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Growing Capital In the Corridor
Source: Florida High Tech Magazine
Home to more than 383,000 millionaire households and 34 people on Forbes’ list of the 400 richest people in America, Florida has ample funding available. While success stories from across The Corridor exhibit how startups like Orlando’s Fattmerchant, Tampa’s Morphogenesis and Gainesville’s Captozyme have tapped into such wealth, the reality is most entrepreneurs struggle in an increasingly competitive environment.
Fundraising has accelerated rapidly in recent years. While funds grow in dollar amounts, the number of funds has remained relatively the same. This dynamic causes investors to write fewer, larger checks, making it more difficult for smaller companies seeking less capital to benefit unless they boast a disruptive or scalable idea. Indeed, MoneyTree’s Q1 report this year ranked Florida among the top five states for largest deals by dollar amount, with $511 million in financing distributed amongst just 20 contracts.
“On one hand, The Corridor region is a much more credible geographic area to invest in than it was 15 years ago and investors from all over the country now consider investing here,” said Randy Scott, partner at Gainesville’s HealthQuest Capital and advisory board member for the Florida Institute for the Commercialization of Public Research. “On the other hand, the businesses starting here tend to be the ones raising smaller amounts of capital, which will make it tougher to raise capital in this era of bigger deals.”
Randy has been an executive, board member, entrepreneur and investor in health care and medical technology companies for more than 30 years. He recommends smaller companies in The Corridor seek funding from “less traditional sources like angel groups or family offices,” which offer assets from wealthy individuals or families with longer investment horizons.
Tampa’s Ballast Point Ventures, the most active venture investor in Florida over the past 10 years, is not an angel group or family office, yet it does assist companies in earlier stages generating around $3 million in revenue. According to Principal Sean Barkman, who works largely with software-as-a-service companies, this segment of the entrepreneurial ecosystem is underserved by larger funds.
“We are pleased that five of our first 10 investments in Ballast Point Ventures III (a $164-million fund raised in early 2015) are based in Florida and three of those companies are based in Central Florida,” said Sean.
Similarly, IDEA Fund Partners is one of the most active seed and early-stage venture investors throughout the Southeast with stakes in three Florida companies, including one in The Corridor. With offices in North Carolina and Orlando, its managers review over 1,000 business plans a year, but typically make only one investment a month. This scenario is not uncommon among firms, said Founding Partner Richard Fox.
All three investors would agree success stems from investing not only in funds, but also in entrepreneurs. For Florida and The Corridor to advance the entrepreneurial ecosystem, assisting early-stage companies in the competitive environment is key. As Randy explained, venture capital money “chases talent more than technology.”
“We need to turn Florida into a destination for high potential and already successful entrepreneurs to move to. Then, everything will take care of itself in time.”
Several groups across the region, such as NEXUS and Seed Tampa Bay, are aware of the challenges facing early-stage companies and are working to help company founders more easily access funds. Before entrepreneurs utter one word of their business pitch, however, much preparation is required. Investors are more likely to work with founders who possess strong business acumen, leadership capability, industry awareness and a realistic company valuation. They must also be adaptable.
“In all the companies we invested in that were successful, every one of them had to pivot because of outside influences, surprise competitors and deeper opportunities in adjacent areas,” explained Richard. “It’s not all about the brilliant idea; it’s whether the company has thought through every scenario.”
It’s not unusual, added Sean, for investment firms and entrepreneurs to build relationships long before any capital is raised.
“The most rewarding part of our job is developing relationships with entrepreneurs and working alongside them to help grow their businesses,” he said. “The entrepreneurial spirit is truly unique, and we are thrilled to be part of the growing ecosystem here.”
In the world of venture capital, progress begets progress. As early investments in some of The Corridor’s leading technology entrepreneurs are coming to fruition, the region faces immense potential. Crucial to growth is reinvestment by successful entrepreneurs. We need them to serve as angel investors and advisors for the next wave of pioneers. This cycle proves efficacy, enticing even more investors and entrepreneurs to The Corridor, where a favorable business tax climate, modern infrastructure, talented workforce and lifestyle amenities provide refuge from the rising costs and bloated markets of other high tech hubs.