Florida may have the third-largest population in the country, but only about 3 percent of venture capital comes from sources in the Sunshine State. That’s a number many start-up and technology enthusiasts would like to change. Many say it must, if Florida can ever become competitive as a commercial power and not just a place wealthy people come when they leave the rat race.
ON THE SHORES OF RETIREE-RICH SARASOTA, where wealth per capita has been above average for years even if working-class salaries trailed the rest of Florida, there’s a particular interest in turning retirees with thick investment portfolios into funders and angels for bright business ideas originated here. “We are not seen as a business state. It’s a visibility and a perception problem,” says Wendi Chapman, executive director of Bridge Angel Investors. “But I do also think that’s becoming less so.”
The thing is, while Sarasota may be known for its beaches and waterfront views, it’s also a community with a half-dozen colleges working in concert to boost the skill sets of workers. It’s home to a growing number of co-working offices perfect for housing start-ups. And it’s a region brimming with investible wealth if its many well-to-do denizens feel like taking the chance on bold business visions.
There’s challenges as well, not the least of which is many of those retirees with brokerage accounts and dreams of investment made their money in an era before email and they don’t understand the economy of Facebook acquisitions and Google experimentation. Many are at a stage of life when seeing one’s name on a park bench can bring personal gratification, and when investment strategies tend to skew toward the conservative.
So what will it take for Sarasota’s wealth holders to turn into regional start-ups’ benefactors? The same thing it takes to be a successful entrepreneur in the first place: vision, optimism and some serious guts.
Since his arrival in Sarasota, former Cox Enterprises President Dean Eisner has seen the region’s potential. Living on Longboat Key, Eisner’s neighbors include Fortune 500 executives and hedge fund managers, many with their own rags-to-riches tales. In his eyes, that meant a surplus of mentors for the talented business leaders graduating from area colleges like Ringling College of Art + Design, where he served on the board for many years. He’s been involved with efforts like Bright Ideas on the Gulf Coast, an effort to encourage start-up culture in the region. But often those dwindle within a few years and the region continues to suffer from brain drain as talent leaves the region.
Part of the reason, surely he feels, stems from an asset the region lacks—venture capital. Attending a recent presentation at the University of South Florida in Tampa, he took note of the places where major businesses go to find seed funding and second-round investors. Florida doesn’t rank high. “When you are talking about where venture capital lives, we are the third-most populous state but have 3 percent of the pie,” he says. “That’s pretty small compared to a California or a New York.”
Statista estimates that in 2018, Florida saw upward of $1.7 billion invested as venture capital. New York, with a slightly lower population, saw more than $14.3 billion by comparison. The far less populous Massachusetts had about $11.9 billion in venture spent. California, home to Silicon Valley and more people than any other state of the union, saw roughly $77.3 billion put by venture capitalists into firms across the nation. So what can change that? For one, a change in mindset about the virtue of investing in start-ups.
It’s something John Cranor, a fast-food titan who earned his college degree at New College and still bases himself in Sarasota, has preached for years. He’s worked with angel funds in Kentucky and in Florida, and was an early member of the Florida Tamiami Angel Funds. He’s always enjoyed the thrill of backing start-up companies, getting big dreams off the ground that have the potential of making founders into millionaires and creating jobs that redefine a region. But he knows not everyone will feel drawn to this type of investment.
“There’s a cadre of people who understand angel investment, but it’s a fairly small group, and that’s not surprising,” he says. “It’s a high-risk, potentially high-reward opportunity. But frankly, more angel money is lost than is gained. Dealing with start-ups, those are pesky little things.”
That’s not to say there aren’t plenty of successful businesspeople in the region with the stomach for putting money into a company. Cranor has found a literal appetite for those who want to support a concept for a restaurant—“We are all eaters,” he notes. But when it comes to unproven concepts, many millionaires would rather let their money sit in a brokered fund than to risk it on an idea more likely to fail than succeed.
There’s at least some trendiness to the idea of start-ups today. The popularity of shows like Shark Tank has led to local events like Venture Pitch, held at locales from Sarasota to Naples for entrepreneurs to pitch their business plans in a public forum in the hope of winning prize money to invest in the next
stage of business. But it will take a lot of weekend exhibition events and $50,000 giant checks to catch up to the West Coast.
Joy Randels, CEO and board chair for New Market Partners, talks about venture capital in Florida the way Jacksonville Jaguars fans talk about their favorite football team. There always seems to be potential there even if no one else in the world sees it, but every time a dream comes into sight, it seems to rush away faster than Nick Foles getting out of a contract.
