Category Archives: venture capital

Florida Growth Fund

Earlier this week I attended a Florida Venture Forum welcome event for the Florida Growth Fund, a $250 million hybrid fund-of-funds managed by Hamilton Lane for the Florida State Board of Administration. A say “hybrid” because the fund has two missions: 1) invest into Florida-focused venture capital funds and 2) invest directly into Florida companies. It’s not clear how much of the fund will go into each of those buckets, but their investment amounts per deal/fund are roughly $5-15 million.

A couple of the principals from Hamilton Lane spoke at the event, Greg Baty and David Helgerson, and it was very well attended. Both Greg and David are drinking from a firehose at the moment, Florida is a big, diverse geography for venture capital. They are doing a good job of meeting the right folks around southern, central and northern Florida. In parallel, they are also dealing with the logistics of fund creation, including new offices in Ft Lauderdale and Orlando.

Attendance included local entrepreneurs and venture funds from inside and outside Florida. As predicted for years, a pension fund commitment to local venture capital has focused venture fund attention on Florida — pulling venture funds to the event from just about every state in the Southeast, and some beyond. Now that we’ve got the attention, it falls to Greg, David and their team to pick the funds and companies that will drive the best investor returns for FSBA.

Their mandate sounds pretty broad, covering early & later-stage venture capital funds and multiple industries for direct deals. Although they’re after Florida direct deals and looking for funds with a Florida connection, they are not bound to Florida-only funds. For direct deals, they will not lead and price rounds, but would consider following-on up to half of a round. At the event, they announced their first two investments: 1) Voxeo and 2) an unnamed later-stage venture fund.

In my opinion, the hardest part of their mandate will be to balance priority on near-term small wins and long-term results. I was in Tallahassee when the Florida Growth Fund was announced and I remember a media question about “when can we expect results from this FSBA program?” Part of the answer mentioned seeing near-term (3-4 years) “points on the board” — something that historically conflicts with achieving the highest returns from early-stage investing (see chart). Although balancing near-term and long-term expectations is tough, it’s not insurmountable. With stage-diversification and patience, “invest in ourselves” programs like this can deliver great results. Hamilton Lane manages similar programs for multiple states across the country and they seem to understand the value of mixed early-stage and later-stage investments to achieve blended success.

Although their website hasn’t fully launched yet, you can see their splash page at http://www.floridagrowthfund.com/. It includes email and phone contacts. If you learn more from your interactions, share with other Florida entrepreneurs by commenting here…

Florida Opportunity Fund

florida opportunity fundDespite my time off the grid for the holidays it was hard to miss some of the buzz around the recently announced Florida Opportunity Fund.  It didn’t hurt that I’ve been following the topic closely for the last year — you can imagine it’s close to my heart.  The origin of the Florida Opportunity Fund stems from legislative action in 2007 creating roughly $30M of capital focused on in-state early-stage venture capital: 2008->Chapter%20288->Part%20X”>The Florida Capital Formation Act.

The logistics of deploying that capital properly is that Enterprise Florida was given the responsibility and funding to create a custom fund-of-funds (FoF), including a governing board and professional FoF managers.  The governing board was announced back in 2007, including Pete Pizarro, Kenneth Wright, Diane Cook, Paul Hsu, and Andy Hyltin
The recent announcement covered the selection of its FoF manager: Florida First Partners, a joint-venture between Milcom and Credit Suisse-Customized Fund Investment Group.  That announcement essentially signals the Florida Opportunity Fund is open for business and looking for quality Florida-based venture funds to leverage Florida’s pool of talented entrepreneurs and world-class technology into superior venture returns.  Jennifer Dunham and Melford Carter are the current contact points for inquiries.
So, those are the facts, what’s my interpretation?
I think it’s another smart step in the right direction.  A pool of $30M split among a few early-stage venture funds isn’t going to change the state’s venture ecosystem overnight.  However, I’ve seen firsthand how quality in-state lead investors bring national venture dollars to the state.  For example, Inflexion, Florida’s Venture Fund, has experienced 11-18 dollars of co-investment for every Inflexion dollar invested into early-stage companies.
Now that the politicians have taken a key step, setting up the fund with its core goals, it falls to the Florida Opportunity Fund to deliver on those goals, in the face of a difficult macro-environment, plenty of naysayers and likely political pressure along the way.  Florida presents unique challenges and opportunities for early-stage venture funds, requiring local access to multiple hotspots across the state combined with national relationships.  Early-stage company building is a local business and flying in for periodic board meetings, even by the largest funds in the country who will claim some Florida connection, just doesn’t cut it for early-stage.  
Local effort + national networks + quality track records = superior investment returns for the Florida Opportunity Fund.
That said, just as Inflexion alone hasn’t filled the early-stage venture gap in Florida, the Florida Opportunity Fund isn’t a silver bullet.  Participation by angel groups, the State Board of Administration and the state’s largest university foundations are also critical.  However, if we’re all successful harnessing the vibrant and passionate technology entrepreneur and research base in the state, it will be a transformational success for Florida both in investment and economic terms.

