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    Evalueserve Venture Capital Research Evalueserve Venture Capital Research Document Transcript

    • Business Research Identification of Venture Capital Prospects for City of Cape Coral May 20, 2008
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Contents 1 Executive Summary...............................................................................4 2 United States VC Industry.....................................................................6 2.1 Overview............................................................................................................ 6 2.2 Analysis on VC Locations............................................................................... 13 3 Target Industries for VC Investments ..........................................................14 3.1 Venture Capital Industry in Florida ................................................................ 14 3.2 VC Industry Focus in Florida.......................................................................... 16 3.3 Startups in the Target Industries.................................................................... 23 4 Potential VC Resources for Cape Coral........................................................24 4.1 Venture Capital Firms ..................................................................................... 25 4.2 Angel Investors ............................................................................................... 27 4.3 Corporate Venture Capital Investors.............................................................. 28 4.4 Venture Capital Funds in Florida.................................................................... 29 4.5 Venture Capital Networks in Florida............................................................... 31 5 Venture Capital Development Plan ..............................................................34 5.1 Snapshot of Case Studies .............................................................................. 34 5.2 Primary Research Responses ........................................................................ 37 5.3 Development Plan ........................................................................................... 41 6 Appendix A – Research Methodology ..........................................................55 7 Appendix B – Select Florida Area VC Development .......................................56 7.1 Palm County .................................................................................................... 56 7.2 Gainesville – University of Florida ................................................................. 56 7.3 Venture Capital Development in Escambia County....................................... 57 8 Appendix C – VC Development Outside Florida ............................................60 8.1 Venture Capital Developments – Ohio ........................................................... 60 8.2 State Strategies for Mobilizing Investment Capital........................................ 63 8.3 The Texas Case ............................................................................................... 65 8.4 Venture Capital: Oklahoma Capital Investment Board .................................. 66 8.5 PA Public School Employees’ Retirement System (PSERS)......................... 67 8.6 Finance Authority of Maine, Maine................................................................. 68 9 Appendix D – Primary Research Contacts ....................................................70 9.1 VC Firms & Networks Interested in Discussing Cape Coral.......................... 70 9.2 Angel Investor and Venture Capital Networks Contacted ............................. 70 9.3 List of Primary Respondents.......................................................................... 71 9.4 List of Florida Ophthalmology Centers.......................................................... 72 10 Appendix E – Interview Transcripts ............................................................. 73 11 Evalueserve Disclaimer .............................................................................90 Page 2 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral List of Figures Figure 1: Value of US VC Deals, 2001 – Q1 2007 ..................................................................... 6 Figure 2: US VC Investments by Stage, Q1 2006 vs. Q1 2007................................................... 7 Figure 3: US VC Deal Value– Q1 2006 vs. Q1 2007 ($ million) .................................................. 9 Figure 4: US VC Deals, Q1 2006 vs. Q1 2007......................................................................... 10 Figure 5: Top Five Sectors - VC-Backed Employment (millions)............................................... 11 Figure 6: Exit Options Exercised by Venture Capitalists........................................................... 12 Figure 7: US VC Firm Concentration (Q1 2007)....................................................................... 13 Figure 8: US VC Investments 1990-2006 ............................................................................... 14 Figure 9: Venture Capital Investment in Florida ....................................................................... 15 Figure 10: Venture Capital-backed Industry Comparison ........................................................... 16 Figure 11: Target Industries for Cape Coral VC Investments...................................................... 22 Figure 12: Source of Investment in Florida (2004–2006)............................................................ 24 Figure 13: Concentration of Florida VC Firms 2006–07.............................................................. 26 Figure 14: VC Firms Located in Florida (as of 2006).................................................................. 27 Figure 15: Suggestions by VCs for Cape Coral VC Development............................................... 38 Figure 16: Factors Important for Development of VC Investments.............................................. 39 Figure 17: Factors Important for Development of VC Investments.............................................. 42 Figure 18: Generation of Funds for VC Investments .................................................................. 48 Figure 19: Benefits from the Conference ................................................................................... 53 Figure 20: VC Investments in Cleveland ($$ Million and Number of Companies Financed) ......... 61 Figure 21: Companies by Sector Receiving VC Financing in Cleveland – 2004–06..................... 62 Figure 22: Source of Capital for Fund Generation...................................................................... 63 List of Tables Table 1: US VC Investments by Stage – 2007 ...................................................................... 16 Table 2: Relevant Florida Research Centers......................................................................... 19 Table 3: Marine Sciences Institutes in Florida ....................................................................... 21 Table 4: Venture Capital Break-up in Florida (in $million) ...................................................... 26 Table 5: Fund Strategy – South Atlantic Venture Funds ........................................................ 30 Table 6: Florida VC and Angel Investor Alliances.................................................................. 33 Table 7: Cases and their Implications for the City.................................................................. 34 Table 8: Proposed Fund Strategies ...................................................................................... 50 Table 9: UF VC Achievements in 2005 ................................................................................. 56 Table 10: Venture Investment Program of OCIB ..................................................................... 66 Table 11: List of Florida Ophthalmology Centers..................................................................... 72 Page 3 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 1 Executive Summary Venture capital financing is a significant determinant in attraction and growth of new companies in science and technology sectors. The objective of this project is to identify and develop venture capital financing capacity for development of businesses in the city of Cape Coral. One output of this project is a development plan to encourage investments by different types of investors in the targeted industries that are at development stages in the city. The Scope of Services for this project includes: • Identify startups in target industries that are at a stage in their development that they could be recruited to the city. • Identify regional venture capital resources that have interest in expanding their investment to Cape Coral projects. • Identify Cape Coral resources that could be transformed into venture capital resources. • Design a venture capital development plan for the city of Cape Coral. The research indicates that the City of Cape Coral has several options for facilitating development of venture capital investments. These efforts can address both the supply-side (availability of VC capital) and demand-side (companies requiring VC capital) of the venture capital equation. Current Scenario The City of Cape Coral, like many other cities/counties in the state of Florida, has not been successful in attracting venture capitalists to invest in the city. The state ranks 15th in terms of VC investments, despite being the fourth most populous state. VC investments are present in only a few counties in the state. Out of a total of 67 counties, Hillsborough, Dade, Palm Beach, and Orange counties are the only ones with substantial VC presence. VC Resources for the City VC firms are mainly based in the counties with university clusters or with an active research base. These firms have invested mainly in software medical devices and services companies. According to the research results, the city of Cape Coral has the following options as the most feasible resources: • Angel Investors: To encourage VC investments the city needs to develop a network of people who have interest in investing in business deals; such networks/associations are classified as Angel Investors’ Networks. The city can focus on mobilizing and attracting this wealthy population to form a network of angel investors. • Venture Capital Networks: The city can attract existing venture capital firms/networks to invest in city-based deals. The report identifies some of the VCs who expressed their willingness to invest in a deal in the City (Appendix E). • Venture Capital Funds in Florida: These funds are dedicated for VC investments. Attracting these funds along with pension and CAPCO funds will enable the city to support early-stage Florida home-grown companies. Recommendations for the City of Cape Coral The research suggests that the City of Cape Coral can prioritize its efforts for the development of venture capital investments. These efforts can address both the supply-side (availability of VC capital) and demand-side (companies requiring VC capital) of the venture capital equation. Page 4 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 1. Create research facilities and recruit tenants, for example, pharmaceutical or clinical research laboratories. Economic Development research continues to validate that no less than 80% of business enterprises will not locate or expand unless suitable building space is available. The city’s Academic Village property can be a substantial asset if it is developed in a manner suitable for research companies. 2. Identify local, high-net worth individuals (perhaps retired executives) and mobilize this group to support formation of a venture capital network and grass-roots resources for attraction of VC capital and VC clients. The network can provide a platform for angel investors, VC firms, and private equity groups to interact with entrepreneurs seeking investments in their ventures. • Involvement as educators • Involvement as mentors • Involvement as entrepreneurs/investors 3. Provide Business Incentives There has been a trend for VCs to enter a market when they have confidence in the capabilities of entrepreneurs. To gain the confidence of VCs, the region could offer various incentives to businesses to minimize their risks. Following are some examples of effective business incentives that could be implemented by the City of Cape Coral: • Learning from ‘HBITC and VC investment Tax Credit’ Indiana and others • Marketing the city to attract investments – Learning from ‘Putting Imagination to Work’ – Orlando • Entrepreneur Development with the help of dedicated companies. 4. Facilitate creation of venture capital funds by offering tax exemptions that are within the jurisdiction of the city. • Network of venture capital or angel investments – Learning from the case of ‘Regional Business Alliance’, Naples • Community investment funds – Learning from the case of ‘Finance Authority of Maine” • Pension funds – Learning from the case of State Strategies • Attracting CAPCO funding - Learning from the case of State Strategies. 5. Host VC Conferences • Create an entrepreneur forum. • Hold an annual conference for business leaders and angel investors to encourage long-term fund generation for businesses and entrepreneurs. • Create an annual business competition allowing new businesses to present ideas to investors. • Conferences will help to meet the following objectives: o Provide a platform to share ideas, expertise, and experience among members o Reduce the initial monitoring time and cost that is required when a venture capital investment is carried out individually o Provide an opportune platform for investors to choose from a variety of business ideas 6. Increase participation with existing VC networks and funds in the region • Venture Capital Networks: The city could attract existing venture capital firms/networks to invest in city-based deals. The report identifies some of the VCs who expressed their willingness to invest in a deal in the City (Appendix E). • Venture Capital Funds in Florida: These funds are dedicated for VC investments. Attracting these funds along with pension and CAPCO funds could enable the city to support early-stage Florida home-grown companies. Page 5 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 2 United States VC Industry 2.1 Overview 2.1.1 VC Market – Size and Growth The US is a well-established venture capital market. In 2006, about $28 billion was invested by venture capitalists. Venture capital fundraising is 0.2% of the total US GDP. Venture Capital firms invested $7.1 billion (778 deals) during Q1 2007. This is the highest quarterly investment since Q4 2001. Though the investments (value) in Q1 2007 have increased by nearly 13.5% (as compared to Q1 2006), the number of deals has declined. This indicates that VCs prefer higher investments (value) in selective companies/establishments rather than spreading investments across a large number of companies.1 The following figure depicts the total value of VC deals during 2001–Q1 2007 Figure 1: Value of US VC Deals, 2001 – Q1 2007 45 40.723 40 35 30 $ in billions 22.192 26.09 25 21.837 22.827 20 19.708 15 10 5 0 2001 2002 2003 2004 2005 2006 4,49 3,04 3,52 # Deals 3,086 2,904 3,041 3,107 3,522 778 Source: MoneyTree Report by PriceWaterHouseCoopers 1 Source: http://www.nvca.org/pdf/07Q1MT-PR-FINAL.pdf, https://www.pwcmoneytree.com/exhibits/MoneyTreeReport_Q1_2007.pdf, http://www.ey.com/global/download.nsf/International/SGM_-_VC_-_Insight_- _May_2006/USDfile/EY_SGM_VC_Insight_Report_May2006.pdf Page 6 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral VC investments declined from approximately $41 billion in 2001 to approximately $20 billion in 2003, primarily as a result of the 9/11 attack and its effect on new businesses during that time. Post-2003, there has been a gradual increase in investments to reach about $23 billion in 2006. The future outlook is 2 positive; and investments are expected to increase. VCs are not only investing in businesses in the US, but also looking at investing in the emerging economies, which can provide high returns.3 2.1.2 VC Funding – Cycle1 Over the years, the pattern of VC investments has changed from providing seed capital/early stage capital to funding companies during the growth stage. Venture capitalists have started showing preference for investments in the later stages, as they provide easier exit routes and lower risks (e.g. the companies are established and there is less risk of failure). This trend has also been reflected in venture capital investment patterns during the first quarter of 2007. The following figure illustrates venture capital investments by stage development for Q1 2006 and Q1 2007. Figure 2: US VC Investments by Stage, Q1 2006 vs. Q1 2007 Q1 2007 169 Startup/Seed 213 Q1 2006 963 Early Stage 831 2,875 Expansion 2,565 3,049 Later Stage 2,724 0 500 1,000 1,500 2,000 2,500 3,000 3,500 In USD million Source: MoneyTree Report by PriceWaterHouseCoopers For the later stages, VC investment deals increased from 267 in Q1 2006 to 245 in Q1 2007 totaling $3 billion which is approximately 43% of the total VC investments in the US in Q1 2007. Seed and early- stage investments have declined to $1.1 billion during the same period. Venture capital financing for expansion stage companies has increased from $2.65 billion in Q4 2006 to $2.9 billion in Q1 2007. The number of deals declined from 327 to 274, indicating that the investment per project has increased. 2 Source: http://news.zdnet.com/2100-9588_22-5860055.html 3 http://nvca.org/pdf/US_VC_Rpt_06_Final.pdf Page 7 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 2.1.3 Key Industry Trends and Future Outlook 1 The trend in Venture Capital investment has been changing from investment in software companies to other industries such as biotechnology, medical equipment, media and entertainment, Web 2.0 wireless technology, and alternative energy. However, software is still one of the favorite investment options for some venture capitalists. The life sciences industry, which comprises both biotechnology companies and medical equipment companies, attracted 36% of the total venture capital investments in Q1 2007, amounting to $2.6 billion, an all-time high. Biotechnology companies require sophisticated instruments for their R&D labs, thereby needing huge funding. Venture Capitalists are actively investing in this industry to help companies set up their R&D labs and meet regulatory requirements. In Q1 2007, investment in the biotechnology industry was $1.5 billion (102 deals). This industry received the highest investments in Q1 2007. The investment on medical equipment companies increased to $1.08 billion in Q1 2007, which is 60% higher than that in Q4 2006. Currently, the software industry is lagging behind the life sciences industry in terms of attracting investments. Investment in the software industry declined to $1.1 billion, registering only 193 deals in Q1 2007, when investment in the software industry was 10% less than in Q4 2006. It is to be noted that among all industries, the software industry witnessed the highest number of deals in Q1 2007, which is almost 25% of the total deals concluded during the same period. Page 8 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral The following figure shows the value of VC deals in the US in Q1 2006 and 2007. Figure 3: US VC Deal Value– Q1 2006 vs. Q1 2007 ($ million) 1,489 Biotechnology 878 1,098 Software 1,374 1,078 Medical Devices and Equipment 727 588 Telecommunications 581 501 Industrial/Energy 287 489 Media and Entertainment 444 358 Semiconductors 489 288 IT Services 308 275 Networking and Equipment 242 212 Business Products and Services 152 177 Electronics/Instrumentation 202 161 Healthcare Services 124 94 Retailing/Distribution 39 93 Computers and Peripherals 167 Q1 2007 77 Financial Services 183 Q1 2006 75 Consumer Products and Services 136 0 200 400 600 800 1,000 1,200 1,400 1,600 Source: MoneyTree Report by PriceWaterHouseCoopers Page 9 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral The following figure shows the number of US VC deals in Q1 2007 and Q1 2006. Figure 4: US VC Deals, Q1 2006 vs. Q1 2007 Biotechnology 102 94 Software 193 228 Medical Devices and Equipment 96 78 Telecommunications 63 71 Industrial/Energy 44 39 Media and Entertainment 72 69 Semiconductors 42 59 IT Services 38 43 Networking and Equipment 29 30 Business Products and Services 22 25 Electronics/Instrumentation 16 25 Healthcare Services 10 22 Retailing/Distribution 12 10 Computers and Peripherals 9 21 Q1 2007 Financial Services 17 24 Q1 2006 Consumer Products and Services 12 15 0 50 100 150 200 250 Source: MoneyTree Report by PriceWaterHouseCoopers Media and entertainment is another emerging industry that is attracting the interest of VCs. In this particular industry, the total deal value has increased by 16% to $0.49 billion in Q1 2007 over the previous quarter a year ago. The number of deals decreased from 78 in the previous quarter to 72 in Q1 2007. Investment in the telecommunications industry increased by 27% in Q1 2007 over Q1 2006. The total investment in this sector was $0.59 billion, out of which $0.37 billion was invested in the wireless communication business. Internet-based companies (classified as companies whose business model is dependent on the Internet, irrespective of the nature of business or industry) witnessed a surge in investments from VCs. In Q1 2007, the investments increased to $1.3 billion (167 deals), which is 31% higher than that in Q4 2006. This has been the highest quarterly investment in this particular industry in the last five years. The change in the VC funding pattern was also witnessed in this industry, wherein the value per deal was larger than that witnessed in the previous quarters. Another upcoming sector of interest to VCs is clean technology. This sector comprises companies in power supply and energy conservation, alternative energy, pollution control and recycling. In Q1 2007, this sector received $264 million as VC funding (23 deals), which is an increase of 42% over the previous quarter. In 2006, the total investment in this sector stood at $1.5 billion. Page 10 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral In Q1 2007, other industries including computers/peripherals, networking and equipment, electronics/instrumentation, industrial energy, IT services and retailing/distribution witnessed increased VC funding. However, industries such as semiconductors and consumer products witnessed a decline in VC investments. VC Impact on Employment In 2005, venture capitalists financed media and entertainment and retail companies that employed over 2 million Americans, followed by the computers and peripherals industry with 1.9 million people. The computers and peripherals industry was the leading industry with revenue worth $466 billion, followed by the media/entertainment/retail industry with $299.0 billion in 2005. The following figure shows the leading sectors by VC backed employment Figure 5: Top Five Sectors - VC-Backed Employment (millions) VC-backed Employment Sector Employment 25 20 15 10 5 0 Media/Retail Computer Energy Financial Services Software Periherals Source: Report on Venture Impact 2004 by Global Insight Page 11 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Exit Options Exercised by Venture Capitalists Figure 6 depicts the exit options exercised by VCs during 1991–2000. Figure 6: Exit Options Exercised by Venture Capitalists 18% 33% 14% 35% Acquired Still Private or Unknown IPO Known Failed Source: Report on Venture Impact by Global Insight 2.1.4 Industry Drivers and Inhibitors 4 Key drivers for VCs in the US include innovations in the field of biotechnology, the latest developments in sectors such as wireless technology, Web 2.0, and media. The other drivers that facilitated venture capital investments in the US include strong regulatory protection for intellectual property and tax structure. 