Without question, Randels knows the entrepreneurial minds in Southwest Florida have as much potential to produce a good idea as the ones flocking to Austin. She’s invested in businesses for 25 years and believes she has put more into tech companies in Florida than any other angel in the state. But the Sarasota businesswoman has also raised some $400 million in venture capital for various companies, and nearly every penny has come from beyond the state border. “There’s just not that much risk capita here,” she laments.
There’s other barriers to success, too. In the midst of the Great Recession, the state saw its share of high-profile Ponzi schemes and corporate scams that created a trepidation within the investor class that lingers today. And a state more rich in marketing majors than industry veterans grasps quickly to buzzwords like “start-up” and “tech,” sometimes with little concern if such terms apply to second-stage businesses or concepts that merely have an Internet-based component.
So, some of the shifts in the climate in Sarasota have to do with entrepreneurs and the case they make to investors. For a company to develop any type of technology asset, that means finding capital sources already invested in related firms.
“You may not have to generate money before being acquired, but whoever acquires you has to look and say the technology you have will augment what they already have,” Randels says. “Or you have a customer base they can use and that they want to sell other products.”
For many firms in Boston or San Francisco, that means companies where they put venture capital must also make existing investments more valuable. That’s why it helps to have sectors cluster in a single geographic area, the way Sarasota has tried to build up health care technology support products like Voalte or BioLucid. Those companies were both founded locally and sold to Hill-Rom and Sharecare, respectively.
But many baby boomer investors have never worked in technology, and don’t understand the ways in which company products can work in conjunction. Even if there’s an allure to investing in the tech sector, there’s no intuition on what companies will work and what may be doomed for failure.
And Randels says if investors aren’t putting money in tech, they aren’t ever going to see earth-shattering returns on investment. The average technology company generated
$1 million for every individual on payroll. That dwarfs most other industries. Real estate typically provides a 9 percent return for investors, while good investments in tech can produce 20- or 30-fold returns in five years.
It’s ailment that Bridge Angel Investors hopes to fix from the investor class down. Based in Sarasota and investing in the entire state, the company touts the assets of the area. That MoneyRates in 2017 listed Sarasota as the best place to launch a business. That incubators are popping up around the state and universities have produced talent for years. That the quality of life has more natives who want to stay in Florida to run a business and more transplants who want to move headquarters here. Founded by Tom Gardner, the fund today is led by Chapman, who also chairs the executive committee. She previously worked in Silicon Valley but moved to Sarasota full time four years ago after visiting the region throughout her life. She started at Bridge in 2017.
She noted that for the moment, Bridge represents more angel funding than capital investment. “Angels are usually a round after friends and family,” she says. “And it’s usually about mentoring in addition to writing a check.” The fund in 2018 made its first major investment of $1 million into Rewired Solutions, a recruiting company founded and headquartered in Sarasota. But it’s also been building member investors, and now has 22 people chipping in capital.
Linda Jellison, a former president and CEO of LTC Engineering Associates, was among the early members of the fund. “I’ve been through the start-up and growth process and I know some of the struggles,” Jellison says. She understands the difficulties of cracking into government contract bidding and of building up private-sector clientele. After retiring from her engineering firm, she found angel investments allowed her a way to stay involved in the excitement of entrepreneurship but without having her whole life entangled in a business.
Similarly, Rachel Wei West worked for years in finance and investment, and after moving to Sarasota full time seven years ago, she wanted to stay involved in launching new business ventures. “Personally, I am an active angel investor, as well as a mentor and advisor to businesses,” West says. So the opportunity to be involved in Bridge seemed immediately rewarding. Both West and Jellison have many of the long-term goals typical in the angel world, most notably the belief that helping other start-ups launch businesses produces its own type of good for the world. And they see a desperate need in Florida for that type of development of commerce.
“In Florida, there aren’t as many clusters of venture capital as Silicon Valley or Boston or New York, or even Austin,” West says. “But there are certainly a lot more emerging ventures, looking at not just writing checks but in cultivating an ecosystem as a whole for Florida.” She points to projects like Tampa Bay Wave, a co-working environment and business accelerator founded in 2008 and now boasting 70 mentors to work with start-ups. The Sarasota–Bradenton community has seen any number of similar efforts—Spark Growth, The Hub, Bold—that also try to incubate start-ups. And West believes there’s sectors, like education, technology and health care, that naturally compete better in Florida for a variety of reasons.
What’s still lacking is an appetite to invest. And that may be the most challenging change still in the works at Bridge.
The absence of investment in the Greater Sarasota area can’t be written off completely as millionaires sitting on their money. The region,
after all, hosts two of Florida’s most successful foundations in the Gulf Coast Community Foundation and the Community Foundation of Sarasota County. Oftentimes, it’s been these nonprofit entities, part of a sector best known for supporting social charities or arts organizations, that often played the most central role in workforce development and business mentorship in the region.
