Startup founders often ask the question of whether they can receive venture-backing as a Florida company. Full disclosure here . . . I moved a company from Florida to Boston in 2008 at least in part in order to be viewed differently by, and have more access to, venture firms. To cut to the chase, the simple answer is that I do not believe that it is generally necessary to move to a trendier startup location like SF, Boston, NY, or Austin in order to get financed. In fact, I think the downside usually outweighs the positive. I know that sounds a little “on the fence” but that is because, like most complex issues, there are no simple answers.
Post One in a Series:
It is common for people in Florida’s investment community (fund managers, investment bankers and transactional lawyers…) to try to make it simple. They often say that venture firms will find your startup in Florida if it is investment grade and that availability of capital is not a problem. The implication is that if your startup is not getting financed in Florida, well . . . it is not worthy of being financed. That’s way too optimistic for me and does not square with what I have experienced personally and in representing startups seeking financing for nearly 20 years. I do think it is a complicated question–one that is fact and industry specific and, ultimately, changing for the better.
Because it is complicated, I’m going to break this into a series of posts on the topic (Note: let’s face it, no one wants to read a really long post on any topic and I don’t want to write one. I live in Florida for a reason, after all, and it is finally fall weather so I’m going to enjoy it). This first post is on my own experience from back in 2008 and in later posts I’ll try to flush out some specifics on the general issues covered here.
My Experience: Moving in 2008
In some ways, it was only five years ago. However, we closed our Series A round the week after Lehman folded and at a time right before LPs started running from VC commitments like the plague. In other words, all hell broke loose. Thankfully, 2013 is a very different time and I’ll cover some of those differences in a later post.
We started our company in late 2007 in Vero Beach. We felt good that we had a “bankable” proposition and had assembled a great team with deep industry knowledge but, in early 2008, we needed $7 million and we did not have it. We got on the road and sought VC backing. At the time, we had a core team of 5 people in Vero that ran day-to-day operations and almost all aspects of the business. We had players, one of which was key, in 4 other states stretching from east to west coasts. One of the remote players was in Boston.
We were having problems getting traction on the round with VCs. Florida does not have a long list of institutional venture investors. The list that can write a $7 million check is even smaller. Those that can write a single $7 million check and are willing to invest at a Series A stage are on a list consisted of exactly none. Therefore, we were not looking in Florida for the investment backing.
Where we were looking (in California, Boston and NY), we sensed a bias against being a Florida company. Now, it is very easy to blame geographic bias as the reason investors are not funding the deal. It is much easier than looking in the mirror and saying our plan or our team was not good enough. It is easier than assuming that we underestimated the risk or overestimated the opportunity. We heard all of those things but we sensed that some of those perceptions were at least impacted by a bias that people that put together big ideas like this were not in Florida.
For the industry we were in, the financial centers are Boston, Atlanta and the Pacific Northwest–in that order. We had one member of our team in each of those locations. For some operational reasons but also to remove what we thought was a bias against Florida companies, we decided we were going to move the main office from Vero to one of those locations. We ultimately chose Boston.
Note that I said we decided to move the “main” office. Moving the main office meant that a few team members relocated and operations and back-office relocated. It meant that we hosted investors in Boston and not Florida. It meant that when we went to NY we were coming in on a train or a shuttle rather than flying from Florida (frankly, we gave that impression even when we weren’t). We celebrated that in the small talk. (“Wow, didn’t know if were going to get out of Logan this morning.”) The majority of our team remained in Florida but, to the outside world, we were a Boston-based company.
People can have differing opinions on how important it was but we got funded on the full $7 million, from one NY venture group, in less than six months and with a $70 million pre-money valuation. We got funded while the financial world was totally melting down.
What you cannot argue to me is that a negative perception about Florida does not exist in the larger financial centers. I went to every local venture event I could attend in Boston and NY. Countless times I heard disparaging comments about a company “located in Florida” as if finding smart people doing great things in Florida was like finding a needle in a haystack. People often assume that business deals in Florida are totally fraudulent (and let’s face it, this State has more than its share of scams and charlatans). In many cases, the bias may be totally subliminal–but you have to know it is there.
The good news is that I get the sense that the bias is diminishing. I’ve posted before about conversations I have had with out-of-state VC and angels showing strong interest in Florida. In some cases, venture firms are creating offices in Gainesville, Naples and Miami. There is a growing consensus in the VC world that Florida is “underserved” and “undiscovered.” Local investment capital is developing. I would even go so far as to say that Miami and Orlando are increasingly considered as startup centers (Being in Vero back then clearly didn’t help as people are pretty sure that nothing other than retirement happens in Vero).
All of this is great and getting better, but if you build in Florida you will still face at least a latent bias with larger VC firms. Count on it. It will impact both the availability of their investment as well as the pre-money valuation you will realize. But that is just one factor and it is far from the entire picture. The reality is that, increasingly, you can get funded as a Florida-based company.
In future post in this series, I’ll attempt to share more about what we learned after we moved and how now is a different and better time.