4 Source : http://www.altassets.net/news/arc/2007/nz10787.php , http://www.ey.com/global/download.nsf/International/SGM_-_VC_- _Insight_-_May_2006/USDfile/EY_SGM_VC_Insight_Report_May2006.pdf Page 12 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 2.2 Analysis on VC Locations 2.2.1 Industry Hubs The venture capital industry is primarily located in the Silicon Valley and New England Regions. The following figure depicts a concentration of venture capital firms regionally distributed throughout the US. Figure 7: US VC Firm Concentration (Q1 2007) Source: MoneyTree Report by PriceWaterHouseCoopers Most VC firms are concentrated in California, with over 100 firms. Silicon Valley, being the software and IT hub, has attracted the maximum number of VC firms. It accounts for a major proportion of VCs in California followed by Orange County, San Diego, and Massachusetts. Florida, with 11–50 VCs, lies in the category of states with moderate to low VC concentration. Page 13 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 3 Target Industries for VC Investments 3.1 Venture Capital Industry in Florida Florida experienced heavy investments during the IT Bubble and witnessed a huge decline in investments after the IT Bubble burst. The trends in VC investments in the state have been similar to that of the US VC investments, but the state has not been a favorite place of VCs. In 2004, the venture capital investment for Florida stood at $300 million, a mere 1.42% of the total venture capital funding in the US. The following figure shows the trend in VC investments in the US for the period 1990-2006. Figure 8: US VC Investments 1990-2006 100,000 80,000 In $million 60,000 40,000 20,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 NVCA/PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report; Data: Thomson Financial The peak in the total venture investment was due to the IT bubble that subsequently burst in 2001. VC investments in the US recovered and stabilized in the following years. However, the State of Florida was the worst hit and witnessed considerable decline. Page 14 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral The following figure shows the trend in VC investments in Florida for the period 1998-2006. Figure 9: Venture Capital Investment in Florida 3,000 2,500 In USD million 2,000 1,500 1,000 500 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 Year 1998 1999 2000 2001 2002 2003 2004 2005 2006 Number of 65 124 180 113 57 61 57 59 53 Deals Source: NVCA/PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report; Data: Thomson Financial The year 2007 provided a good start to VC investments in the US, with nationwide investments totaling $7.1 billion representing 977 deals in Q2 2007 -- the highest number of deals per quarter after Q3 2001. According to the MoneyTree report, Florida-based start-ups collected only 0.5% of the $5.8 billion funds distributed nationally in 2005. This indicates that Florida was a less favorable place for start-ups. However, in the last two quarters, this trend has reversed. About 15 Florida-based firms generated $127.1 million in venture capital funding. The top three investments in the region were as follows: • $45 million in Sirion Holdings Inc. (Sirion Therapeutics Inc.) • $18 million in Lifestyle Family Fitness • $12.55 million in Applied Genetic Technologies Corp. Robin Kovelski, the Executive Director of the Florida Venture Forum, said, “Individuals are moving out of their homes and moving to places to invest.” This is clear from the fact that venture capital funding reached its peak after 2001 by attracting $1.7 billion representing 252 first-time deals in Q1 and $1.8 billion representing 340 first-time deals in Q2, 2007. Some of the main highlights of the deals and investments in different stages are illustrated in the following table. Page 15 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Table 1: US VC Investments by Stage – 2007 Stage of Investment Quarter/2007 $ Investment / ## of Deals Deal Volume% First Quarter $1.3 billion/289 deals 34 Seed/Early Stage Second Quarter $1.6 billion/378 deals 39 First Quarter $2.9 billion/ 287 deals 34 Expansion Stage Second Quarter $2.4 billion/ 303 deals 31 First Quarter $3.2 billion/ 269 deals 32 Later Stage Second Quarter $3.1 billion/ 296 deals 30 Source: http://www.bizjournals.com/tampabay/stories/2007/08/06/daily22.html 3.2 VC Industry Focus in Florida The two sectors representing the largest share of venture-backed companies in Florida are software and medical devices. If we look at the industry-wide distribution, the software sector managed to reach the highest level after the ‘IT bubble burst’ and generated $1.5 billion through 248 deals nationwide. Other industries that witnessed an increase in both the number and value of deals are as follows: • Biotechnology • Consumer products and services • Networking and equipment • Semiconductors • Industrial/energy • Computers and peripherals The following figure shows the comparison between Florida and the US in terms of industries being backed by VCs - 2006. Figure 10: Venture Capital-backed Industry Comparison Electronics 5% 3% US FL Telecommunication 5% 10% Semiconductor 5% 8% Consumer 6% 2% Media Entertainment 7% 6% HC Svcs 10% 2% Software 23% 19% Medical Devices 25% 10% 0% 5% 10% 15% 20% 25% 30% % Share Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial Page 16 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral One of the most important features of all successful VC-attractive locations is that there has been development of a specific industry cluster in these locations — Silicon Valley (technology products, especially software); Texas (telecommunications and semiconductor); Israel (communications and technology products); Palm Beach County (biotechnology); and others. On similar lines, the City of Cape Coral Economic Development Office is taking initiatives to develop sector clusters in the Pine Island Corridor, Hancock Creek and Indian Oaks Commerce Parks and the Academic Village. Research supports a focus on the following industries in order to provide investment opportunities for VCs: • Life sciences • IT • Professional services • Environmental and Marine sciences. These industries can be targeted to generate VC investment in the city. These industries were identified based on the following primary research parameters: • Most of the primary research respondents recommended a focus on life sciences, professional services, and retail businesses to generate higher VC investment for a city like Cape Coral. • There are resources to support such businesses in the city. • Venture capitalists have been targeting investments in industries such as life sciences and marine sciences. 3.2.1 Life Sciences According to the primary research, most VCs in Florida are seeking investments in the life sciences sector. This sector has also been one of the sectors preferred by VCs throughout the US. In Q1 2007, the biotechnology sector secured maximum investments with $1,489 million in the US. The life sciences industry also includes ‘medical devices and equipment’ and ‘healthcare services’ with $1,078 million and $161 million investments, respectively, in the US.5 In Florida, VC investment in life sciences has mainly been around university clusters or has been associated with research centers. Business clusters in Gainesville University, University of Central Florida, Orlando, and Scripps in the Palm Beach County are among the leading life sciences clusters in Florida. With a population of over 150,000, the City of Cape Coral has plenty of demand for health services. The city provides fair opportunities for the health services business which can attract venture backed investments. The city also has a division of a small eye testing research center -- the Ft. Myers office of Retina Consultants of Southwest Florida, PA and the National Ophthalmic Research Institute at Retina Consultants of Southwest Florida, PA. There are other satellite branches at Pt. Charlotte, Cape Coral, Bonita Springs, and Naples. This will not only help meet the growing demand for health services, but may also be leveraged to encourage VC financing in the city. 5 Source : www.technopoli.net Page 17 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral In 2006, Scripps signed an agreement with the University of Central Florida in Orlando to encourage research cooperation in the region. Scripps Florida has been able to attract a good number of companies in the biotechnology space in the state since its establishment in 2003. About 75% of total federal funding (more than $54 billion) for research is generated by the National Institutes of Health (a division of the US Department of Health and Human Services). 3.2.1.1 Importance of Regional Research Centers for Life Sciences Absence of a research center is one of the major obstacles in attracting VC investments in the region. According to the VCs of Florida, the presence of research centers has been one of the major factors responsible for development of VC’s across the globe. According to primary research with the venture capital firms, having a research center provides the following benefits to the city/region: • It will help in the creation of a cluster of businesses in and around the center; most VCs look for university clusters and research centers to invest in a region. • A research center not only helps in generating business ideas for entrepreneurs, but also provides a talent pool for the existing businesses. The Lee County Port Authority has concluded the RFP (Request for Proposal) process and has successfully attracted private sector investors who have announced intentions to construct a research park on public lands leased from the authority. If Cape Coral wishes to be a location for such enterprises, this model is one that could be replicated at the Academic Village site. 3.2.1.2 Research Lab Attraction Targets Research labs, (for example: clinical-research laboratories and pharmaceutical research centers) do not necessarily require regular university assistance because some research centers are run by doctors and hospitals associated with nearby locations or they operate as independent research facilities utilizing funds from clients and public and private sector grants. When considering the potential for such laboratories in Cape Coral, it is prudent to consider existing enterprises that provide patient care linked to clinical trials and other research. The main health-related concerns for the aging population of the City of Cape Coral are6: • Cardiology • Ophthalmology • Dermatology • Dental 6 Source : Primary Research Page 18 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Table 2: Relevant Florida Research Centers Name About the research center Implications The Florida Hospital, a chain of hospitals in Central Florida, has dedicated research centers Florida Hospital The cardiology research center for each of the main medical departments Institute of of the Florida Hospital can specializing in hemostasis, thrombosis and Translational provide a base of expertise for cancer. The cardiology research center performs Research 7 expanded research in these approximately 1500 advanced cardiac disciplines. procedures annually, the highest number across the US. Tigris Pharmaceuticals, a privately held drug Tigris development company, specializes in finding The pharmaceutical company is Pharmaceuticals cures for cancer patients. The company is in its in the expansion stage, which Inc. 8 development stage. In January 2007, the firm, could prove beneficial for Cape with the help of NGN Capital LLC (a VC firm), Coral. received funding of $16 million through private placement of Convertible Preferred Stock. Established in 1947, Hill Top Research is one of the major global clinical research services Hill Top companies operating through various research The city can use the expertise Research 9 centers across North America. Other services of the company to deal with skin offered by the company are CRO services for and climate-related diseases. healthcare, personal care and oral care industries. This institute is based at the Retina Consultants National The institute that mainly deals in of Southwest Florida and serves through satellite Ophthalmic clinical trials will not only branches located in Pt. Charlotte, Cape Coral, Research develop the quality of life in the Bonita Springs and Naples. This research Institute 10 city but will also promote a institute works in association with Retina talent pool. Consultants of Southwest Florida. (A list of other ophthalmology centers across Florida is given in the Appendix.) 7 Source: http://www.flhosp.org/services/cardio/index.htm 8 Source: http://www.tigrispharma.com/ 9 Source: http://www.hill-top.com/ 10 Source: http://www.nori.md/index.htm Page 19 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 3.2.2 Professional Services Venture capitalists or angel investors seek innovative avenues where they can earn a high rate of return (at least above 25%) and an easy exit route in 3-7 years11. Professional Services, such as data processing, equipment rental, personal and office supply services, advertising, travel and tourism and facilities providers, are not capital-intensive. These business services reach break-even at a According to Florida’s very early stage and therefore can be an option from the investors’ Department of Labor Market money-recovery point of view. Statistics, the business and professional services In the City of Cape Coral, the service industry can be of great sector experienced a importance because of the following reasons: growth rate of 4.9%, leading • Low capital intensive to the creation of 64,800 • High academic qualification is not required; vocational new jobs in 2006. training may also help • Acts as a support system to already-existing businesses in and around a particular area. Building on a core competency of professional/business services, the city could develop itself as an outsourcing hub and be counted as a preferred location for certain back-end operations, rather than India, Brazil or China. The benefits that businesses can derive are as follows: 12 • No foreign currency fluctuations – if compared to outsourcing to India/China • Availability of resources - English speaking and Spanish community • US norms – no unforeseen government changes. • However, to pursue this strategy, the City will need to initiate and continue regular higher-education programs. According to a senior executive at Communications Equity Associates, supporting large technology-based industries may be difficult for the City of Cape Coral due to the lack of opportunity for higher studies in highly technical fields. 3.2.3 Retail Trade Retail trade is mentioned in this report because it provides a quality of life that is demanded by advanced technology companies and their VCs. In the period 2003-2008, Cape Coral experienced an unprecedented increase in construction of retail trade centers. Retail is a major employer in the region. This is important because it indicates the quality of workforce, which is an important factor in attracting technology/life science companies and their VCs. The financial industry is well-established in the city of Cape Coral and has private and public banks and other financial institutions. The sectors that have strong presence in the country provide a huge potential for various support services in the city, such as office supplies, facility providers, and courier services. 11 Source: Primary Research and Evalueserve Analysis 12 Source: Primary Research Page 20 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 3.2.4 Marine Sciences According to the report from Enterprise Florida, marine sciences are considered to be one of the emerging technologies in the country. Cape Coral has 400 miles of canals: Marine research institutes are usually set up in places that have a proximity to large seas and oceans. Moreover, the ties with universities provide them with laboratories and supporting infrastructure primarily in the areas of biology and chemistry, with special emphasis on marine science. Several satellite centers of this type have been established in the southwest Florida gulf coast area but increased concern about global warming and ocean health may provide a spring board for additional such investment – with facilities in Cape Coral. Table 3: Marine Sciences Institutes in Florida Marine Institute Associated University Location in Florida Center of Excellence in Biomedical and Florida Atlantic University Boca Raton, southeast Florida Marine Biotechnology St. James Island in northwest Coastal and Marine Laboratory Florida State University Florida Harbor Branch Oceanographic Inst. Florida Atlantic University North Ft. Pierce, Florida Florida Institute of Sea Harbor Drive Hubbs-SeaWorld Research Institute Technology, UCF Orlando, Florida Rosenstiel School of Marine and Rickenbacker Causeway University of Miami Atmospheric Studies Miami, Florida Whitney Laboratory for Marine Ocean Shore Blvd. University of Florida Bioscience St. Augustine, Florida Source: Enterprise Florida Ocean science and technology is a growing national priority and there has been a growing demand for institutes dealing with this subject in Florida. These institutes can also provide courses to students in marine science and marine biotechnology. One model that warrants special attention is the Florida Atlantic University/Harbor Branch Oceanographic Institution Marine Science Building, which was built as a result of the efforts of visionary academic, community and legislative leaders. The state-of-the-art facility received $11 million in state appropriations. The laboratories and supporting infrastructure are primarily for studies in biology and chemistry with special emphasis on marine science. The 40,000 square foot, joint-use facility will provide students with undergraduate and graduate degrees, and classes in marine biology, marine science, marine biotechnology, natural resources and environmental education. In addition to the labs, the building includes meeting rooms that offer video conference facilities. Page 21 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral The estuary industry generated total revenue of about $111 billion every year13 thus making this industry a major part of the marine The Estuary Industry employs industry. An estuary is of great economic importance as it supports 28 million people in the US, in multiple direct and support business sectors such as various direct and support • Fisheries’ Sciences tasks, of which 1.5 million are • Oceanographic Research and Education employed in fishing alone. • Commercial Fishing • Agriculture • Tourism. To conserve such a rich source of food, employment and revenue, the Estuary Restoration Act of 2000 allocated $275 million for a period of five years to restore the various Estuary Habitats across the US. Out of the 102 estuaries present across the US, four estuaries are present in Florida: • Tampa Bay • Sarasota Bay • Charlotte Harbor • Indian River. Based on primary and secondary research, Evalueserve makes the following recommendations on preferred industry sectors that could attract VC investment to Cape Coral. The following figure shows details of target industries for the city. Figure 11: Target Industries for Cape Coral VC Investments Top Scoring Industries • Medical Devices and Equipment • Marine Sciences • Professional Services Other Industries • IT Services and ITES • Fragmented Industries • Media and Entertainment Source: Evalueserve Analysis 13 Source: www.estuaries.org/?id=10 Page 22 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 3.3 Start-Ups in the Target Industries The industries detailed above are those that have received VC investment in the recent past. However, the executives from the venture capital networks and VC firms, such as the Regional Business Alliance and the Florida Venture Forum, agreed that there has been very little VC activity in the Cape Coral and Southwest Florida region to date. This lack of a success story in VC investments in the city will likely be a deterrent. Around 75 respondents from various companies, venture capitalists, angel investors and executives of VC networks held this opinion; and the research suggests that in the near future there are no startups or existing companies expanding business in the city which require VC financing. Nevertheless, there are a number of categories of companies we have designated as “fragmented” that are demonstrating they can also attract venture capital. 