VC, So Easy a Governor Can Do It

While reading SoutheastTechWire this morning, I was surprised by the headline that Georgia Governor Sonny Perdue has launched a venture capital fund. My first images were of a Governor fitting Partner meetings and startup board meetings in between lobbyist lunches and political battles with his legislature.

That’s not quite the reality, at least I hope not. According to SETW, the Georgia Research Alliance Venture Capital Fund will allow the state to partner with the private sector to provide early-stage financing for businesses formed around intellectual property developed in Georgia’s research universities. The state’s $10 million investment will be matched 3-to-1 by private dollars for a total of $40 million for the fund. See http://gov.georgia.gov/00/press/detail/0,2668,78006749_78013037_102958342,00.html

This is great news for Southeast entrepreneurs leveraging Georgia research, with one caveat. The success of the program will be highly dependent upon private fund management as a venture fund competing for top returns, rather than a government-run program subject to political favors/pressures. I also think the 3-to-1 private match will be contingent upon such insulation from political gaming/inefficiency. A $40M fund is a great start, but it needs to succeed on financial measures to warrant ongoing support/growth. All that said, congrats are due for Governor Perdue taking steps to support Southeast entrepreneurs.

Venture Capital Not Required

This post is for all those entrepreneurs who are building great businesses, but have no need or interest in venture capital. Given all the emphasis on venture capital from pundits, startup mags and regional entrepreneurship organizations, it’s easy to lose sight of the fact that venture capital isn’t a requirement for building something great. In fact, many of the best entrepreneurs in the world never step foot on Sand Hill Road or similar VC hotspots across the globe.

I met with one such entrepreneur last week and was impressed with all he has accomplished with credit cards and cash flow. He has big plans for next year, probably doubling or tripling his business. I see plenty more opportunity with the addition of smart capital, but I tried to restrain myself. My focus on building $100 million+ to $1 billion+ businesses comes too natural/narrow from being a VC, and sometimes you have to sit back and appreciate the handywork of an entrepreneur who is content and proud of building his $10-20M vision.

Whether your business is in services, food, entertainment, real estate or any number of unlikely spaces for VC, take comfort in what you’ve built and don’t change your vision just to match what other people say you should do. Build what feels right, change some people’s lives along the way, and if the high growth nature of venture matches your goals then give me a ring…

Sometimes Bigger is Better

Round size is a topic that always makes me chuckle when entrepreneurs share the feedback they hear on the fundraising trail. Every fund has refined the story that fits their fund, regardless of the business: larger fund = raise more money, smaller fund = raise less money.

I don’t think most VCs are being disingenuous, at least not consciously. They are sharing what has worked for them — remember, most of the industry is about pattern-matching what has succeeded in the past.

Larger funds share the virtues of taking more money up-front, accelerating quickly and keeping yourself off the fundraising treadmill. Smaller funds share the wisdom of taking only the money necessary to hit key milestones, while keeping dilution to a minimum until raising more against value-creating events. There is value in both perspectives, but keep these tendencies in mind — they have nothing to do with your business.

This blog post was sparked by an entrepreneur asking me today about the best round size for his business. Despite my fund’s focus on $1-5M rounds and my excitement about the business, my advice was to pursue a $10M+ early round. Why? Because the company has some significant early risk that can only be reduced by closing some major/difficult deals or securing a large warchest. Thus, closing $3-6M funding could actually be harder than closing $10-15M, begging the question about life/death, not dilution. Sounds weird, huh? Well, for this company a bigger round could make sense.

