Mike has a great idea that could give him a technical niche in a sophisticated communications industry. He has solid patents and a business plan painstakingly assembled over several months. Unfortunately, for all the potential his idea represents it is worth nothing without financing. The amounts he couldn’t personally raise would have to come from somebody who believed in the idea as much as he did. Perhaps a venture capitalist group, or maybe an "angel investor". He had heard about them as well as stories out of Silicon Valley about hot startups that were fueled by venture capital or wealthy individuals.

Nicholas is a multimillionaire who accumulated the majority of his wealth from financing technical startups. He has been very select in the companies he assists. To him it is important the company have a keen business sense, a solid plan and be involved in something he can comprehend. However, Nicholas is wary of being too visible with his investment strategy lest he be hounded by ideas and projects that are half-baked and a waste of his time.

Mike and Nicholas stand a greater chance of meeting each other in a traffic accident than a meeting of the minds.

Sadly, this scenario is not far removed from the nature of venture capital in Northwest Florida. On the one hand there is the strong technical base working in technically sophisticated areas, especially around our military bases. On the other, we have individuals whose net worth allows them to invest in projects spawning from this work. Technical startups seeking the elusive "angel" or group that will provide the "seed capital" to get them underway. It is a game both simple and complex. The simplicity is that "good deals get done". The complexity is making the "deal" good and navigating the networking hedgerows to find the right audience.

Approaching the areas banks to finance a high-tech startup is still an option however most take a conservative approach. Monte Wiegel of Suntrust Bank says, "SunTrust Bank works with VCs and in fact has its own VC Group headquartered in our Atlanta Bank. For the most part, we specialize in companies with a track record of at least three years, good profitability in a growing industry that maybe has growth needs beyond what the banking industry can prudently provide. But for companies starting from scratch the approach is a bit more guarded, "A bank is not structured to take this kind of risk." Beth Baron of Bank United adds, "These institutions seldom provide capital for high-tech startups. These would be considered higher risk and would stand to be heavily criticized by Bank examiners." Tommy Tait of Whitney Bank agrees, "In general ‘seed capital’ is very difficult to lend unless the borrower has good coverage from a collateral stand point. Current lending regulations for traditional banks greatly restrict what we can do in high-risk ventures."

If not the bank then where’s the money? And what does it take to find it? Moreover, what does the region need to do to bring investors and entrepreneurs closer together?

Aside from the major VC markets in the large cities and technological hubs there are some very strong areas of VC in Florida. But not surprisingly it is clustered in the central and southern parts of the state – close to the financial centers, wealthy investors and hives of entrepreneurs.

Robin (pseudonym – COO of high-tech company in Bay County) has been pursuing VC for a high-tech startup in its second round ($8 million) of funding and has traveled far and wide. He believes the hunt for capital is a global game. "From a client-side standpoint, if the clients are there, the VC’s and ‘suppliers’ to VC’s will generally follow. It takes, however, an understanding of what ‘there’ means in terms of magnitude. The larger institutional VC’s (I’m not talking about incubators or Angel VC investment groups) have churn rates of 200 to 800 business plans per month. There are literally hundreds of new ventures per month, several of these quite solid business opportunities, flowing through on a regular basis. In the end, in terms of Northwest Florida, this means that the larger VC’s probably collectively see more viable new ventures per month than successfully exist in all of Northwest Florida. There just isn’t enough in Northwest Florida to feed their appetite – any VC’s would be at a markedly distinct competitive disadvantage to other VC’s if they were located in Northwest Florida."

Fred Duplantis, TEAM Santa Rosa Executive Director, is realistic but takes an aggressive approach. "The VC groups seem to cluster in areas where banking understands what they are doing and in areas that have the disposable capital to leverage their investment. Would the Santa Rosa area be one of these areas that a VC group would be interested in locating? Probably not!" His approach involves acquainting VC firms with the area, "TEAM Santa Rosa will make a conscious effort to have officials with various Venture Capital firms in the field of high tech and bio tech visit Santa Rosa in the next 12-18 months."

There are success stories in the region. Mike Frey of the Pensacola Chamber of Commerce believes that the issue is attracting ‘seed capital’ to get a startup underway since VC tend to prefer companies in a later stage of growth. "We have excellent examples of local companies which have attracted significant VC investments, most recently Network Telephone of Pensacola obtained approximately $250 million in VC to fund their growth and expansion. Other high growth companies such as Advantage Credit International have obtained needed capital from the Venture market. What is really lacking in the area and badly needed is ‘seed capital’ resources. Seed capital is much harder to identify and attract since a higher risk involved yet for many start-up technology companies this is what they are really searching for."

To assist entrepreneurs in finding investment resources Enterprise Florida published a Florida Venture Capital Finance Directory. Co-produced by William Jones and Maury Hagerman, it offers a comprehensive resource for beginning the hunt for funding. However, the directory contains several introductory articles on the topic of VC designed to portray the realities involved. Getting in front of a VC to pitch a business plan is not easy. Given the hundreds or thousands of business plans they typically receive, only a select few get an audience. And it has almost to do with ones networking skills as well as the merits of the business plan – the cliché still applies: it is as much as who you know as what you know.