3.3.1 Fragmented Industries14 Fragmented industries are usually labor-intensive industries with lower technical requirements and comparatively lesser organized frameworks. The degree of competition is also not high in such industries. Some of the common examples of fragmented industries include: • Book Publishing • Landscaping and plant nurseries • Restaurant industry • Clothing retailers • Computer components/hardware retail • Cement/bulk building suppliers. Development of these industries can also be a viable option for attracting VC investments in the City of Cape Coral. These companies are promising prospects for Cape Coral because they do not require heavy investments for infrastructure and operations. Moreover, they are not dependent on technical knowledge of the workforce. These are mostly region-focused companies that target local customers. They are fragmented because of the following reasons: • Low barriers to entry • Highly specialized market • High transportation costs • Lack of standardization • Primarily having local focus and develop more due to trust According to primary research with local VC firms and networks, start-ups/companies in fragmented industries are the ones that can be targeted for VC investment in the city. 14 Source: Primary Research and http://planningskills.com/glossary/186.php Page 23 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 4 Potential VC Resources for Cape Coral The major portion of venture capital investment in Florida comes from New York metro, Silicon Valley, and the Southeast regions of the US. Approximately 7% of the total investments are from outside the US. The following figure depicts the sources of VC financing in Florida for the period 2004-2006. Figure 12: Source of Investment in Florida (2004–2006) 10% 10% 7% 13% 14% 15% 16% 15% NY Metro Silicon Valley Southeast New England DC/Metroplex Philadelphia Metro Non US Other Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report; Data: Thomson Financial The City of Cape Coral faces a challenge of limited investors for venture capital projects. According to the research (primary and secondary), we have not identified any venture capital/angel investor network in the city. In addition, we have not uncovered any venture capital investments in the city. This lack of VC experience is an impediment that must be overcome. The challenge for the city government is to encourage its wealthy, but stealthy (not much enthusiasm about investing in businesses) population to develop a VC network that can invest in the new/existing businesses. The lack of deal flow for venture capital firms in Southwest Florida is a longtime concern. However, recently there have been developments in VC investment in cities such as Naples and Fort Myers. Following are the sources of capital that the City of Cape Coral can seek for making seed and venture investments in its industrial initiatives: • Venture Capital Firms • Angel Investors • Corporate Venture Capital Investors • VC Funds in Florida • VC Networks in Florida Page 24 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 4.1 Venture Capital Firms A VC firm is generally a private partnership or closely-held corporation funded by private and public pension funds, wealthy individuals, endowment funds, foundations, corporations, foreign investors, angel investors, etc., and venture capitalists.15 They usually invest, alongside management of potential companies with high growth prospects, to attain considerable economic advantages in future. The firms often adopt an active role through management participation, such as contribution through their expertise, technical skills, and business experience gained from other ventures. Sometimes, their contribution is limited to overseeing the venture apart from providing information to a beginning entrepreneur. The major sectors16 attracting VC investments in Florida are the following: • Software • Medical Devices and Healthcare • Services. The primary research shows that venture capital investment in a region is directly proportionate to the amount of deal flow occurring in that region. Furthermore, deal flow is a result of the existing business and research developments in the region. The other factors that VC firms usually seek before approaching any region are as follows: • Presence of Network and Industry clusters • Existence of an Investment Partner • Accessibility of the Region • Existence of Intellectual Capital and Technology Transfer 4.1.1 VC Firms in Florida Currently, there are about 35 venture capital firms in the State of Florida. A majority of venture capital firms are concentrated in populated counties, such as Hillsborough and Dade.17 Similar to many other states in the US, the sectors receiving venture capital investment in Florida are software, medical devices, biotechnology, and telecommunications. For instance, the software company, Informa, based in Maitland in Orange County received risk capital in 2006.18 According to a Moneytree report, Florida based start-ups collected just 0.5% of $5.8 billion investments distributed nationally in 2005. This is a clear indicator of Florida not being a preferred destination for start- 19 ups. 15 Source: http://www.indianchild.com/venture-capital-firms.htm 16 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report 17 Source: https://www.pwcmoneytree.com/MTPublic/ns/nav.jsp?page=vcreg, http://www.eflorida.com/ContentSubpage.aspx?id=416, http://www.businessflorida.com/leaders/venture_capital.asp 18 Source: http://www.floridatrend.com/print_article.asp?aID=46794 19 Source: http://www.tampabay.org/press.asp?rls_id=1326&cat_id=1& Page 25 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Table 4: Venture Capital Distribution in Florida (in $million) Stage 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Seed/Early Stage 9.4 9.5 9.7 11.7 14.0 19.4 14.0 10.1 10.1 11.3 8.6 6.7 Later/Expansion 30.9 32.8 36.1 46.6 82.0 107.3 58.4 43.3 45.6 56.9 61.0 57.3 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report, Data: Thomson Financial The following figure shows the concentration of venture capital firms throughout the State of Florida. Figure 13: Concentration of Florida VC Firms 2006–07 Source: Price Waterhouse Coopers, Enterprise Florida, Business Florida Note: There is a possibility that there are more venture capital firms present in the region, but there is no additional information on the counties marked in white. Research institutions are spread throughout Florida, unlike those in Massachusetts, California, Georgia, th and North Carolina, where research centers are well-developed and dense. Florida ranks 15 in terms of VC investments, despite being the fourth-most populous state. According to a senior executive at InterSouth Partners based in North Carolina, “It takes little more than a brief car ride to see most of the investment opportunities in other states,” but in Florida, he has to spend a good amount of time scheduling and arranging travel to have a look at the opportunities. Page 26 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral The following figure shows the number of venture capital firms present in Florida in 2006. Figure 14: VC Firms Located in Florida (as of 2006) 9 8 8 7 Number of VCs 6 5 5 4 4 3 3 3 2 2 2 1 1 1 1 1 1 1 1 1 0 i mp a am nd o ille ton ale each each akes burg sota yers ples bles land Ta Mi Orla sonv a R a derd B B iL rs ra M Na l Ga Mait k c u lm lm iam Pete Sa Ft. ra Jac Bo t. La t Pa Pa M . Co F es St W VC Location - Counties Source: Business Florida The Miami to West Palm corridor and the Tampa Bay to Orlando regions have been the hotbeds for Florida’s VC investments. However, most primary respondents feel that there are not enough deals to match the available wealth in the region. Recently, there has been a fair amount of investments in the technology-oriented space. VCs are looking for companies with strong market potential and high barriers 20 to entry (patents). The government of Florida has developed strong initiatives to encourage technological development. To develop business incubation the State has established “Centers of Excellence” at research universities such as Florida Atlantic University, the University of Florida, and the University of Central Florida. According to Carl Roston, Chairman of Florida Venture Forum Inc., the dynamics of VC investment are now focused at life-sciences with the entry of Scripps, a leader in bioscience research in the region. Recently there has also been a spurt in investments in the medical industry, nanotechnology, retail business, real estate support services, and online marketing. Homeland security and services for the elderly have also witnessed growth in VC-backed financing.21 4.2 Angel Investors According to primary research findings, attracting angel investors to the small and medium enterprises (SME) segment can be one of the most preferred approaches to introducing VC financing in the city. Angel investors are usually wealthy, well-educated individuals who are either retired senior executives or who operated their own businesses at some point in time. 20 Source : Primary Research 21 Source : Primary Research Page 27 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Such investors typically utilize income and capital gain tax relief and seek high capital growth of about 35–40% per annum, with some active management involvement. They normally invest in entities that are close to their home (within a 100 mile radius) and may be involved in up to four investments at one time. Advantages of Angel Investors versus a Venture Capital Firm • Angel investors do not invest in deals over $1 million, whereas VC firms typically do not look at deals under this amount. Thus, angel investors can be useful for generating SME businesses. Angels typically do not own a large stake in the company as a venture capital firm would, thus investors willing to invest with little funds can be attracted to finance these businesses. • A benefit of being an angel investor is the availability of certain tax incentives for investing in American small businesses. • Angels tend to be more involved in businesses that they invest in and provide assistance in ways that venture capital firms do not. The city needs to attract affluent residents to be able to have good VC development. According to the senior executive from Crossbow Ventures, individuals are the largest source of fresh capital in lesser developed regions. In 2005, more than half of all new venture capital raised in Canada came from individuals who contributed $1.3 billion out of the total $2.2 billion invested. Angel investors do not just provide capital, but also help in developing businesses with their experience, support, mentoring, and contacts. According to a senior executive from Communications Equity Associates, a VC firm based in Tampa, a good number of wealthy people are present in the region that are backing businesses in their community. From a financial perspective, it is better for a group of investors to fund different businesses, rather than an individual investing in a single business. This helps in diversifying risk. The development of a group of angels will not only help small and medium businesses, but also attract other investors to the region. These angel investors prefer to invest in businesses in which they have prior expertise. They also prefer deals where they have a fair idea of the local business and community22. Therefore, identifying such participants from the local investors will help in creating a network of such angel investors. The list of Angel Investor Networks based in Florida is given in the Appendix. 4.3 Corporate Venture Capital Investors23 Corporations, for pure profit motives, invest at the pre-seed stage in commercializing technologies as they shop for new technologies to enhance their processes or launch new products. Corporate Venture Capital (CVC) is when a company invests in emerging companies and business ideas that have the future potential to add value to their business. Corporate Venture Capital (CVC) investors can be attracted to the city as the city provides a good potential market. An example of CVC is the Corporate Venture Group (CVG) based in Virginia that was formed by the National Venture Capital Association (NVCA). CVG is a group of corporate investors who help to provide information, education, and networking for corporations, thereby enabling them to concentrate on innovation and achieve growth through successful strategic venturing. CVG aims to build better communication and practical cooperation across all parties in the venture process: corporations, venture capitalists, start-up companies, and the research community. 22 Source : Primary Research 23 Source: http://www.henley-incubator.com/downloads/report_corporate_venture_survey.pdf Page 28 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Another example of CVC is the Connecticut Venture Group.24 It is a voluntary professional organization that is committed to connecting the leading Venture Investment Professionals with high-growth emerging companies. The key objective of the group is to assist in growing enterprises through the promotion of capital investments in the region. CVC is funded by individual and corporate members as well as various sponsorships. CVCs usually invest in new regions and technologies to hedge their risk. For example, Intel and Dow operate venture capital funds, supporting entrepreneurial ventures along with other venture capitalists, to stay close to new developments and scout for acquisitions. The different goals that a CVC has include the following: • Source of new products (i.e., outsourced R&D) – this is most commonly found in the pharmaceutical and FMCG (Fast Moving Consumer Goods) industries (mainly by Proctor & Gamble) • Identify emerging technologies and capabilities that directly impact the strategic focus areas of the business • Invest as a Limited Partner in an established VC fund focusing on a narrow area of company interest • Monetize internal innovations – an emerging model in the healthcare field, where the fund invests in spin outs of internally developed products. 4.4 Venture Capital Funds in Florida VC funds are the prime investors in early stage and seed capital investments. They usually invest in lesser developed regions and SME businesses. 4.4.1 The Florida Opportunity Fund On June 20, 2007, $30 million was approved by the Florida Capital Formation Act to encourage VC investment in the state. “Attracting such VC funds The state has allocated $30 million to the fund. It is a fund that will help the city to develop consists of various smaller funds from different investors that will initial VC investments.” invest in other VC-backed funds, thereby minimizing the risk for investors. According to the policy under this fund, the state will Robin Kovaleski, Executive invest in equal proportion to that of VCs as long as it is directed Director, Florida Venture towards companies in Florida. There will not be any support for Forum. investments outside Florida. Following are the specific points in the fund’s distribution: • $4 million will be allocated for early-stage gap financing to enable research at the university level and turn them into spin-off companies. • $1 million has been allocated to create a platform where venture capitalists and potential portfolio companies can meet. 24 Source : http://www.cvg.org/ Page 29 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 4.4.1.1 South Atlantic Venture Funds25 Table 5: Fund Strategy – South Atlantic Venture Funds Description/Benefits Provide capital for privately owned and rapidly growing companies located in Objective Florida, the Southeastern United States and Texas. The firm is the largest VC firm in Florida and is one of the largest private equity Capital Reserves firms in the Southeast US with committed capital of $173 million. The fund will generate investments from a selected group of pension funds, Resources university endowments, foundations, and financial institutions. The fund has some successful entrepreneurs as its Limited Partners. Invest in private, high growth companies in a number of industries including Investment communications, healthcare, technology, manufacturing, consumer products, and Strategy specialty retail. Make equity investments ranging in size from $1.5 million to $7.5 million. 4.4.2 The Cypress Equity Fund In 1995, the Enterprise Florida Capital Partnership, Inc. created the Cypress Equity Fund as part of a strategy to facilitate VC funding in businesses in Florida. The fund’s purpose is to facilitate initial venture capital investments by Florida private financial institutions and institutional investors, and provide a means to encourage national venture capital managers to consider investment opportunities in Florida. The Cypress Equity Fund was designed as a “fund of funds” to invest in national private venture capital Funds that, in turn, will invest in companies with high growth potential. The Cypress Equity Fund obtained $35.5 million in commitments from 5 private financial institutions ($20.5 million) and one public institutional investor, the Florida State Board of Administration ($15 million). The Cypress Equity Fund Management Corporation, an entity established by the Capital Development Board, is responsible for the overall management of the fund. 4.4.3 Community Investment Funds Community investment, also called alternative investment, is the investment in community loan funds that provide capital to local entrepreneurs, cooperative or community-oriented enterprises (such as worker or consumer co-operatives), regional development bonds, not-for-profit enterprises or community loan funds. These funds use volunteer and public resources to establish funds, identify borrowers, manage risk, and raise capital. These low-cost resources enable community investment funds to provide capital that cannot be offered by banks and other for-profit financial institutions. They are also responsible for the 26 development of local business apart from providing training, networking, and other technical support. Canada and the UK employ such funds to encourage SMEs in their regions.27 The community development funds initiated in Nova Scotia, Canada and the UK have been explained in the Appendix. 25 Source : http://www.southatlantic.com/ 26 Source: http://www.socialinvestment.ca/comminvestment.htm 27 Source: Development of Federal Tax Credits to support Community Investment in Canada, November 2003 Page 30 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 4.5 Venture Capital Networks in Florida VC networks usually emerge from the initiatives of a few retirees and amateur businessmen. For instance, the Regional Business Alliance in Naples is comprised of retired executives based in Naples. Venture Capital Networks are generally non-profit organizations working continuously to help emerging and established businesses by bridging the gap between entrepreneurs and the capital required by them. These networks serve as a platform for the match-making of an entrepreneur and a venture capital investor. This matching is either done online, by comparing the parameters and criteria provided by investors and entrepreneurs, or through periodic meetings and presentation programs, like the Florida Venture Capital Conference organized by the Florida Venture Forum. The networks bring together angel investors, venture capital firms, and private equity groups seeking new investment opportunities globally or in a particular region. The board of directors of such networks consists of a few angel investors and academicians who are involved in research labs and incubator facilities at their universities and people from the top level management of venture capital firms and private equity groups. Sometimes, there may be representation from government bodies such as the Economic Development Councils. 