Pat Schunk. PowerChord will use the proceeds from this minority investment for partial shareholder liquidity, sales force additions, and to bolster its product development and marketing efforts.

 

The Zebra – Austin, Texas
Online automotive insurance agency and comparison platform – Ballast Point Ventures has led a $12.5 million equity investment in The Zebra. Founded in 2012, the Zebra offers a comprehensive automotive insurance comparison platform that allows consumers in all 50 states to compare quotes from more than 200 insurance carriers. The Company’s comparison engine collects user-submitted data via the website and displays the automotive insurance rates from multiple carriers, providing a valuable new tool to insurance shoppers that has earned comparisons to the travel search engine Kayak.com. The Zebra also operates as a licensed independent insurance agency and can currently sell and bind automotive policies in multiple U.S. states. The Company is led by Founder and CEO Adam Lyons and COO Joshua Dziabiak, both of whom were named to Inc. Magazine’s 30 Under 30. The Zebra will use the proceeds from this minority investment to enhance its online comparison platform, expand its insurance agency capabilities and hire new team members.

Southern Comfort

New figures from the Census Bureau show that, in 2015, Florida gained more people (365,703 – more than 1,000 a day) than California.

state growth

This is the most recent item in a long run of stories describing a geographic analog to the process of creative destruction.  Those states who spray “startupicide” on the economy –  suffocating regulations, inflated business taxes and fees, lawsuit-friendly legal environments, and political classes uninterested in business concerns, if not downright hostile to them – lose economic clout as people and capital migrate to other states with more favorable environments in which to work and live.

This migration of economic clout within the US has been more subtle than the California Gold Rush or Irish Potato Famine but is just as significant.  Some states are chasing away their earners, workers, and entrepreneurs; this is their tax base.

The growth corridors of the high-tech South would have a mercantile-like advantage but for the fact that employers can (and do!) simply move in order to thrive under our growth-oriented tax policieslower public sector debt burdens,stronger job creation, excellent climate for entrepreneurs, and a superior overall business climate.  (The actual climate happens to be conducive to a great quality of life as well.)

FVF’s “state of the industry” panel with Robert Faber

faber fvf

Robert Faber (L) discussing our state’s entrepreneurial ecosystem.

This past Friday BPV principal Robert Faber helped cap off the 24th annual Florida Venture Capital Conference as part of the “State of the Industry” panel discussion.

The panel covered several topics, including: new non-traditional sources of capital attracted to our state’s (and region’s) attractive business climate, start-up valuations, and how critical it is for an entrepreneur to do his or her homework on potential venture partners.

The Miami Herald reports that all of the panelists were “optimistic about opportunities in 2015” and foresee “a strong year ahead.”  We look forward to seeing many of you next year at the Vinoy in St. Petersburg for the 2016 Florida Venture Forum conference.

 

BPVIII exceeds target, closes at $164 million, makes first investment

Ballast Point Ventures announces the final closing of its third venture capital fund. Ballast Point Ventures III and affiliates closed with commitments of more than $164 million, exceeding its initial target of $140 million.

Founded in 2002, Ballast Point Ventures provides growth equity venture capital to rapidly growing private companies in the Southeast and Texas. BPV has partnered with over thirty companies in its first two funds within its target industries of health care, technology-enabled business services, communications and consumer. The new Fund’s investors include large institutional investors, family offices and over sixty successful entrepreneurs.

“The BPV team appreciates the strong support of both our previous investors who have partnered with us again and a select group of new partners who are joining us in BPV III,” said Partner Drew Graham. “We are excited to continue helping entrepreneurs build outstanding growth companies throughout Florida, the Southeast and Texas, and we are encouraged by the high level of entrepreneurial activity we continue to see in the region.”

Ballast Point Ventures has been the most active investor in Florida companies over the past ten years.* Ballast Point Ventures III recently made its first investment in PowerDMS, a technology-enabled business services company based in Orlando, Florida.  PowerDMS provides technology solutions utilizing a Software-as-a-Service model in the Governance and Risk Compliance and Enterprise Content Management sectors.

“We have been fortunate to partner with an impressive group of talented and driven entrepreneurs,” said Partner Paul Johan. “We cherish those relationships and look forward to partnering with more great entrepreneurs as we invest BPV III. Successful private growth companies not only create tremendous value and often reinvent industries, but they also provide the vast majority of new jobs in this country.”

 ~

 * Growth equity and venture capital investments of at least $2 million in private Florida companies, based on 2003-14 data from the Dow Jones VentureSource database.

End-of-year twitter digest, 2014

Thank you to all our readers for joining the conversation here in 2014.  We wish you all a happy and prosperous 2015, and look forward to seeing many of you at the 24th Annual Florida Venture Capital Conference, January 29 – 30, 2015 at the Diplomat Resort & Spa in Hollywood, Florida.