Maury Hagerman spent 20 years with the Florida Department of Commerce before becoming a consultant on VC with Enterprise Florida. He feels the directory is mandatory reading for all entrepreneurs. He emphasizes the importance of networking. "The process is a chain of referrals whereupon progress is attained by the credibility received at each stop." He also points out a key area that is often overlooked in seeking funding, the lack of business sense. "So many people with technical talent but very little business sense. They have to be ready to have staffing changes that will support progress." Mike Frey refers to this as "Vulture Capital." When a VC invests its money it wants to mitigate its risk by making key staffing changes to make sure the company is managed to protect their investment.

But the lack of business sense by technical entrepreneurs is often matched by the lack of technical savvy by the VC. The communications gap is compounded. Randy (pseudonym – CEO of startup in Okaloosa County) has been there. His company had found potential "angel" investors. "If they don't understand the technology, they're probably not going to see the potential. We spent at least as much time educating as we did actual planning." Randy also feels like there are financial marketplace factors that tend to muddle the dialogue with investors. "Recent fluctuations in the NASDAQ have reinstated fears among "technologically challenged" investors (which is the vast majority) that high-techs/dot-coms are more risky than your average startup. Obviously this can be true, if the venture is poorly planned or uses a flawed business model. But that holds true for any business in any sector, not just tech. Tech is just the one with the biggest stigma, thanks to all the "built-to-flip" models that hit the IPO market last year."

The common element overlaying these observations thus far is "awareness". Awareness of the technical talent base, new companies, availability of funds, sources of investors, technical understanding, business sense and the VC community as to what Northwest Florida represents. The lack of awareness has stymied the region’s ability to create the VC culture. "We don’ t have the culture here," according to Mr. Hagerman. But adds, "There are people in Northwest Florida with money."

Neal Wade of St. Joe Inc., states, "Florida, as a whole, has not been able to attract the venture capital that other major economic power house states have…. I think this region should begin focusing on this issue to determine what possible solutions there are, but the reality is that we are so unknown, we're just not viewed as a place to focus VC."

Tom Powell, Executive Director of the Walton County Economic Development Council reflects the general optimism for our future. Northwest Florida could compete successfully for some types of high-tech businesses that rely on venture capital because our coastal quality of life makes it easier to attract the high quality people sought by those businesses." He further adds, "Many wealthy people who are or could be venture capitalists are already familiar with Northwest Florida, and many of them own properties in Walton County. If we could just identify and connect with those people,we would have a good start at building a powerful VC community."

Bryan Morgan is the managing editor of the Wireless Developers Network, an industry web portal (http://wirelessdevnet.com) based out of Niceville and shares the laments on building the VC culture, "In terms of actually attracting VC interest to the area, I think it's always going to be on an isolated case-by-case basis due to the small population, lack of large businesses, and absence of local VC firms.  Individual companies may be able to get funding but the odds are very high that the companies will be asked to move to a high-tech "center" (Atlanta, Austin, Raleigh/RTP, etc.).  There simply is not a true community here that helps to foster and promote technology businesses.  The few that I know of all work entirely in a vacuum with absolutely no interchange or information transfer between companies.  I think this could be improved by the formation of a local consortium whereby we could all meet once a month and work together on things."

The notion of startup companies having to move to a high-tech "center" does not set well with EDC officials, they want them to stay and grow here. Larry Sassano of the Okaloosa EDC believes that critical issue is identifying VCs who are willing to allow the development to take place "in our own backyard". He feels that we need to build the infrastructure with a regional scope incorporating "Florida’s Great Northwest". It would leverage key elements such as our universities including the University of Florida’s Graduate Engineering Research Center. Additional components of the infrastructure include identifying potential VC investors in the area that are cognizant of the area’s demographics and technical base. Meetings between these investors and select entrepreneurs could help jump-start the process.

John Gagliano, director of the Gulf Coast Alliance for Technology Transfer (GCATT), has studied at the Stanford Business School and has been close to the VC community in the Silicon Valley area. He has made presentations to explain Northwest Florida’s unique technical character and discovered that his audience’s only recollection of the area is that it has a large Air Force presence. He feels that the linkage between our regions technological focus and the major VC markets interest areas (telecommunications, software, networking, etc.) is weak. He feels that GCATT is in an excellent position to strengthen this linkage but it will take time. According to Mr. Gagliano the first thing we need to do is an analysis. "We educate ourselves in potential commercial applications of DoD technologies, and emerging technologies from our state universities, and improve the linkage, improve the marketability of our intellectual capital."

Increasing the visibility of technical initiatives and investors will not be an easy process. Inventors and entrepreneurs guard their proprietary assets and business plans while the investors guard their pockets. However this region proceeds it will be a gradual process building upon initial successes. One entrepreneur in the region has been looking for VC funding for his high-tech startup for several months now. His recommendation for whatever approach is taken to create the "culture" is a refrain heard often in the VC circles, "Due Diligence!" To reorient the thinking of the investment community for our region we will need to exercise due diligence in a concerted effort.

Scott Jackson
Mindlace Media & Photo
850-217-7994

 Ó 2000 Scott Jackson