28 Besides match-making, the Venture Capital Networks perform the following functions: • Gather and maintain information about opportunities for venture capital investment in emerging businesses. • Profile the active informal investors’ investment criteria and objectives. • Provide mentorship for both entrepreneurs and investors either free of cost or for a reasonable fee. • Maintain the database including the profiled entrepreneurs, investors, contributions from the network, and results from these contributions • Help in developing new entrepreneurs through various training and development programs at regional and co-regional levels. • Provide a platform for different investors to interact and support each other. 4.5.1 Factors for Location of VC Networks According to a senior executive at SpringBoard Capital LLC. in Jacksonville, VC networks are formed to serve as a community for angel investors in a particular area. These networks generally originate from the home cities of angel investors. For example, Springboard Capital was formed to provide a common platform to a group of 40 angel investors in 2002. These investors try to include a few VC firms and academicians on the board and then work to create a Venture Capital Fund. A network is also located in regions that provide attractive business opportunities, facilities such as research labs and incubators, or the presence of some lucrative government incentives. These factors contribute to generating and maintaining deal-flow in a particular area. According to a senior executive at Angel Investment Forum of Florida, the forum is planning to open a new chapter in North Orlando. The main driver behind this decision was the ‘Re-Branding Strategy to Attract Technology Companies in Orlando’ that helped Orlando become a technology hub and thus generated a prominent deal-flow. A senior executive at the Emergent Growth Fund said that the main reasons for locating a network in a particular area are the presence of Attractive Intellectual Property and Business Resources. The Emergent Growth Fund enjoys the presence of the University of Florida, which contributes to the development of intellectual property. Moreover, various research centers have helped the area become a hub for biotechnology. 28 Source: http://www.legis.nd.gov/cencode/t54c34.pdf Page 31 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 4.5.2 Florida Angel Investor and Venture Capital Networks Primary research has been conducted with senior officials at the following VC networks. 4.5.2.1 The Regional Business Alliance (RBA)29 • The network, established in 2004-05, consists of 250 Fortune-500 CEOs and other current or inactive CEOs. The main goal of these executives is to attract more businesses to the region by using the talent, networks, and experience of the members. • The core team of 50 members monitors the working of the network. The network mainly focuses on deals in South West Florida. • The main goal of the alliance is to attract small- and mid-sized companies primarily in the area of healthcare, information technology, and education. • The goal is to develop Southwest Florida as a headquarters for small- and mid-sized companies of the Southern US by 2015. The ultimate focus is on the diversification of the economy of Southwest Florida. • Due to continuous efforts by the RBA the VC fund known as Florida Gulfshore Capital (FCG) was formed. FCG has made significant contributions in the field of consumer goods, industrial and medical products, and business services. FCG does not prefer real estate and finance firms. • Case Studies Demonstrating RBA’s Support o RBA has given business groups a platform to learn about the opportunities in Naples and the Southeastern regions of Florida as potential business destinations. o Lehigh Technology, a New York-based rubber-powder manufacturing firm, shifted its base to Naples due to the efforts of the RBA. o Another example is Emerging Med, a New York-based healthcare service that operates Florida’s cancer-trial matching service today. 30 4.5.2.2 The Gulf Coast Venture Forum • The network, headquartered in Naples, was formed in 2001. The forum strives to develop a platform where entrepreneurs, private equity groups, venture capital firms, and angel investors can come together for the common goal of promoting Southwest Florida’s new and emerging businesses. • To increase capital investment in businesses on the west coast, the forum profiles private equity groups and venture capital across the US. • The forum uses the network of high net worth individuals (HNIs) to help start-up firms through various mentorship programs. There is a separate angel club that acts as a network for HNIs. • The board oversees the activities of the forum and is made up of local professionals, business leaders, and academicians. The board consists of representatives from the main partners of the firms, such as Mentor Capital Partners, Aspen Capital, McIntyre Properties, and The O'Reilley Group. 31 4.5.2.3 The Emergent Growth Fund (Gainesville), LLC • The fund focuses on early stage companies that innovate leading edge products or patent technologies wherein an investor can have a quick rate of return. • The headquarters are located in Gainesville because of the presence of the University of Florida and the cluster of HNIs in that area. 29 Source : RBA Website 30 Source: http://www.gcvf.com 31 Source: http://www.emergentgrowth.com/public/index.asp Page 32 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral • The members of the fund are business people and investors who are innovators in their fields. The members have created a fund that is completely member-managed. • The fund focuses on the Gainesville-Ocala area because the area is a hub for the biotech and biomedical industries. 4.5.2.4 Other Networks Across Florida There are a few more non-profit alliances and networks present across Florida. They are mainly located in regions having existing deal-flow or around an area, where incubators and research labs are present. Table 6: Florida VC and Angel Investor Alliances Network Location Key Focus: Area and Industry Gulf Coast Venture Forum Naples Southwest Florida; No limit to industry or size Emergent Growth Fund Gainesville Gainesville-Ocala; Biotech and Biomedical Southeast Florida; Mainly non-technology based such Springboard Capital Jacksonville as Financial Services, Retail and Consumer Goods. Florida Venture Forum Tampa Florida State; Nothing specific New World Angels Boca Raton Not beyond Florida; Science & Technology Start-up Florida Sarasota Florida State; IT, Communications, and Internet markets Treasure Coast Angel Treasure Coast & Central Florida; Medical Services, IT Stuart Investment Forum & Real Estate Florida Angel Investment Jacksonville Florida State; Nothing Specific Alliance Page 33 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 5 Venture Capital Development Plan 5.1 Snapshot of Case Studies The strategies and results of the cases given in the table below have been studied and assessed to present the comprehensive development plan for the City of Cape Coral. Table 7: Cases and their Implications for the City CASE FINDINGS IMPLICATIONS FOR CAPE CORAL • Corporate Involvement in • The existing companies can be involved in offering internships Education for students in and around the city and retaining them by extending the internship into full-time employment. • Innovate College Bound • Corporate professionals can be involved in the development of new training programs, such as leadership programs and ESCAMBIA Programs COUNTY entrepreneurship programs. • Involvement of ‘Hidden Workforce’ • The retired executives, who are experts from different fields, may be explored and involved in contributing to the development of the economy. • Encourage Entrepreneurship • Form an entrepreneurship forum that can leverage skills of the retired executives. • Venture Capital & Angel Investor • A network will help in structuring and bringing together the Networks scattered venture capitalists and angel investors and the entrepreneurs on the southwest coast. • Tax Benefits for Retirees • The angel investors can be attracted to settle and invest in the city by giving tax exemptions such as property tax. PALM COUNTY • Entry of Scripps Laboratories • To encourage new businesses, there is an increasing need for research labs, but the city can target research labs in pharmaceutical and clinical research domain in the absence • Partnerships between university of universities. These non-university-backed research and research firms centers will support the healthcare industry, which is the target industry for the city. • Use of pension funds in VC • The city can seek help from the State of Florida to attract and projects. use the ‘Pension-Fund’ for investments in the area • Maine Seed Capital Tax Credits • The four ways to generate funds for the city are: • Small Enterprise Growth Fund o Using “Pension Funds” MAINE STATE • Venture Capital Revolving o Creating a VC or an angel investor network and Investment Program (VC-RIP) generating a fund o Community Investment Fund as was done in Nova- • Small Business Loan Insurance Scotia Program o Generating a fund from HNIs against exemptions on • Economic Recovery Loan taxes levied by the city government Program Once these funds are developed, a number of tax credit and loan guarantee programs can be started Page 34 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral • Presence of university-Gainesville • The Gainesville University contributed mainly to converting the University region into a biotech hub. On the same lines, the city can open GAINESVILLE • Gainesville Area Innovation a marine and oceanographic university, which will cover south Network(GAIN) west Florida. • Incubators and Research • Many research centers and laboratories can be opened in the Centers- Gainesville Technology area to support the university. Enterprise Center • The city can have an innovation network which will o Provide a platform to entrepreneurs to interact o Attract the attention of business communities across the US by showing the business prospects in the city • Cleveland is Ranked as the Best • People from different places and backgrounds come to the city Livable Place by the Economist and make it their second home. Therefore, an Annual Cultural Magazine due to Fest can be organized with the help of people from different o Quality of Life places. It can help in attracting tourists from different places. o Cultural Offerings • The already existing group of schools can be strengthened by o Strengths of Schools promoting Satellite Class Room Programs of different universities across Florida. • New Angel Investors Groups • The unorganized sector consisting of angel investors should • North Coast Angel Fund be improved by forming a network for them. Such a network CLEVELAND, OHIO • Akron ArchAngel Network can be region-focused or industry-focused. o Government Initiatives – • The city government can generate a fund in one of the four Third Frontier Program ways provided in the Maine case to take initiatives in o Ohio Capital Fund – $150 investments, generate a deal flow, and hence, attract VCs to million fund of funds the area. o Ohio Midwest Fund – • HNIs can be involved to create a fund by offering tax Pension Fund exemptions within the jurisdiction of the state. The fund can be o State Government used to support SMEs having low capital requirements. Investments – $300 million • Through the establishment of Marine University, the city can o Entrepreneurial Support gain grants as a source of funds, which can be invested in Community various marine-related businesses. o Funds in the range of $250,000 and $1 million are given by the families and friends of entrepreneurs • Institutional Investments –$600 million in research • Emerging Technology Fund to • Cape Coral can initiate a fund to invest in start-ups lacking Support Technology – Start-ups initial funds. This fund can be created through public private • Conferences such as Texas collaboration by providing tax incentives. Community Coalition for Creating investments and pension funds can also be included. Moreover, it can also use the funds operating in the state for TEXAS Opportunities in Capital Generation refinancing and providing guarantees. • Technology Showcase to Link • A conference with business leaders and economic Emerging Technologies with development officials can be held annually to encourage long- Investors term capital generation for businesses and entrepreneurs. • On similar lines, Cape Coral can organize business competitions for the southwest Florida region, where new business ideas can be presented to investors. Page 35 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral • Gave tax credits by using $100 • A Board for handling and giving tax credits to investors should million as collateral be formed in the city. Moreover, pension funds and community OCIB, Oklahoma • Contributed $1 for every $2 for investment funds can be channeled to create a fund that will investment in state provide tax credits in nominal terms. For example, committing • Involved investor support $1 by the government for every $5 from investors. networking and training events • The Board can take initiatives to form a network of investors, and encourage high-tech focusing in the southwest Florida region. Similar incentives can entrepreneurship be given to investments made in Cape Coral. • Support VC funds in state • The city government can take measures to start vocational training measures and encourage entrepreneurship programs in the region. • Set up a Public Pension Fund to • The city with the help of the State government can make use PENNSYLVANIA Support Venture Capital of Pension-Funds to provide tax credit and guarantees to the • Allocate Funds to investments made in the city. PSERS, o A Regional VC Program • Cape Coral can invest through public private partnerships by o A national private equity creating a network of investors. The city government can program provide tax incentives such as property tax exemption for investing a fixed minimum amount in a specific industry. o A Direct Private Similarly, investments can be made in the southwest Florida Placements Program region to attract more investors. • Providing Tax Credit for • The city can use the phased-out tax exemption policy to attract investment Tax Credit, Indiana HBITC and VC Investments new investors and businesses in the area. However, this strategy may not be feasible for the city as this will require • Additional Tax Incentive in the state approvals. Form of Indiana Income Tax • The city government can advocate special incentives to Liability for Investing in Early- increase investment in early-stage companies. The incentives Stage Companies may be monetary (such as helping a business raise funds) as well as non-monetary (for example, promoting these businesses with the help of city infrastructure). • Investors receive a non- • Public banks in the region may also be involved in generating Equity tax credit, Nova Scotia refundable tax credit of 30% on of funds to attract investments. The pension funds can be the amount invested instituted with the help of the state government. Such funds • Voting shares of a corporation are can be used to provide tax credits to investors. issued against eligible • On similar lines, Cape Coral could specify the investments investments made in the city that would be eligible for enjoying tax credit. • Involvement of Registered For instance, SMEs in the region that employ a certain Retirement Savings Plan (RRSP) minimum percentage of local residents could be provided funds for providing tax credit such a tax credit. • Active support for SMEs providing • The city can also involve the corporate sector in the region to employment to locals in the region carry out internship programs where locals, as well as people from outside the city, can be trained and employed in the city. Such a measure would help in the creation of a future talent pool. Page 36 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral • Public Offerings against Shares • The city can encourage the generation of community funds by CEDIF, Nova Scotia are Made under Community initiating programs such as CEDIF at Nova Scotia, Canada. In Economic Development addition, shares can be issued to the local public. Investment Fund (CEDIF) to • The local population can be invited to invest in a capital pool to Create a Capital Pool to Support support the local businesses in the region. Local Businesses • Like Nova Scotia, the city can provide tax credit or exemption • Local Residents are Involved with for investments that are held for a minimum duration. Time Limit for Specified Offerings • Investment for a Certain Minimum Period Enjoy Tax Credits and Incentives on Their RRSPs • Setting up the Community • The city can follow the case – “generation of funds with Credit, UK and Phoenix Fund, UK Development Financial Institutions community support”. Community Investment Tax (CDFI) by the Government to • The city can institute a fund and employ a body to monitor Provide Finance and Business such a fund. This board can be given the authority to allocate Advice for Enterprises tax credit to investors interested in the city prospects, • CDFI Gave Tax Credit for according to the amount of investment that they make. Investment Made for a Minimum • Special incentives can be given to investments made on local Duration SMEs. • Providing Loans to SMEs and • The city government can also take support from the Florida Equity to Community Projects Opportunity Fund for refinancing and guarantees and to set up • Each Regional CDFI is also a fund at a regional level. Supported by Phoenix fund • A network of VCs and angels can be used to organize • Business Volunteer Mentoring conferences and workshops that could benefit not only the Association, a National Network of southwest Florida region, but also conduct entrepreneurial Volunteer Mentors that Oversee activities in Cape Coral as they get an opportunity to interact Start-Up Businesses with investors. The details of these cases are given in the Appendix. 5.2 Primary Research Responses Responses from different VC Firms, VC Networks, HNIs and VC/Angel Investors Associations have been summarized in this section to provide inferences for local action. 5.2.1 Reasons Why VC’s are Reluctant to Invest in Cape Coral Most VCs were not willing to invest or locate their offices in a city that currently has almost no venture capital activity. However, the following are a few drivers that can attract VCs: • Quality of life • Accessibility to major cities • Wealthy population We contacted HNIs who have invested in real estate. Real estate investors who have their holdings in the city are cautious about investing in other businesses as they have already suffered losses because of the slump in the real estate market in the region. Page 37 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 5.2.2 Factors for Development of Venture Capital in a Region The major factors responsible for development of venture capital in a region are:32 • Technological advancements • Entrepreneurial talent - tolerance for failure • Services infrastructure that supports developing companies • Region’s cultural fit • Intellectual property protection • Efficient financial markets • The willingness of big business to purchase from small companies. The following figure provides an overview of suggestions offered by VCs based in Florida to develop VC investments in the city. Figure 15: Suggestions by VCs for Cape Coral VC Development 25% 25% Industry Clusters Develop Talent Investor networks Accessibility/other 17% 33% Source: Primary Research One-fourth of the VCs suggested inviting industry clusters for the development of business. One-third rated the talent pool to be most important, and thus, recommended the city government focus on this aspect. About 17% agreed on having access to ready investors/investor networks and 25% of the VCs rated accessibility and other factors to generate VC investments in the city. VCs who had a good understanding of the city’s demographics and economic status indicated that the most important factor for the lack of VC investments in the city is the absence of a population that is willing to take risks by taking initiatives to start new ventures. They have also suggested options such as holding a VC conference, inviting local VCs to evaluate business plans in the city, or creating a business plan competition in the business community. 