Offered for your reading pleasure, in case you missed any:  a compendium of our twitter highlights from 2014.

BPV twitter header

 

The roots of unhappiness

A new working paperMW-CN870_happy__MG_20140718112128 from the National Bureau of Economic Research says NYC is the Most Unhappy City in America.

The study includes a national map of happiness in which it’s easy to see that our region is the most happy and its pockets of (relative) unhappiness are happier than other region’s least-happy pockets.  The researchers claim to have struggled to establish any patterns in the data:

The trio [of researchers] found that significant differences in happiness levels persisted even after they controlled for factors such as income, race, and other personal characteristics. The differences in happiness are significant, but not huge.

We have our own theories, expressed occasionally here, most recently in April 2013:

New evidence from the dismal science confirms what social science has already shown: the love of taxes is the root of unhappiness.

The original social science, from the December 2009 issue of Science, indicated that states with the highest taxes also have the least happy residents.  Residents of high tax states not only have less money to spend on other things that make them happy, they don’t enjoy many benefits in exchange for all their hard-earned tax dollars.  Roads, schools, and crime are no better (and in many cases worse) while their state governments borrow even more and spend disproportionately on public employee pensions and entitlement programs.  Their needs ignored at the expense of entrenched special interests, taxpayers get unhappy.  And then they get out.

From this one might argue causation; high taxes = unhappiness.  While we are certainly sympathetic to that point of view, we also have to wonder if it runs vice-versa, or at least cuts both ways: unhappy people like to raise taxes.

We are… happy.  And happy to report that’s true for our region as well.  NVSE readers already know that the Southeast’s advantages extend well beyond the matter of taxes and include lower public sector debt burdens, stronger job creation, the best climate for entrepreneurs, and a superior overall business climate.  (The actual climate happens to be conducive to a great quality of life as well.)

A geographic analog to the process of creative destruction

The growth corridors of the high-tech South enjoy several advantages familiar to NVSE readers: growth-oriented tax policieslower public sector debt burdens, stronger job creation, the best climate for entrepreneurs, and a superior overall business climate.  (The actual climate happens to be conducive to a great quality of life as well.)

Additional proof now comes courtesy of the CATO Institute:  millions of Americans and trillions of annual income have migrated among the states, to the benefit of our region.

 

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Money walks because opportunity talks.

 

This migration of economic clout within the US has been more subtle than the California Gold Rush or Irish Potato Famine but is just as significant.  Some states are chasing away their earners, workers, and entrepreneurs; this is their tax base.

Daniel Mitchell (of CATO) picks one example (California) from the Tax Foundation’s map and concludes it’s a “slow-motion economic suicide.”

Voting for a tax hike isn’t akin to jumping off the Golden Gate bridge. Instead, by further penalizing success and expanding the burden of government, California is engaging in the economic equivalent of smoking four packs of cigarettes every day instead of three and one-half packs… In the long run, though, people can move, reorganize their finances, and take other steps to reduce their exposure to the greed of the political class.  In other words, people can vote with their feet … and with their money…

The state is going to become the France of America—assuming Illinois doesn’t get there first.  California has some natural advantages that make it very desirable. And I suspect that the state’s politicians could get away with above-average taxes simply because certain people will pay some sort of premium to enjoy the climate and geography.

But the number of people willing to pay will shrink as the premium rises.

In The Spread of Start-up America and the Rise of the High-tech South, Richard Florida, senior editor of The Atlantic combined Joseph Schumpeter‘s theory of creative destruction with Mancur Olson‘s theory for the rise and decline of nations and concludes that the Southeast would have a mercantile-like advantage but for the fact that employers can (and do!) simply move and join its attractive business climate:

Leading nations as well as leading regions, he (Olson) concluded, decline as a result of one overwhelming factor that he dubbed “organizational sclerosis” — a hardening of institutional, economic, and cultural arteries that leaves them incapable of dealing with a new and rapidly changing economic environment. Sound familiar? Practices, patterns, and norms of organizing and doing business that once worked so well become a constraint, a fetter, an obstacle to further progress. Decline sets in as once-dominant places get locked into the past and are unable to adapt to new circumstances, new technologies, and new conditions. A geographic analog to the process of creative destruction takes hold as new technologies, new business models, new values and norms, new industries and ultimately new institutions, and new ways of organizing economic activity shift to new places.

In Olson’s view the United States was fortunate, because it is a big country. While previous epochs of economic and geographic change tended to jump from country to country — moving, say, from Holland to England and later from England to the United States — America is so large that this process of rebirth and remaking can occur within its own boundaries.

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