But for seasoned investors like Randels who work with venture firms outside of Florida regularly, that’s not a natural organization for a business community. Those employing people have a direct stake in developing talent, and those backing entrepreneurial visions stand the most to gain from keeping talent in the community where they live. It’s capital that should be promoting a better business climate, not the nonprofit sector. Profit, after all, provides a uniform measure of a business’s success.
So why is this so? Part of it may simply be the stage of life of many holders of wealth, Chapman notes. People come to Sarasota to retire, not in search of business opportunities, and many have investment portfolios still at work in the communities from whence they came. Then there’s tax deductions. Investments in philanthropy immediately provide one benefit to donors in that they can be written off and cut the money given to the federal government each year. Similar incentives don’t exist for investing in business. And then there’s the factor of gratitude. “Giving on a social level is a little bit easier because it’s connected to a cause,” Chapman says. A major donation that advances an arts organization may be touted through permanent shrines, or at least public accolades.
Plus, there’s not a level of perceived risk or loss. While philanthropists do increasingly ask for visible impact from donations, there’s not an expectation a charity will ever provide a personal return on investment. The very nature of a business investment creates a tension, one where the investor constantly awaits a payday and expects an explanation if that never comes. In one sense, Chapman says it’s her job to shake that. “There’s a heart piece,” she says. “It’s like giving a loan to a family member; you don’t necessarily ever expect to see that money back. You should think beyond social and emotional ideas like not getting or expecting a return. If you invest in angel funds or just individually give a company money, I say don’t expect it back.” When investors expect a return like they see in real estate or a stock portfolio, they get disgruntled, especially if they just do one-offs.
Cranor often tells angel investors the typical hope is that if you invest in 10 companies, a few will outright fail, some will barely break even, and one or two will produce serious returns. But even that may never happen.
And there’s another different mindset in the world of entrepreneurship compared to charity work. Randels has worked with area foundations on commercial-minded efforts but often found less appetite for risk among foundation trustees than she sees on boards of directors for venture capital firms outside of Florida. She notes a project she worked on with the Gulf Coast Community Foundation, where she had been recruited for a type of technology accelerator where the foundation provided certain seed funding and resources. But the foundation ultimately deemed the plan to prone to risk and the potential of losing money put in by donors.
“They said it was not a part of their mission,” she says. “I kind of understand that, but I do think it had an education factor. I do not think the Gulf Coast Community Foundation should support a technology accelerator in perpetuity, and that it just be involved for just one, maybe two years. If it cannot support itself, a technology accelerator should not be here.”
But that’s where lacking an investor mindset as a region can hamper the entire economy, Randels says.
Jellison, for her part, remains active both in the local nonprofit sector and in capital investment. She’s active with the Education Foundation of Sarasota County and has funded scholarships to help students in the region pursue careers in STEM-related fields, something she sees as a direct benefit to the regional economy in the long run. But she says the opportunities available in venture capital lured her to get involved in angel funding. Her goals in many ways are similar—returning the wealth accumulated from her own professional success to help other’s achieve similar goals.
“I’m very proud of creating some high-tech jobs in Sarasota,” Jellison says of her engineering firm. “Those are all degreed jobs, many of them advance degreed.” Her work at the Education Foundation will help many individuals get degrees to fill that kind of job in the future, and Jellison sees that as a worthy use of her time and skills.
But it’s the work in venture that feeds her more ambitious and adventurous side as a veteran business owner, the one that prompted her to start LTC in the first place. “I believe there are a lot of smart, young, entrepreneurial people that want to start small companies, and they need help,” she says.
West sees a critical role for venture and angel capital in keeping the economy of the region, even the entire state, vital in the long term. And like any investor, she’s excited by the prospect of growth. Florida in the last 10 years has seen dozens of capital funds pop up, and every one shows West a reason to think Florida’s future as a place to launch a business is brighter than its present or past.
“It’s really growing a mature ecosystem as a whole,” she says. “Quality deals are happening with investors that are recognizing the future of Florida.” Those deals will expand a network of optimistic investors and business owners anxious to spawn more success. As homegrown businesses create jobs for students coming out of Florida colleges and universities, word will grow that this is a state to receive an education and start a prosperous business.
West imagines a bright future for the companies benefiting from capital infusions today. She expects upstart businesses with the help of angel investors and venture capitalists to grow and engage in interstate commerce not imagined at launch time. Then she pictures CEOs living in Florida traveling the country to speak at entrepreneurial conferences, appearing on the cover of business magazines and telling their stories to a growing audience of other investors anxious to tap into the growing Florida market.
“It’s very exciting to look at Florida and see the wave of opportunities capital can provide,” she says. “I will follow it into the heavens and even higher.”