32 Source: Primary Research - Leading Venture Capitalists Interviews Page 38 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral The following figure depicts the factors important for development of VC investments in the region. Figure 16: Factors Important for Development of VC Investments 12% University (Research Centres) Existing Deal Flow (Business Hub) 29% 59% Others Source: Primary Research 5.2.3 Suggestions for Attracting Venture Capital Investments 5.2.3.1 Industry Clusters • An industry cluster is a group of firms and related economic factors and institutions that are located near one another and that draw productive advantage from their mutual proximity and connections. Most of the VCs are present in the regions where there is presence of existing clusters such as Silicon Valley, New England, etc. There can be the following types of clusters: Around a university that encourages a cluster of specific technology firms (for example, biotech firms in the communities surrounding Yale University or Gainesville) A competence emerging from a company or industry location (for example, clusters in Austin that emerged from the success of Texas Instruments). • According to a senior executive at Heller Capital, VCs look at areas where there are existing deals. The easiest way to find deals is by visiting an industry cluster. • Strong industry-specific clusters mean required resources are easily available. This also helps in developing a network among professionals in the industry. 5.2.3.2 Networks These networks emerge from experts and professionals in different social, individual, and institutional organizations from whom the entrepreneurs seek capital sources. Both VCs and potential companies report that networking is the dominant channel used for identifying potential deals. According to many respondents, VCs gain major deals through a social network of the VC partners. Page 39 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Situation in City of Cape Coral The lack of industry clusters and the absence of a network of HNIs within the city are the main inhibitors for the development of the VC industry in Cape Coral. However, there are some wealthy retired executives who might be interested in forming such a network. Venture capitalists are ready to invest in the city if there are available investment opportunities (available deals). There is a dearth of such deals in the city at this time. 5.2.3.3 Investor Presence Because most of the VCs generate their funds from HNIs or pension funds, the presence of potential investors in a city is a primary factor for VC development. In most cases, the city-based “angel” investors are the ones who have started VC financing or a VC network. For instance, Heller Capital (Coral Springs), Trivest (Miami), Angel Investment Forum (Stuart), etc., were started because there were a large number of wealthy families that could invest in these funds. Angel funding is critical to Cape Coral because it primarily helps to generate some early-stage venture investment. 5.2.3.4 Intellectual Capital and Technology Transfer There is a correlation between the deal flow in a region and the existence of national research universities. It has been mentioned by most of the respondents that technology transfer from universities is a major driver of innovation and results in commercialization of products. The key example is that of Gainesville, where the University of Florida has been driving the establishment of a number of biotech start-ups. 5.2.3.5 Accessibility The lack of infrastructure and accessibility can be a hindrance in the development of business environment, and thus, VC funding. Ease of access from major financing centers can significantly improve the availability of venture capital. VC firms do not prefer to invest in companies in remote locations because they like to closely supervise the operations of a firm. This is not possible until they have easy access to the company’s details. In the case of seed/early-stage investments, this is all the more important as such deals require greater VC involvement. 5.2.3.6 Community Attractiveness Factors such as the quality of life and the ability of communities to successfully attract venture capital are also important. A senior executive at SpringBoard Capital said that one of the reasons for the lack of deals in the City of Cape Coral can be the absence of an enterprising nature among the individuals and community. According to the respondent, there have not been many successful businesses emerging from the city. Therefore, the city can also focus on development of entrepreneurship talent in the community. Cape Coral is a good place for retirees to settle down. The city offers a number of recreational activities. Through our primary research, we found that most of the VC firms are located in the home town of their founders. Hence, it is important to have proper living conditions for a city to attract venture capitalists. Page 40 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Cape Coral’s quality of life plays a key role in attracting new businesses and VCs. However, to ensure VC development, the following aspects of quality of place need to be addressed in the city: • There is a lack of adequate infrastructure for future growth, especially considering the population growth. • The retail space is not well-developed till now as compared to the nearest city Fort Myers. • There is a lack of existing business clusters. • There is a lack of eagerness among commercial and housing developers due to slump in the market. 5.2.3.7 Historical Returns Capital does not flow into a market unless it has generated a reasonable return on investments. One of the factors negatively affecting Cape Coral is the perception that the level of returns for most active investors has been below average. This is mainly due to a slump in the real estate market. A senior executive from Heller Capital stated that another trend among VCs is that they invest on news. The companies that have promising results according to news popularity in the market get funded. The historical performance of the city/region also affects the deal flow. According to a senior executive from HIG Capital, one of the important aspects of the nine companies managed by the firm in the life sciences domain is that these companies have had people or teams who have worked on successful products or businesses in the past. 5.3 Development Plan The results from various case study analyses as well as primary and secondary research were collated to identify the key steps of the VC development plan for the city of Cape Coral. Further analysis highlighted how various steps can go hand-in-hand or require some prerequisite steps. The various steps of the plan can be categorized as follows: • First-Level Action Points (FLAP) • Second-Level Action Points (SLAP) The following figure shows the development plan for VC investments in the city. Page 41 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Figure 17: Factors Important for Development of VC Investments BUSINESS INCENTIVES FUND DEVELOPMENT VENTURE CAPITAL NETWORK Cape Coral Venture Capital INVOLVEMENT OF GENERATING HIDDEN WORKFORCE SKILLED WORKFORCE VC CONFERENCE SOURCE: Evalueserve Analysis FLAP consists of the primary steps to be taken for the development of entrepreneurs in the region. These steps create the groundwork for developing VC’s in the region. They will not only help in changing the mindset of people, but will also create a platform for second-level (specific development initiatives) steps and eventually will help in the development of deal flow. The steps involved in FLAP are as follows: • Generation of skilled workforce/talent pool • Involvement of “hidden workforce” • Business Incentives SLAP comprises the “follow-up” steps to FLAP. These steps aim at capital generation by attracting investors and generating investment funds. These steps are specific steps for the development of VC investments in the city. The steps under SLAP are as follows: • Fund development • VC network • VC conference Page 42 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 5.3.1 FLAP (First-level Action Points) 5.3.1.1 Developing Talent Pool/Skilled Workforce A skilled workforce and talent pool is instrumental in supporting the existing businesses. They are also necessary for the emergence and development of new industries/businesses in any area. Since the city of Cape Coral has the highest population growth rates in Florida, it can adopt the following measures to further develop and enhance its talent pool and skilled workforce. 5.3.1.1.1 Internship Programs In order to ensure significant work-based experience among high school and college students, the existing companies should be involved in creating internships for local students. This would ensure continuous existence of the talent pool in the region. Like Escambia County, the next step should be to market these opportunities through the Internet. Once the city is able to attract interns from other places, they can be retained by providing full-time employment. 5.3.1.1.2 Business Plan Competition The backbone of a venture capital industry is the presence of entrepreneurs in a particular area. Venture capitalists are attracted to a region where the local community is willing to contribute to development of the region. An example is the project on Promoting Venture Capital Business in Egypt that was undertaken by Jo Anne Heywood Miller, Financial Services Volunteer Corps. In their final report (issued in 2006)33 the team proposed a business plan competition to be sponsored by venture capitalists and other investors. According to the report, the winners of the competition were to be funded by various sponsors and co- sponsors of the event. Apart from these, some VCs also planned to invest in other business ideas that were related to their investment interests. Such a competition serves as an effective communication channel by bridging the gap between entrepreneurs and investors. To encourage young potential entrepreneurs and professionals, the Business Plan Competition can be organized. This will provide a platform for exchange of ideas among young enterprising brains, venture capitalists, and other investors. The panel that will judge the plans can be made up of VCs, current business professionals, academicians, and angel investors. The panel will evaluate the plans on parameters, such as economic and financial feasibility, future growth prospects, existing competitors, and the cost-to-value factor. Since such a project would involve initial investments and industry collaboration, it can be started as a public-private initiative. The Economic Development Office of Cape Coral could initiate this type of business plan competition and involve the business community of the region. 33 Source: Promoting Venture Capital Business in Egypt, Final Report, July 2006, by Jo Anne Heywood Miller, Financial Services Volunteer Corps Page 43 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 5.3.1.1.3 Non-University-Backed Research Laboratories As there are not many research universities in and around the city, having research laboratories (that do not require university-based infrastructure) seems to be one good alternative. Laboratories for the healthcare-sector can be a solution in this scenario. Pharmaceutical and clinical trial laboratories can also be included in such alternatives. For instance, the city already has a satellite branch of the National Ophthalmic Research Institute, based at Retina Consultants in southwest Florida. The city can develop the center or attract such other research centers in the city with the help of VC financing. Tigris Pharmaceuticals Inc. completed a private placement of Series B Convertible Preferred Stock and received $16 million in 2007 with the help of NGN Capital LLC. On similar lines, Cape Coral can attract such centers with the ability to generate funds for meeting its expansion procedure. 5.3.1.1.4 Marine University The marine industry is one of the most promising industries in Florida. There is a huge market potential in the field of oceanographic and marine technology in the region. Presently, there are six universities across Florida having a marine technology department, responsible for all research and innovation in the field. However, there is no such university in southwest Florida. Cape Coral, with 400 miles of canals and a large coastal line, is a good place for such a university. This will help the city in the following ways: • Establishment of spin-off companies, driven by research carried out at the university • Better and easier options for further studies Another important field of marine technology is the estuary industry, which generates revenue of approximately $111 billion every year in the US.34. Estuaries are of great importance to the region as they support fisheries’ science, tourism, research, commercial fishing, and agriculture. The City can establish or propose opening a local division of a university/research center. This will increase research and development as well as the talent pool in the region and would attract VC financing. 5.3.1.2 Hidden Workforce Involvement Cape Coral is considered a second home for retired executives and other professionals across the US. These executives, with capital and expertise in their fields, come to the city because of its favorable climate. These people generally have good business and professional experience. 34 Source – http://www.estuaries.org/:id=10 Page 44 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Using the example of These experts can be involved to enhance the skills of the Escambia County, the hidden business community in the city. Various processes and incentives workforce can be involved at can be offered by the city government to attract these experts. In the following three levels: order to capitalize on their knowledge and experience, they should – Education be involved at the following three levels for the business – Mentorship development of the city: – Entrepreneurship 5.3.1.2.1 Involvement as Educators The combination of education and corporate experience paves the way for providing various courses and programs such as an ‘Entrepreneurship Program’ and a ‘Leadership Program’. Through these programs, young students can be helped to develop a good business sense by leveraging the skills of retirees. 5.3.1.2.2 Involvement as Mentor These experts, based on their area of knowledge, can be involved in businesses at various levels of management and operations. They can also act as mentors for growing businesses and entrepreneurs. According to the primary research with VC networks, the reasons for a lack of VC deals in lesser VC- developed regions can be one of the following: • Lack of entrepreneurship talent • Lack of investment money • Lack of business ideas • Lack of combination of the above three points VCs will often invest their money and business experience in a business idea so that the idea does not fail due to a lack of managerial leadership. Similarly, these experts can help young entrepreneurs to mobilize their ideas for better business results. 5.3.1.2.3 Involvement as Entrepreneur/Investor It has been observed that retirees move to places such as Cape Coral to spend the latter half of their lives, but tend to invest in their home town. By providing tax incentives and exemption, they can be enticed to invest in the city. Moreover, based on their field of expertise, these retirees can be motivated to start new enterprises. By taking such an initiative, they will help in generating more jobs. This will help to retain the city’s talent pool and will help to attract more entrepreneurs and investors to the region. Therefore, the City Council can identify, involve, and mobilize such individuals toward the development of the region. Page 45 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 5.3.1.3 Business Incentive Plans Investors analyze opportunities in terms of maximizing profitability and minimizing risk before investing in a particular venture or a region. In order to gain their confidence and attract new investors, the region can offer various incentives to minimize risks. Incentives in the form of guarantees, exemptions, or partnerships can be offered to these investors. The City of Cape Coral can adopt the following incentive strategies to encourage investments in the region. This would be beneficial in the following manner: • Encourage existing wealthy residents to invest in local opportunities. • Attract others to the region. 5.3.1.3.1 Phased-out Tax Incentive Program A phased-out tax exemption policy to attract new investors and businesses has been employed in different places. Tax exemptions in phases (such as exemption from tax payments for a certain length of time) are offered to investors. For instance, Denmark phased out tax exemptions provided to cooperatives in the residential sector.35 However, the City of Cape Coral cannot implement such a strategy as it does not have control over the taxes collected on real estate. 5.3.1.3.2 Marketing of the city to attract investments The City of Cape Coral needs to create a brand which can attract different inhabitants/investors to settle down in the city and invest in its ventures. The Orlando success story, known as “Putting Imagination to Work”, is a mix that utilized existing resources and created a brand for the city. To formulate and implement an economic development strategy, one needs to assess the available resources and then build upon them. The City of Orlando has had a strong technology base; the city has been hosting military training facilities since the 1950s. This resulted in creating a cluster of defense technology companies in the region. The region has also been fortunate to have the University of Central Florida (UCF) that excels in its technical programs (engineering and computer science, optics/lasers, and simulation development). The City Council focused on branding the city to create awareness and provide different options to the technology-based companies to invest. • Creative advertisement promoting the city’s technology clusters were developed and published in leading technology magazines, such as Wired, and niche publications, such as Game Developer. • The campaign was focused on attracting specific companies by using innovative ideas, like packaging ice cream scoops by Tupperware and customizing the message on “getting the scoop” on your industry in Orlando. • The first technical magazine in the region, Texture (May 2004), was published by the council in partnership with the Orlando/Orange County Convention & Visitor’s Bureau and with funds from the Orange County Government. 35 Source : http://www.folketinget.dk/samling/20051/almdel/UDU/Bilag/377/279675.PDF Page 46 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral • These innovative marketing steps were coupled with the sector specialist on the council’s business development team to execute the plans. • The council manages the Central Florida Technology Partnership (CFTP). CFTP performed the function of clearinghouse for information about technology, events, conferences, issues, and challenges. 