Make sure the answers you get make sense for your company, not just the fund across the table…

Customer Interest != Big Opportunity

We had a couple interesting entrepreneurs present today, but they both fell into a trap that snares many entrepreneurs pitching institutional VCs. They both built their businesses from the ground up, based upon market/customer requests — that part is super! However, they both equated early customer interest with big opportunity — that’s…well…less than super.

Demonstrating customer interest jumps an entrepreneur ahead of all the idea-on-a-napkin entrepreneurs who just assume customers will flock to their big idea. However, when institutional investors ask questions about the size of the opportunity, including market size and scalability, referring to current customer interest really doesn’t address the question.

This issue is particularly acute with entrepreneurs who have been successful raising angel money because some angels equate the two, or worse, just get excited about the early customer interest (forgetting about how big the business can be). Those entrepreneurs often repeat the mantra of “customers love our product” when the VC’s real questions are how many of those customers exist, how many competitors will enter your market when they see how lucrative it is and how will you scale early customer interest into a business that sustains itself — HOW BIG CAN THIS BE!

Understanding the difference between these two concepts, and demonstrating it during VC Q&A can really aid a presentation…

What is the Meaning of Life? Ask Yahoo!

When Yahoo and Google each launched their Answers platforms I was cautiously optimistic. I mean, where better to ask “What is the meaning of Life?” in hopes of distilling insight from a world of perspectives.

Since those launches, Yahoo has done better than I expected, while Google has done worse (AKA, dead). This post isn’t about comparing the two services, but I will note that Yahoo Answers benefited from a more social atmosphere (helping instead of consulting) and recently launched even more social aspects.

Although I’ve watched, I never actually asked or answered a Yahoo Answers question until today. In learning more about the service, I provided answers to a couple softball questions:
1) What is Venture Capital?
2) What advice would you give a start-up company?

In exchange for doing so I received 2 “points” for each answer, with the potential for more points if my answers are chosen as the best. I haven’t used the service enough to know why I should be excited about these points, but the potential for focused knowledge sharing is exciting enough.

If you haven’t tried Yahoo Answers you might want to, particularly if you can share some insights on the Meaning of Life, only 3 days left!

Big University Foundations Yield Big Alt Returns

The National Association of College and University Business Officers (NACUBO), together with TIAA-CREF, just announced a study of university foundation returns across the country. The big takeaway: large Foundations from $100M to $500M to $1B, got larger with good alternative asset allocations.

While the smallest colleges relied upon low-risk/liquid Public Equities and Fixed Income investments, the big boys put 15%-35% of their funds in alternative assets (e.g. hedge funds, venture capital) and reaped the rewards of diversification and long-term illiquid investing. Whereas the smaller foundations garnered single digit returns, some of the largest ones yielded 22% (one year), 14% (five year) and 17% (ten year) returns.

This is noteworthy on a national level, but particularly interesting as Florida’s large universities consider capital campaigns, tech transfer and overall national relevance.

Another Day, Another Set of FL Venture Numbers

PWC/NVCA/VentureEconomics/[insert brand here] MoneyTree report came out just after E&Y/VOne with same Florida story, different numbers. Florida venture investing hit $361M for 2005, up from $318M in 2004 — not as big a jump as reported by E&Y. Deals were just a nudge down, with 55 in 2005 vs. 58 in 2004. It was the largest year for Florida venture investing since 2002 and after a 2004 of zero VC-backed IPOs, 2005 saw three reach the public markets.

MoneyTree numbers show continued strength in FL venture investments, although expansion/growth deals continue to outpace seed/early. Greed is slowly catching Fear on the chart — hopefully fast enough for those entrepreneurs with great ideas, pursuing first institutional dollars.

E&Y/VentureOne Shows 2005 Florida Boost

Interesting VC stats show 46% increase in FL venture investments, but in fewer deals. Likely cause: a couple more later/larger stage investments. We’re seeing good activity on the early-stage front, but institutional dollar supply still doesn’t meet demand.

“Venture capital investment in Florida in 2005 soared 46 percent to $389 million versus the previous year — its best showing since the dot-com days of 2002, according to the Quarterly Venture Capital Report released Monday by Ernst & Young and Venture One. Despite the uptick, investors closed on just 35 deals in 2005 — one less than in 2004. Nationally, venture capital investment was up 2 percent at $22.1 billion in 2,239 deals — the best showing since 2001.”

Source: MiamiHerald