Florida is one of the most exciting stories on the U.S. venture capital scene right now, with the state being the third fastest growing startup state overall and Miami the number one fastest growing U.S. metro area for new startups. And yet Florida still receives less than 1% of global venture capital dollars. Why? And what will change this?
The key role of entrepreneurs is to bring together resources for success. The fundamental ingredients of a successful startup are experienced entrepreneurs with new ideas, great people to join the team, investment capital, support from mentors and peers, and strong team of advisors – sophisticated lawyers and accountants are essential. In addition to creating high-growth businesses and new jobs, a flourishing entrepreneurial ecosystem has an exponential effect on the local economy.
Florida has many of these ingredients in abundance already. By any measure, the Sunshine State is filled with smart capable people and a tremendous amount of capital. Record numbers of people are moving to Florida from major tech industry hubs like New York, California and Boston. There is growing awareness of angel investing thanks to local groups like AGP Miami, New World Angels, Florida Angel Nexus and the Tamiami Angel Fund. Members of these groups are pouring millions in investment into new startup companies every year. The local startup community is growing rapidly and becoming better organized. According to 2017 edition of the Kauffman Foundation Index of Startup Activity, Miami is the number one fastest growing U.S. metro area for new startups being created, with Florida being the third fastest growing startup state overall.
However, that same Kauffman Foundation report goes on to say that Miami is also second-to-last in the U.S. for scaling startups, defined as growing beyond 50 employees and $2 million in revenue within 10 years. Other Florida metros fare a bit better, with Jacksonville, Tampa, and Orlando all placing higher on the list. The reason for this discrepancy is obvious when you ask any entrepreneur – there are not enough professional investors at each funding stage to support a high-growth business in Florida. While Florida has done an excellent job in creating an environment that encourages entrepreneurial ideas to germinate, much remains to be done in creating a genuine ecosystem that will encourage more of these startups to reach their full potential.
Breaking into the Major League
So far, Florida has yet to seriously capture the eye of venture capitalists. The state receives less than 1% of global venture capital dollars. To large investors in Silicon Valley and elsewhere, Florida is still the “farm team” compared to the “major leagues” of California. Some new companies are bucking this trend. Most notably, companies like Magic Leap, Modernizing Medicine, and others are drawing in marquee investors and hundreds of millions in investment – but not from Florida investors.
One of the principal factors that led us to start Las Olas Venture Capital in Florida was the lack of professionally-run venture funds based in the state. All Florida entrepreneurs quickly realize that while there is plenty of angel investment money to get them off the ground, there is almost nowhere local to turn for their next round. Companies face a hard choice of trying to raise funding outside of the state or scrape together enough small angel checks to stay afloat. Without several more funds, focusing on each stage of a company’s life cycle, Florida will remain a tough place to successfully scale a company. To date there are not enough local success stories – companies achieving large exits and realized returns for their investors – that truly attract more companies, talent, and investment dollars. Dania Beach-based Chewy.com’s sale to PetsMart for $3.3B is a big step in the right direction, and an emerging sign that tech companies can be successful locally.
There are many emerging startup companies in Florida that we are excited about. For example, our portfolio company CarePredict, based in Plantation, is revolutionizing the elder care market with their Tempo platform. ReloQuest, another LOVC portfolio company based in Weston, is now the go-to technology solution for corporate relocation managers. We at Las Olas VC are seeing tremendous opportunities in the Florida market and believe that with proper infrastructure and support, the market will only continue to improve.
Good Times Ahead
The missing piece of the puzzle for Florida’s entrepreneurs is finding the “glue” that brings these startup ingredients together. The “glue” is strong investors, advisors, mentors, and peers to share experiences that bring founders together and enable their success.
Often times the quality of advice founders get is mixed at best. Most investors and advisors have good intentions, but their lack of experience in early stage investing can be a challenge. At LOVC we strongly encourage founders to do exhaustive due diligence on their prospective investors and advisors — as the ecosystem develops, participants that do not meet the rising level of professionalism will be winnowed. We believe in promoting a culture of candor and transparency and pushing our startup community in Florida to new and greater heights.
The good news is that the environment is improving with the recent growth in the number of professional investors – run by experienced entrepreneurs, operators and financial experts. At the same time, we are seeing more professional service providers who bring invaluable expertise and experience to the table. A great example is our administrator Trident Trust, a globally recognized name, which established a dedicated South Florida desk in Miami last year in response to the rapidly growing demand in the state.
All these factors are driving the opportunity for LOVC to play a major role in an emerging and growing technology startup ecosystem. Being an early mover in a large underserved market allows us to work with great entrepreneurs at mutually favorable terms. We’re entrepreneurs at heart, and we’re building LOVC as such. Our ultimate goal is to make Florida a viable place to scale technology startups. Timing is good, and we’re making progress together.
Column by Mark Volchek, Founding Partner, Las Olas Venture Capital