5.3.2 SLAP (Second-level Action Points) 5.3.2.1 Generation of Funds for the City of Cape Coral36 Presently, venture capitalists and investors have a negligible to limited presence in the city. One reason for this has been the shortage of funds in the City of Cape Coral. Hence, there is a need for creating a fund that can be used to provide guarantees to the investments made in potential business ventures in the city. This can be used to develop confidence and entice investors to the region. This is evident from the cases of Oklahoma Capital Investment Board and Escambia, where a fund has been established to provide guarantees and tax credits to investors funding the local projects. These funds also provide investment through a public/private partnership. The City of Cape Coral can also follow the example of the Florida Opportunity Fund, where the state contributes as much as an investor to set up a fund to provide guarantees and tax credits on investments made in the city. It can also involve the Opportunity Fund of the state for the establishment of this investment option in the region. The model in Germany can also be followed where regions have established Mittelständische Beteiligungsgesellschaften (MBGs), which are equity stock companies instituted at the regional level to provide funds to SMEs in the region. MBGs were formed as regional development agencies by involving private players along with local and regional public banks. A sizable proportion of their investment is guaranteed by Länder guarantee banks, which, in turn, are guaranteed and refinanced by Länder governments and the Kreditanstalt für Wiederaufbau (KfW). KfW is a national public institution that provides venture capital. Other examples where such funds have been institutionalized are as follows: • The Cypress Equity Fund in Florida • Public School Employees’ Retirement System (PSERS) Private Investments in Pennsylvania • Oklahoma Capital Investment Board in Oklahoma The fund can be established with a regional focus on southwest Florida. The city can also involve the private sector to form the fund under public private partnership, similar to the case of MBGs in Germany. The funds can be generated by the city with the help of the following sources: 5.3.2.1.1 Network of Venture Capital or Angel Investments The city can initiate the formation of a network of venture capitalists or angel investors with a regional focus on southwest Florida, such as Florida Gulfshore Capital and Stellar Venture Partners, LLC in Naples and SI Ventures in Fort Myers. Such a network will not only facilitate generation of funds but can also enable the organization of VC conferences and business competition in the region. Moreover, any development of a group of angels will be good for investors as well as small businesses. Throughout the region, there are wealthy people who have shown interest in backing businesses in their respective communities; for instance, RBA in Naples is a group of retired or current chief executive officers of large corporations, is committed to the development of businesses in southwest Florida. Moreover, it is healthier from a financial perspective if a group of investors pools their money to invest in several different businesses, thereby diversifying their risk. Primarily, the VC network is usually created 36 Source: Regional Venture Capital Policy UK and Germany Compared, November 2003 Page 47 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral by HNIs present in a region. Therefore, Cape Coral can also approach HNIs in the city to invest in local businesses by offering tax exemptions. The city government can also encourage public/private investment through such a network to invest specifically in Cape Coral businesses. The city can adopt the following strategies to invite private investors. • Create awareness of the region by publishing newsletters and reports of the opportunities available in the city. This would enable investors to know about the regional progress so that they could effectively direct their resources. For example, Tampa Bay37 publishes Regional Economic Scorecard. • Market regional prospects and ongoing projects (like VC conferences and business competitions). • Organize events (VC conferences, business plan competitions, etc.) to showcase opportunities available in local businesses. The following figure shows the various sources that can be used to generate funds. Figure 18: Generation of Funds for VC Investments Venture Capitalists FUND Community and Angel GENERATION Investment Investors Funds Pension Funds and Funds from Insurance Companies (CAPCO) Source: Evalueserve Analysis 5.3.2.1.2 Community Investment Fund The Community Economic Development Investment Fund (CEDIF) is a pool of capital funds formed through the sale of shares to people within a defined community and is used to invest in local businesses. Cape Coral can follow the case of Nova Scotia (where CEDIF was formed) and create a community investment fund by involving the local population to support SMEs in the region. A similar strategy has been adopted in the UK to encourage investment in businesses in financially deprived regions. 37 Source: http://www.tampabay.org/ Page 48 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 5.3.2.1.3 Pension-Funds The City of Cape Coral can work with the state to set up a public pension fund by using the pension contributions from the region to generate venture capital investments in the city, just as was done in case of the Public School Employees’ Retirement System (PSERS) Private Investments, Pennsylvania. This can then be used to create a capital pool formed by involving funds from other sources which the city can finally employ to give guarantees to the investments made in city. 5.3.2.1.4 Attracting CAPCO Funding The city can also attract funding through the Certified Capital Companies (CAPCO) program, a tax credit program that provides 100% premium tax credit to insurance company investors. The credit is usually spread over a 10-year period in all such programs. Variations of CAPCOs have been carried out in states that have adopted this program. The CAPCO program in Florida was initiated in 1998. Under this program, insurance companies were allocated $150 million in tax incentive credits for investing in venture capital funds. The state authorized $15 million in premium tax credits to insurance companies each year for a period of 10 years. The companies invested with private venture capital companies that, in turn, invested in companies in Florida. Insurance companies are the elementary investors in this program and they receive tax credits equivalent to their investment contribution. This program has been designed to support early-stage Florida home-grown companies. To benefit from this program, the company has to fulfill the following criteria:38 • It must be an early-stage technology company and be in operation for at least two years. • It should be based in Florida and should have less than 200 employees, of which 75% should be from the state. The CAPCO program certified three venture firms––Wilshire Partners of Miami, Advantage Capital Partners of Tampa and Stonehenge Capital of Jacksonville––to dispense CAPCO money. By 2001 more than $49 million had been invested by the venture firms in 24 small and early-stage technology 38 businesses. The research team contacted these companies for their input on the study, but none expressed their willingness to invest in the city. To benefit from this program, the city can increase awareness about available opportunities by collaborating with and inviting these companies to invest in the region. However, we understand that the implementation of the plan may be hampered by the restrictions of state laws on local government taking risk positions. The implementation of such a plan will have to be done in adherence with state policies and with state involvement. Benefits of Capital Funds for the City The creation of a fund will have the following positive impact on the investment scenario in Cape Coral: • It will initiate the deal flow process encouraging the flow of funds and support for enterprises in the region. • According to primary research with the managing partner of Antares Capital, Cape Coral has a limited presence on the business map of Florida with no big businesses present in the region. The creation of a fund will help the city establish a platform from which it can attract larger companies to the region. In the case of Texas Instruments, establishing one big firm in the region 38 Source: http://www.bizjournals.com/tampabay/stories/2000/12/04/focus5.html Page 49 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral was instrumental in driving growth in ancillary firm clusters. This would further break the deadlock and attract investments to the region. • Through the creation of such a fund, the city will be able to create and interact with a network of venture capitalists and angel investors. This would result in facilitating the organization of VC conferences and business plan competitions to drive entrepreneur development in the region. The following table provides an overview of the investment strategies suggested for VC funds in the city. Table 8: Proposed Fund Strategies Proposed DESCRIPTION Fund Strategy Provide start-up capital for private companies located in southwest Florida, with a focus on the city. Objective This fund will be focused on southwest Florida for initial investment avenues. Recently VCs (Florida Gulfshore Capital, Stellar Venture Partners LLC in Naples and SI Ventures in Fort Myers) have shown interest in investing in the region. Select groups of pension funds, university endowments, foundations, financial Resources institutions, and successful entrepreneurs are Limited Partners. Industries – Investing in and building private, high-growth companies in a number of industries including healthcare, professional services, consumer products, and specialty retail Focus on SMEs because of the presence of labor-intensive, lower technical workforce in the region Investment To encourage private investments, the City of Cape Coral can also provide tax Strategy incentives (in property taxes) to residents who invest in the fund CCC can also provide its contribution, e.g., $1 invested by the city for every $5 by VC investors Dedicated proportion for seed/start-up should be relatively higher as there are a limited number of established businesses in the city. Source: Evalueserve Page 50 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 5.3.2.2 VC Conference Development A venture capital or an angel investor network brings together the two ends of venture funding–– entrepreneur on the receiving end and venture capitalist or angel investor on the giving end. A network provides a common platform to its components to interact with each other through a variety of formal and informal activities. These activities range from organizing official conferences to friendly golf tournaments and trips. A conference is organized with the following objectives: • Providing a platform to share ideas, expertise, and experience among members • Reducing the initial monitoring time and cost that is required when a venture capital investment is carried out individually • Providing an opportune platform for investors to choose from a variety of business ideas A conference is usually held in a region with an existing deal flow and having potential for the future. Ease of getting to a location also plays a key role in determining a region for conducting a VC conference. Private equity firms, academicians, investment bankers, economists, some guest venture capitalists, and angel investors who are not the members of the networks also attend the conference. . At present, the conferences taking place are mostly a result of a A few groups of angel few venture capitalists and angel investors coming together and investors also organize some inviting entrepreneurs and other attendees to attend the unofficial get-togethers, conference. According to a senior official at eFlorida, this process which can be made official by can be reversed and such conferences can also be held by a offering them sponsorships. group of entrepreneurs present in a particular area. Such a conference will act in the same way as a conference organized by a venture capital network. These conferences also highlight the list of corporate sponsors who contribute money as well as time to successfully organize the meetings. The sponsors of the Annual Florida Venture Forum offer a crash course for the entrepreneurs to help them present their cases most effectively. While looking at the positive outcomes of the conference, the challenges faced should not be overlooked. • A successful conference adds to the brand image of a particular area. It To overcome the requires significant capital investment and basic infrastructure, such as challenges, the City of accommodations, transportation, etc., for participants from different Cape Coral can get places. assistance from the • A senior official from Heller Capital agrees that a venture capitalist or an existing organizations, like the Florida Venture angel investor invests according to the news about a particular area in Forum, in organizing a the market. This necessitates a good strategic marketing policy such as conference. the Re-branding strategy of Orlando. • There have to be a few successful ventures or some attractive government initiatives to attract participants. The following are some of the venture capital conferences held at different places. Page 51 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Florida Venture Capital Conference The Florida Venture Forum organizes the conference every year in different locations across Florida, where the top 20–25 Florida-based private companies are judged for venture funding. The 17th conference is to be held at St. Petersburg in February 2008. The last 16 conferences have helped entrepreneurs to raise over $1.4 billion. Invest Southwest Capital Conference A venture capital The event connects entrepreneurs and venture capitalists from across the conference regions of Arizona and south west Florida. The conference was held for the generally aims at first time in 1992. Since then, the presenters have been able to collect around attracting VC $250 million in investments. ImaRx has received $27 million and Medsphere investments in a has received $12.5 million, which are major achievements. particular area. The next conference is scheduled in December 2007. It also plans to conduct an investor seminar, during which experience in various fields will be shared. Annual MIT Venture Capital Conference The 9th annual conference will take place at the Massachusetts Institute of Technology to attract venture capital for the following: • Leading innovations • Emerging technologies • Commercializing inventions Venture funding is used in various new and existing research programs at research laboratories and institute-backed incubators. Page 52 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral The following figure showcases the benefits of a VC Conference. Figure 19: Benefits from the Conference Benefits from the Conference Short-Term Benefits Long-Term Benefits Business Plan Publicity Awareness Generation VCs will Help in Getting Competition will among Local of Deal Flow Start Success Story Encourage Businessmen Investing in which Attracts Young the City Deal Flow Entrepreneurs Source: :Evalueserve Analysis Entrepreneur Development with the Help of Dedicated Companies 39 In the initial stage, entrepreneurs can get assistance from companies like Venture Architects that help in structuring and presenting business ideas in an investment-ready module. These firms help in conducting presentations at conferences and, once the investment is in place, they provide IT support for internal and external communications. Moreover, they help in branding and marketing the business by using graphic designs. Another important company that provides a launch initial platform for entrepreneurs is MyCapital.com.40 This company helps in creating an online profile of the business; this profile is then matched with the interests of over 3,000 venture capital firms across the world. Online applications are sent to the matched results on behalf of the entrepreneurs so that interested venture capital firms can follow up. 5.3.2.3 Venture Capital/Angel Investor Network Development Venture capital networks are non-profit organizations that work continuously to help emerging and established businesses. These networks provide a platform for angel investors, VC firms, and private equity groups to interact with entrepreneurs seeking investments in their ventures. VC networks help in attracting business investors, mainly angel investors, to invest in a business. By serving as an information platform, the networks also attract stealth investors who restrain from 41 investments due to lack of proper information and support . 39 http://www.venturearchitects.com/low.html 40 Source: http://www.mycapital.com/ 41 Source: Primary Research Page 53 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral According to a senior executive from Springboard Capital LLC., venture capitalists seek developing areas. Once young professionals are encouraged to become entrepreneurs, they can take steps to identify and invite venture capital firms and networks to conferences where they can present their business plans. A VC network also helps in organizing and attracting participants for VC conferences in a region. It is also responsible for identifying and inviting entrepreneurs and informal investors to the conference. Page 54 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 6 Appendix A – Research Methodology The research was conducted in the following stages: Literature Review The team reviewed publicly available research reports and articles on the Development of VC Investments by different stages of implementation such as the following: • At country level – Germany and the UK. • Within US at state level – Ohio, Pennsylvania, Indiana, Oklahoma, and Maine • At county/city level – Escambia, Cleveland, Gainesville, and Palm County These cases provide an insight into the different modes of development for the VC industry in a region. Other research methods included, but were not limited to the following: Internet Research – It was used to gather information on potential businesses that could be developed in the city as well as to understand the different modes of accessing funds for VC investments. Research sources included VC association’s websites, networks sites, official city websites, and websites of different research and business setups. Database Research – The proprietary databases used during the course of the research included databases, such as OneSource, Dialog Pro, Factiva, and Profound. Primary Research Primary research was conducted to gather first-hand, granular and detailed information, which was not available through general public information sources. We conducted interviews using questionnaires (please refer to the appendix) based on gap analysis from literature review. We conducted around 18 successful interviews with the partners/heads of VC firms, and senior executives at VC networks and associations. The interviews helped in finding answers to the key questions: • Where does the city lack in terms of alluring VC investments? • What are the driving factors for the development of VC investments in a region? • What techniques and strategies can be applied in the City of Cape Coral? Most of these interviews were conducted with VCs and associations in Florida to have more specific responses. The overall results of data collection were analyzed in the following manner: • Analyzing the best practices (related to development in VC investments) followed by various cities within and outside the State of Florida. • Analysis of the target industries and businesses identified by economic incentives team and gathering examples of such industries being funded by VCs. We have also presented cases of such industries/companies/businesses/centers. Page 55 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 7 Appendix B – Select Florida Area VC Development 7.1 Palm County The following factors fuelled growth of VC investments in Florida (Palm County): • Florida is a good location to live in due to its pleasant weather, availability of leisure activities, and financial benefit provided by the government (tax benefits for retirees). • Many venture capitalists decided to make Florida their second home. • The following initiatives taken by the government helped in driving growth in VC investments in the county:  Palm Beach County provided 0.15625 square miles of land to TSRI (The Scripps Research Institute) to setup their advanced research center. The Palm Beach County provided financial assistance of $137 million to Scripps for the construction of research facilities.  Establishment of partnership between university and research firms, which will enable research firms to use the local manpower resources.  Promotion of the collaboration between universities and companies to attract other companies.  Grants given to the university to establish centers of excellence which would help in the R&D activities.  The commitment of the Florida government to use some of the pension funds to finance VC projects  The funds were made available to VC firms irrespective of whether they have an office in Florida. • Planned infrastructure. • Advanced research facilities available in the field of biotechnology. • Research scholars and scientists can settle down in Florida. Inhibitors for VC investment in Florida are as follows: • Lack of quantitative and qualitative investment opportunities for VCs. • Lack of experienced executives who can manage businesses efficiently. • Shortage of investors who are willing to finance early-stage companies. • Absence of a cluster of mature companies 7.2 Gainesville – University of Florida There has been a spurt in VC development in the University of Gainesville due to the focus on the biotechnology sector. Table 9: UF VC Achievements in 2005 Domain Achievement (Rank) New startup companies generated 4 Patents filed 8 Source: http://www.edc- tech.org/index.php?src=news&refno=246&category=News%20Articles Page 56 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Gainesville Area Innovation Network (GAIN) has been a major driver for the growth of businesses in the region. Some of its major activities are as follows: • Establishing a platform where inventors, entrepreneurs, investors well as other interested individuals can meet together for the purpose of sharing ideas, energy and talents. • Providing further growth and maintenance of technology enterprises in the Gainesville area. • Informing the national business community about the attractiveness of the Gainesville area for setting up technology business enterprises. Companies such as Regeneration Technologies, Exactech, Medical Manager, Sabine, MRI Devices, and Monterey Boats have originated in the region. Alachua County ranks fourth in the US in terms of the concentration of regenerative health biotech companies. This is also driving the growth of other industries. The region also has GTEC, an incubator, in Gainesville, the Sid Martin Biotechnology Incubator in Alachua and the new $10 million University of Florida bio-processing center focusing on regenerative health. Emergent Growth Fund, a member-managed angel investment group based in Gainesville, has always focused on companies or technologies that originate from the University of Florida. 7.3 Venture Capital Development in Escambia County 7.3.1.1 Overview This case is a plan proposed for the Pensacola Bay Area Chamber of Commerce with specific suggestions on the commitment of resources for enhancing Escambia County’s economy. • As a result, the plan is presented in terms of the challenges faced – attracting and retaining talented workers, embracing innovation and industry, and improving the quality of place. These challenges are not unique to Escambia County – they are the concern of a majority of communities in the country. • Several factors inhibit Escambia County’s ability to build its talent pool to support existing and future business growth:  The percentage of 25–44 year olds continues to decline  The labor force is limited (the county has an unemployment rate of 3%)  Wages are not increasing as fast as job growth is occurring  The cost of housing is high  K-12 educational performance levels are lower than the neighboring counties  No well-defined industry cluster groups, except for the newly-formed Life Sciences Industry Cluster  Segmented coordination among economic developers, educators, and workforce providers on industry targets  A lack of economic opportunity (real or perceived) drives graduates and/or military retirees to look elsewhere for challenging and high-wage employment 7.3.2 Strategies Adopted/Considered to Improve and Retain Talent 7.3.2.1 Provide opportunities for professional development • Offer training and networking opportunities that are attractive to a range of professionals. This is a key element in attracting and retaining talent. The following steps are considered:  Develop networking opportunities for professionals in the area Page 57 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral  Leverage graduates of leadership programs in the region, like the Leadership Florida, College Leadership Alumni Associations. 7.3.2.2 Leverage the retiree and military labor force • Many retirees are still in their prime working age and represent a significant talent pool. This “hidden workforce” comprised 21% of the population of Escambia County (55 years and older) in 2000. The steps considered are as follows:  Support existing organizations like the Institute of Senior Professionals  Link military personnel and the business community  Engage retirees in Mentoring Program 7.3.2.3 Engage local and regional young professionals • Efforts should be made to engage students of University of West Florida (UWF) for community planning – especially, entertainment-related programming. The proposed steps were as follows:  Support mentoring opportunities for young professionals  Promote participation in Leadership Programs  The chamber should work with the UWF student government and UWF community liaison to determine how to further involve UWF students in the community  Marketing programs should focus heavily on young professional talent – locally, regionally, and nationally 7.3.2.4 Develop industry cluster networks • Employers must be assured of access to trainable workforce and talent is drawn to locations that offer these assets. These entities should continue to strive for excellence in education and workforce training as long-term goals, especially in light of making Escambia County an attractive option for new residents and employers. The steps proposed were as follows:  Promote training and skills programs  Facilitate annual workforce conference of owners  Leverage job placement programs at UWF and Pensacola Junior College  Support new and expand existing internship/apprenticeship programs (if needed) that aid in the placement of students with area employers to support their needs for talent. 7.3.3 Strategies to embrace Innovation and Industry Economic diversification is a common goal of economic development organizations, despite the fact that it means different things to different people. Page 58 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 7.3.4 Challenges-Strategies- Steps proposed Challenges Strategy Proposed Steps Map all existing commercial and industrial property Create a work plan to identify parcels to obtain, Plan and develop develop and rezone. Lack of space for key commercial and incubation Develop Outlying Field (OLF) Site 8 industrial land parcels Develop international paper timberland areas in the northern part of the county Improve transportation infrastructure Insufficient seed capital Build an entrepreneurship program by leveraging funding existing talent and resources in the area Facilitate the availability of VC for early stage Lack of commercial and businesses industrial product to Expand resources serve business expansion Facilitate the transfer of technology from private and for entrepreneurs military/government institutions to entrepreneurs and innovation Recognition of Northwest Entrepreneurship Training to develop educational Florida’s entrepreneurial courses in entrepreneurship and encourage such opportunities by angel programs in secondary schools. investment communities Source: TIP Report Page 59 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 8 Appendix C – VC Development Outside Florida 8.1 Venture Capital Developments – Ohio42 Recently, Ohio became the national hub for innovation and entrepreneurship. The supply of capital— human capital in the form of the education and skill levels of its citizens, intellectual capital in the form of research and innovation, and investment capital in all of its forms—has been the prime factor for the economic development of the region. 8.1.1 Overview – Venture Capital Investment in Cleveland In addition to the regional firms created over the last five years, the Cleveland area attracted four national venture firms in 2005–06—Oakwood Medical Investors (St. Louis), Chrysalis Ventures (Louisville), Draper Triangle Ventures (Pittsburgh), and Bridge Investment Fund (Cleveland and Tel Aviv)—and witnessed the activation of two new angel groups—North Coast Angel Fund and Akron ArchAngel Network. The state is now home to more than 45 capital sources for entrepreneurs. The Economist Magazine recently ranked the Cleveland area as the most habitable region in America based on factors, such as the quality of life, recreational and cultural offerings, and strength of schools. This has attracted many investors from outside the region. 8.1.2 Drivers for Change The state of Ohio has supported these efforts through its Third-Frontier Programs to encourage angel investment, create new seed and early-stage funds, and attract national venture groups. Initiatives taken by the state are as follows: • The Ohio Capital Fund is a $150 million fund of funds that has invested to help capitalize a number of regional and national funds. The Ohio Capital Fund is jointly managed by Peppertree Partners and Fort Washington Investment Advisors. • In addition, Ohio’s Public Employees Retirement System launched the Ohio-Midwest Fund. The fund, managed by Credit Suisse, has committed $51 million to 8 groups focused on investments in Ohio- based companies. Angel investors and groups have also played a crucial role in developing potential ideas into viable companies. Northeast Ohio provides an example, where there is continuous supply of comprehensive capital through these supportive investors. The following investor networks have been initiated in the region: • The North Coast Angel Fund • Akron ArchAngel Network • Ohio TechAngel Fund These funds have been started and are supported by experienced entrepreneurs. Their key focus is to increase investments in the region. 42 Source: http://www.nortech.org/Docs/2006%20Venture%20Capital%20Report.pdf Page 60 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Key Drivers of VC investments in Cleveland: • Institutions in the region annually invest more than $600 million in research and more than 550 clinical trials for new therapies. • The region’s funding and entrepreneurial-support community has in recent years developed a support initiative through the entire spectrum of company growth. • The support from the State Government of Ohio has helped high-growth companies thrive in this region. Over the last 5 years, the Cleveland area has received over $300 million from the State of Ohio’s Third Frontier Program. • Over $500 million has been invested in regional start-ups over the last 3 years. • The first two stages of the VC investments continuum are to be funded by regional capital sources.  Seed investments and funding are typically at $250,000 to $1 million and are provided by friends and families of the entrepreneur, non-profit venture development groups, and grant funding sources. The company is focused on building or testing its offering and assessing early customer interests in that offering.  Early-stage investments are typically from $1 to $5 million and are usually provided by regional VC firms or angel investors. At this stage, the company is focused on producing a commercial offering, validating it with initial customer sales, and developing a broader industry advisor network.  Growth financing ranges from as low as $5 million to more than $50 million for companies. The funds are provided by a range of equity sources, regional, national, strategic investors, and mezzanine/debt capital sources. Companies at this stage are focused on accelerating market adoption of their offerings and scaling infrastructure to support their continued growth. The following figure depicts the VC investments in Cleveland and the number of companies that received this VC financing. Figure 20: VC Investments in Cleveland ($$ Million and Number of Companies Financed) 300 259 60 56 52 Investment (USD) million 250 50 Number of companies 44 200 40 157 150 123 30 100 20 50 10 0 0 2004 2005 2006 Investments year Companies Financed Page 61 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral The following figure shows by sector the percentage of companies that received VC financing in Cleveland during 2004–06. Figure 21: Companies by Sector Receiving VC Financing in Cleveland – 2004–06 6% 10% 23% 22% 12% 28% Medical devices Biopharmaceuticals Healthcare, IT & services IT Communications & software Business & consumer services Others Focus on Development in Seed Investments: • On average from 2004 to 2006 the region saw 20 opportunities each year that attracted seed funding. • The region’s world-class research institutions, technology transfer offices, and venture development groups are working jointly to increase the pipeline of funded seed-stage opportunities. • They have been aided by the Third Frontier Program through which Ohio has invested over $300 million in Northeast Ohio’s research institutions, capital funds, development groups, and companies, since 2002. 8.1.3 Results These initiatives have borne fruitful results in terms of VC investments in the region. During 2004–06, 99 companies across this region received equity investments of more than $500 million from VC firms or PE groups. An unprecedented number of equity investment groups from outside the region—no fewer than 41 national firms—have made subsequent investments in the companies based in this region since 2004. Successful Companies A number of companies that were funded in the VC development initiatives have been successful. One of them is OfficeMax that transformed from a start-up to the number-two player in the office supply industry in a very short period. Another example is Steris, a major player in the sterilization supply business. In addition, the region’s older technology companies, such as Philips Medical, and its polymer companies, such as BF Goodrich, are still driving new start-ups through their spin-offs and alumni. According to one of the studies, nearly 80 medical device companies located in the region are subsidiaries of Picker and Technicare and have evolved on the success of Picker and Technicare. A similar scenario is seen for orthopedic companies in the region (for example, AcroMed, now a division of Johnson and Johnson). Page 62 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 8.2 State Strategies for Mobilizing Investment Capital This section summarizes the initiatives taken by state governments to encourage and attract VC capital in their respective states. Most of these initiatives are in terms of capital financing by state funds and tax credits. The biggest focus of these programs has been on early-stage investments. The following figure depicts the focus of state investments according to different stages of VC financing. Figure 22: Source of Capital for Fund Generation 11% 13% 76% Direct Capital Tax Incentives Others Source: Evalueserve Analysis Forms of Tax Incentives • Tax incentives on direct investments • Tax incentives for investments in funds • Tax incentives for investments in R&D • Tax incentives for re-investments in projects The primary objective behind state investment in VC deals has been the economic growth and creation of new jobs. About 32% of state VC capital programs was focused on creation of jobs and improvement of job quality, while 13% was focused on economic benefits and only 15% had ROI as their core objective. The state initiatives are geared to local entrepreneurs. These initiatives in turn would result in bringing more industries to the region. This would eventually result in creation of new employment opportunities for people and generation of wealth for the state. The programs adopted by the state are designed to encourage or assist in the formation of local seed and early venture capital resources. The strategies that a state can pursue are: • Create awareness among concerned groups like policy makers, investors and entrepreneurs about the importance of seed and venture investments • Establish a platform where entrepreneurs and investors can interact with each other • Strive to fill gaps in the investment cycle to ensure an uninterrupted supply of funds to emerging companies • Institute a capital fund to initiate and support seed and venture capital industry Page 63 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Examples of initiatives taken by states are as follows: • The Connecticut Product Development Corporation, Connecticut: This is a program where entrepreneurs with compelling ideas can obtain state equity capital investments to create a company. It proved to be a success, and eventually was duplicated in other states.43 • Fund of Funds, Oklahoma: This is a program originally launched in Oklahoma in the mid-1990s. The program uses contingent tax credits to raise funds that are, in turn, invested in established VC firms willing to evaluate and invest in potential Oklahoma growth companies. According to a survey by the National Association of Seed and Venture Funds (NASVF), equity capital programs consider job creation or other economic development measures as their metric rather than ROI for the state. It can be proposed that government initiatives and policy direction combined with private-sector market discipline offer an effective formula for creating equity capital for local entrepreneurs. 8.2.1 Type of State-Sponsored Seed and Venture Capital Programs • Direct investments by state agencies • State investment in privately managed, geographically restricted funds • Investment in a portfolio of private seed and VC partnerships • Tax credit incentives for private direct investment • Tax credit incentives for private indirect fund investment • Mobilizing angel networks • Matchmaking services • Culture bending initiatives Florida has offered $300 million and Palm Beach County more than $200 million to attract the Scripps Research Institute to catalyze a biotech cluster in South Florida. The state hopes to attract a VC in the long term. Some examples illustrating other states that sponsored various programs are as follows: 8.2.1.1 The Hoosier Business Investment Tax Credit (HBITC), Indiana This program was established to encourage capital investment in Indiana by providing a credit against a company's Indiana tax liability. The credit amount is based on a company's qualified capital investment with the final credit amount determined by the Indiana Economic Development Corporation (IEDC) based on an analysis of the economic benefits of the proposed investment. Eligibility IEDC may enter into an agreement with an applicant if the following conditions exist: • The applicant's project will raise the total earnings of employees in Indiana. • The applicant's project is economically sound and will benefit the people of Indiana by increasing opportunities for employment and strengthening the economy of Indiana. • Awarding the tax credit will result in an overall positive fiscal impact to the state as certified by the budget agency using the best available data. • The average wage that will be paid by the taxpayer to its employees (excluding highly compensated employees) at the location after the credit is provided will be at least equal to 150% of the hourly minimum wage or its equivalent. 43 Source: (State Governments Start Investing Capital for Entrepreneurs to Grow the Local Economy and Keep Jobs George Lipper) Page 64 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral A taxpayer receiving the tax credit shall remain operational at the project location for at least 10 years during the term that the tax credit is available. Calculation of Credits A company's credit award may be up to 10% of their qualified capital investment and may be extended for up to 9 years. The IEDC determines the applicable credit percentage and implements it on a case-by- case basis. 8.2.1.2 The Venture Capital Investment Tax Credit, Indiana This was established to improve access to capital for fast growing Indiana companies by providing individual and corporate investors an additional incentive to invest in early-stage firms. Investors who provide qualified debt or equity capital to Indiana companies receive a credit against their Indiana income tax liability. Eligibility This credit is available to any taxpayer who is an individual or entity with any state tax liability. Pass through entities, whose shareholders have Indiana income tax liabilities, are also eligible for the credit. A taxpayer wishing to obtain a credit for investing in a qualified Indiana business must apply to the IEDC for a certification that the proposed investment plan would qualify for a credit. The total amount of tax credits certified by the IEDC for any year may not exceed $12.5 million. Upon certification, the taxpayer must provide qualified investment capital to a qualified Indiana business according to the taxpayer's certified investment plan within two years after the date on which the IEDC certifies the investment plan. After a taxpayer makes the investment, the taxpayer must submit the proof of investment to the IEDC, from which the IEDC shall issue the taxpayer a letter indicating that the taxpayer is entitled to a tax credit. Calculation of Credits The maximum amount of tax credits available to investors in a qualified Indiana business equals the lesser of the following: • The total amount of qualified investment capital provided to the qualified Indiana business in a year, multiplied by 20% or • $500,000, if the amount of credit exceeds the taxpayer's state tax liability for that taxable year. The taxpayer may carry over the excess to next taxable years. The taxpayer is not entitled to a carry-back or a refund of any unused credit amount. 8.3 The Texas Case In Texas a number of initiatives are directed at creating or attracting additional venture funding. • In 2005, the state legislature established the “Emerging Technology Fund” to support company start- ups with innovative technology or with technology ready to manufacture and reach the marketplace. • Texas Coalition for Capital, a partnership of business leaders, economic development officials, and consumer groups, plans to grow the Texas economy by helping entrepreneurs and small businesses access long-term capital. Their first conference was held in Austin in October 2006. • World’s Best Technology Showcase is held in Arlington each year to link emerging technologies that emanate from leading universities, federal labs, and federal sponsored research and development institutions with institutional seed investors and corporate licensing professionals. This event annually attracts more than 100 bona fide venture funds to Texas. Page 65 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 8.4 Venture Capital: Oklahoma Capital Investment Board 8.4.1 Overview The Oklahoma Capital Investment Board (OCIB) was created by the state to mobilize equity and near equity capital for investment in such a manner that will result in a significant potential to create jobs and diversify and stabilize the economy. The board addresses this task by encouraging and supporting growth of a local risk capital industry capable of financing companies from early-stage start-ups to later stage expansions. Over time, full implementation of the OCIB program is expected to result in more than $240 million of new capital for Oklahoma businesses. 8.4.2 Steps Involved and Objectives Achieved 8.4.2.1 Venture Investment Program: The Venture Investment Program is designed to support funding VC partnerships that meet the investment and strategic objectives of OCIB. From its first commitment in 1993 through June 30, 1999, the board had selected eight partnerships and supported investments of nearly $26 million. These include: Table 10: Venture Investment Program of OCIB Investments in Venture Fund Description of the VC Firm $2 million in Ventures Medical II $15 million fund specializing in early-stage, technology-based medical companies $4 million in Richland Ventures $45-million fund specializing in later-stage service businesses $4 million in Intersouth Partners II $28 million provider of seed and start-up capital to both technology and non-technology companies $5 million in Davis Venture Partners II $43 million fund investing in later-stage basic industries $3.5 million in Chisholm Private Capital $12 million provider of both seed capital and expansion capital $3.5 million in Pacesetter Growth Fund $42 million later-stage investor in minority-owned ventures $3.0 million in Rocky Mountain, Mezzanine Provider of later-stage capital for growing companies 8.4.2.2 Organization OCIB is a state-beneficiary public trust. There are five trustees appointed for staggered five-year terms by the Governor with the advice and consent of the senate. Statute requires that the trustees be selected based on their experience and knowledge of venture investing. 8.4.2.3 Capital Sources OCIB raises capital for investment from institutional investors with the benefit of a guarantee on investments made through them. The capital is raised and invested through a private corporation, the Oklahoma Capital Formation Corporation. The board holds $50 million of the state income and premium tax credits and is authorized to sell these credits, if needed, to generate cash in order to support the board’s guarantee prospects. Public utility companies in Oklahoma have contracted to purchase tax credits; consequently, the board's guarantee takes on the quality of a utility guarantee. Page 66 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 8.4.3 Results • By June 30, 1999, of the $26 million committed, about $18 million had been drawn. The portfolio internal rate of return (IRR) exceeds 29%. • Twelve Oklahoma companies have received equity capital of $61.6 million from these partnerships and other venture firms co-investing with these partnerships. Debt capital leveraged by venture investments is estimated at $123 million. The rate of investing is accelerating as the marketing efforts of these firms continue and the understanding of seed and VC grows among entrepreneurs in the state. • The venture investors that the board supports are helping to create an environment in the state that is conducive to high-tech entrepreneurship. They lead the networking and training events produced by the Oklahoma Venture Forum in Oklahoma City and the Oklahoma Investment Forum in Tulsa. They also were critical to efforts in recent years to form the Oklahoma Technology Development Center, gain funding for the Oklahoma Center for Advancement of Science and Technology, and formulation of a state amendment to permit university researchers to participate in the returns from intellectual property they help create. 8.4.4 Implications • Financial returns, now in excess of 29% IRR, are stronger as compared with other fiduciary funds investing in the same period. They are exceptional for programs pursuing a geographically targeted investment strategy. • The program has been implemented at zero cost to the state. • The capital invested in Oklahoma businesses has exceeded the amount the board has committed to the partnerships. • A number of professional venture investors now live and work in Oklahoma. • The culture of venture investing is becoming a visible part of the local business community and the understanding of high-growth business investing by entrepreneurs appears to be on the rise. • As of June 30, 1999, the portfolio totaled $26 million, with plans to grow to $50 million. The current cost of administering the program, including staff and advisors, is about $325,000 per year, about 65 basis points per dollar of capital under management. This is an efficient cost of administration and is less than most privately-managed funds. 8.5 PA Public School Employees’ Retirement System (PSERS) 8.5.1 Overview PSERS is a $32-billion public pension fund. The fund was first allowed to invest in venture capital in 1984 per a statute that modified the legal list of permitted investments to include an allocation to venture capital of 1%. In 1992 the allocation was doubled to 2%. Eight Pennsylvania-based VC firms and one New Jersey firm received investments under this program. In 1994 the state adopted the “prudent person” standard, precluding investments made in the manner of the earlier statute. Now, all investments must meet the prudent person standard. Page 67 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 8.5.2 Steps Proposed and Achievements As of June 30, 1995, the private investments program included three parts: • A regional VC program for venture capital funds that invest in Pennsylvania. The fund prefers not to commit more than 25% of a venture fund’s total capital, though in some early partnerships the fund was the sole limited partner. About $193 million is committed and $137 million is drawn. • A national private equity program is dedicated to buyout and special situation funds and national venture capital funds. This program uses rate of return as the primary criterion for selection. The fund may commit up to 10% of a partnership's total capital. About $289 million is committed, and $110 million is drawn. • A direct private placements program is dedicated to investing selectively in operating companies where a partnership in one of the above two programs serves as a lead investor. Since 1991, eight such investments have been made totaling $322 million. The fund has twenty-eight partnerships in its portfolio; seventeen are regional venture capital funds, and national private equity funds comprise the balance. Returns for the combined programs have been 21%, 28%, and 42% during the past three years. Among the seventeen regional partnerships, 117 of the 265 company investments or about 44% are Pennsylvania-based, while PSERS has committed less than 32% of the total capital of the partnerships. These Pennsylvania companies have received approximately $120 million from portfolio partnerships. The fund no longer commits as the sole or primary limited partner of a fund and no longer requires partnerships to invest a minimum amount in Pennsylvania projects. The fund is pursuing broader diversification by geography and stage of business development and administrators are more diligent in selecting partnership managers. 8.5.3 Results: • The legislature’s decision in 1984 to add venture capital to the legal list of permitted investments was motivated by the expectation of high returns and the desire for significant local development. After netting out several early mistakes, returns from the balance of the portfolio have been excellent. • The economic development goals have been only partially attained. The failure of several early funds may have slowed the development pace of the state’s domestic venture capital industry. The losses sustained by local private investors in these funds, particularly the seed funds, may dampen enthusiasm by these investors for new venture capital partnerships. • Cost and Benefits: As of June 30, 1995, the portfolio of private investments totaled $804 million. The current cost of administering the program, including staff and advisors, is about $750,000 per year, or less than 10 basis points per dollar of committed capital. The portfolio of direct placements should be constituted as a trust or partnership and staffed appropriately. • 8.6 Finance Authority of Maine, Maine 8.6.1 Overview The Finance Authority of Maine (FAME), is a state-sponsored agency established with the goal of supporting startup businesses with their financing plans. Entrepreneurs in the state can benefit from the six programs advocated by the agency to cultivate their businesses in this region. The agency has been formulated on the footsteps of InteliCare, a company based in South Portland, Maine. The company had Page 68 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral employed two different state funding vehicles: a tax credit on angel investment and a dollar-for-dollar matching program, to leverage $400,000 in seed capital. The company has raised $17 million in two rounds of venture capital. 8.6.2 Steps Proposed Following are options that would be available to start-up businesses: • Maine Seed Capital Tax Credits: The credits will aid angel investors in applying 40% of deductions against their state income taxes in their funding of Maine-based start-ups and up to 60% when the investments are made in high unemployment areas. The investor also has the ability to recover 100% of the money spent in case of failure. • Small Enterprise Growth Fund. A state-funded VC firm that provides up to $500,000 in seed capital. • Maine Economic Development Venture Capital Revolving Investment Program (VC-RIP): This strategy leverages private capital by matching FAME dollars against venture capital committed to Maine-based companies. • Small Business Loan Insurance Program. FAME uses its loan insurance programs to help small businesses make a stronger case to banks and private lenders for loan funding. • Economic Recovery Loan Program. A "loan of last resort" directly to small businesses that have exhausted other financing options but still demonstrate an ability to repay loans sometime in the future. • Maine does boast several home-grown VC firms, including North Atlantic Capital, Masthead Venture Partners, Coastal Ventures and Community Ventures. A senior executive at North Atlantic says he sees more buy-out activity in Maine right now, compared to outright funding opportunities in the slightly more urban New Hampshire. North Atlantic Capital is a late-stage private equity firm that invests in established, growing businesses throughout the northeastern United States. So far it has made eight investments from the fund with a target of 20. Top sectors: business products or services and manufacturing. Page 69 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 9 Appendix D – Primary Research Contacts 9.1 VC Firms & Networks Interested in Discussing Cape Coral Willingness to operate in Cape Name Location Contact Links Coral Willing to come to Cape Coral, The Florida Robin Kovelski http://www.flve Tampa have to inform about the Venture Forum +1 813 335 8116 ncap.org/ opportunities. http://www.em Stephanie Emergent ergentgrowth.c Gainesville George Yes Growth Fund om/public/inde +1 352 335 3021 x.asp SpringBoard Alan Rossiter Will come if there is a Success www.springbo Jacksonville Capital LLC +1 904 861 2400 Story in Cape Coral. ardcapllc.com Gerald Heller Will come if there is a Success www.hellercap. Heller Capital Coral Springs +1 954 752 7520 Story in Cape Coral. com Lonny S. Doesn't know much about Cape http://trivest.co Trivest Inc. Miami Greenberg Coral but optimistic if +1 305 858 2200 opportunities arise. m/contact.asp 9.2 Angel Investor and Venture Capital Networks Contacted Name Location Contact Links Regional Business Alliance Naples +1 239 591 6229 http://www.rbaswfl.com/ (RBA) The Gulf Coast Venture http://www.gcvf.com/welcome.h Naples +1 239 262 6300 Forum tml The Emergent Growth Fund http://www.emergentgrowth.co Gainesville +1352 335 3021 (2003) m/public/index.asp http://www.newworldangels.co New World Angels (NWA) Boca Raton +1 561 620 8494 m/ Springboard Capital Jacksonville +1 904 861 2400 www.springboardcapllc.com Startup Florida Sarasota - http://www.startupflorida.com The Treasure Coast Angel Stuart +1 772 223 7180 http://www.aiffl.org/58.html Investment Forum The Florida Venture Forum Tampa +1 813 335 8116 http://www.flvencap.org The Florida Angel Jacksonville +1 904 861 2450 www.floridaangelalliance.com Investment Alliance Page 70 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 9.3 List of Primary Respondents Name Location Contact Link http://www.antarescapital.co Antares Capital Corporation Miami Lakes +1 305 894 2888 m/contact.html West Palm http://www.crossbowventures Crossbow Ventures +1 561 838 9005 Beach .com/ Trivest Inc Miami +1 305 858 2200 http://trivest.com/contact.asp Angel Investment Forum of Stuart +1 772 223 7180 http://www.aiffl.org/58.html Florida Communications Equity http://www.ceaworldwide.co Tampa +1 813 226 8844 Associates m/contact/index.php http://www.emergentgrowth.c Emergent Growth Fund Gainesville +1 352 335 3021 om/public/index.asp Florida Capital Partners Tampa, Florida +1 813 222 8000 www.fcpinvestors.com Heller Capital Coral Springs +1 954 752 7520 www.hellercap.com http://www.newworldangels.c New World Angels Boca Raton +1 561 620 8494 om/ Spring Board Capital LLC Jacksonville +1 904 861 2400 www.springboardcapllc.com http://www.lmcapitalsecuritie LM Capital Securities. Inc Boca Raton +1 561 981 8410 s.com/contact.html http://www.gulfshorecap.com Florida Gulfshore Capital Naples +1 239 659 0288 /home.htm Headquarters in Easton Hunt Capital Partners +1 305 361 6479, http://www.eastoncapital.com NY; Miami LLP +1 305 285 0220 /contact.htm satellite The Florida Venture Forum Tampa +1 813 335 8116 http://www.flvencap.org Strategica Services Corp Miami +1 305 536 1414 www.strategica.net Sun Capital Partners Boca Raton +1 561 394 0550 www.suncappart.com Visionaria Venture Capital Aventura +1 305 932 1952 www.visionaria.com/ Page 71 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 9.4 List of Florida Ophthalmology Centers Table 11: List of Florida Ophthalmology Centers Name Location Contact Details Clinical Trials Management of Boca Raton, Inc Boca Raton +1 561 391 4161 Clinical Research of West Florida Clearwater +1 727 466 0078 Tampa Bay Medical Research, Inc. Clearwater +1 727 724 3316 University Clinical Research DeLand DeLand +1 386 785 2400 Holy Cross Hospital Research Center Ft. Lauderdale +1 954 229 8573 National Ophthalmic Research Institute at Retina Ft. Myers +1 239 938 1284 Consultants of Southwest Florida, PA Horizon Institute for Clinical Research Hollywood +1 954 964 6881 Innovative Research of West Florida, Inc. Largo +1 727 584 6368 Renstar Medical Research Ocala +1 352 629 5800 Genesis Research International Orlando-Longwood +1 407 331 9505 Pensacola Research Consultants, Inc. Pensacola +1 850 477 7900 Lovelace Scientific Resources – Sarasota Sarasota +1 941 379 8810 Hill Top Research, Inc. St. Petersburg +1 727 344 7602 Clinical Research of West Florida, Inc. Tampa +1 813 870 1292 Palm Beach Research Center West Palm Beach +1 561 689 0606 Radiant Research - West Palm Beach West Palm Beach +1 561 845 1030 Source- http://www.centerwatch.com/ Page 72 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 10 Appendix E – Interview Transcripts Interview Matrix Interviewee Details Name Mark Flomenhoft Designation / Department Partner Company Angel Investment Forum of Florida Location Stuart, Florida, US E-mail Address mark@aiffl.org Telephone 772 223 7180 Interviewer Name Shivakant Pandey Date July 23, 2007 Key Findings • HNI’s need a community which can help them invest across Florida. • Reason of current location was hometown of the investors. • Planning to open a new chapter in North Orlando • There is a good investment potential along the South-East Coast but not along the South-West Coast due to lack of research centers and existing deal flow. • Future growth in:  West Palm Beach  Orlando • Key Drivers for VC development will be:  Decent level of Entrepreneurs  The government wants to develop • Inhibitors to VC backed industry will be:  No research centers near Cape Coral  Lack of Incubators  Lack of Government support • Big Push on biotech across St. Louis County, West Palm Beach, Orlando • Show some success stories to attract more. Page 73 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Randall E. Poliner Designation / Department Partner Company Antares Capital Corporation Location Miami Lakes, Florida, US E-mail Address Telephone 305 894 2888 Interviewer Name Mahaveer Singh Bisht Date July 23, 2007 Key Findings • Invest mainly in the region around Miami. • Businesses of interest: Technology, Information and services, Retail, Financial and Internet services, Publishing • Invest in large and growing market with an opportunity to build a larger company providing the same products and services as currently being offered. • There should be a clear exit strategy. • Invest mainly in Expansion stage and management buy-outs. • The company prefers active participation in management • The company wants to expand in regions similar to one in Texas • The potential areas in Florida are: a. Corridor along Coiler county(Tampa) (should this be Hillsboro county?), Orlando and Melbourne b. Corridor from Miami towards West Palm Beach c. University of Florida, Gainesville has also been instrumental in generating opportunities in the region through R&D research activities d. Southwest Florida region along Fort Myers and Naples e. The region around Jacksonville • Funds are generated from a. (?) Wealthy families and institutional investors. Page 74 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Designation / Department Company Crossbow Ventures Location West Palm Beach, Florida, US E-mail Address NA Telephone 561 838 9005 Interviewer Name Indranil Dey Date July 23, 2007 Key Findings • Reason for the current location  Home Town  Support the local VC network in southeast Florida • Region of interest: Focused on southeast Florida up to North Carolina • Business of interest: Medical Devices, Healthcare services, Software, Security Deals • Investment Strategy  Management Capabilities  Overall market  Intellectual Property • Investment Stages  Early and expansion stage  Also some startups • Specification of Deals  Invests up to $3 million  Duration- 4 to 7 yrs • Exit route preferred  M&A • Apart from financing the other services/solutions provided are:  Active participation in management  Involvement in Board of Directors • There is good prospective of VC development in Florida • Future potential regions are:  Southeast Florida  Central Florida  Some regions along west coast • Key Drivers will be  University presence  More firms located in region giving rise to more spin outs  Starting up of Angel Groups  Government initiatives to start up research activities like Palm Beach which started Biotech research • Inhibitors  Lack of Govt Support  Lack of availability of Capital and investment opportunity Page 75 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Lonny S. Greenberg Designation / Department Analyst Company Trivest Inc Location Miami, Florida, US E-mail Address LGreenberg@Trivest.com Telephone 305 858 2200 Interviewer Name Mahaveer Singh Bisht, Mayank Diwan Date July 23, 2007 Key Findings • Source of Fund  Executive Network of HNI and institutions  Market • Reason for the current location  Home town • The company right now invests in :  Southeast and Midwest region of Florida • Businesses of Interest:  Consumer Products  Financial and professional services  Franchising  Manufacturing • Investment Stages: Middle market acquisitions • Exit route preferred  Divestment  Strategic and financial buyers  IPOs • The company prefers:  Active participation in management  `Plan for Expansion • Key Drivers will be  Goodwill of companies • Inhibitors  Lack of Govt Support  Higher Tax rates Page 76 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Rick Michaels Designation / Department Founder Company Communications Equity Associates Location Tampa, Florida, US E-mail Address rmichaels@ceaworldwide.com Telephone 813 226 8844 Interviewer Name Mahaveer Singh Bisht, Shivakant Pandey Date July 25, 2007 Key Findings • Rick Michaels is a member of eflorida, can help in getting in touch with other people on the board. • Source of Fund  Executive Network of HNI . • Reason for the current location  Florida Regulations are pro-business.  High Growth State.  Low Corporate Tax of only 5%  Latin America do business in Florida. • Businesses of interest:  Communications,  Media & Entertainment, and  Information Technology Page 77 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Stephanie George Designation / Department Administrative Manager Company Emergent Growth Fund Location Gainesville, Florida, US E-mail Address sgeorge@emergentgrowth.com Telephone 813 226 8844 Interviewer Name Mahaveer Singh Bisht, Shivakant Pandey Date July 23, 2007 Key Findings • Source of Fund  Mainly Executive Network of HNI • Reason for the current location  University of Florida  Related Biotech Research Centers in Gainesville  Home town • Regions of interest:  Mainly regions around Gainesville and South-east U.S., Hands-on supervision. • Businesses of interest:  Biotech  Hi-Tech Industry • Specification of Investment-deals  Invests as low as $100,000 but mainly in the range of $500,000 to 1million • Huge potential in near future for VC industry. • Future growth in  Tampa for Technology related industry  Miami for non-technical industries like service industry. • Key Drivers will be  Attractive Intellectual Property  Management Resources (Experience in Management) Page 78 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Joshua D. Kuder Designation / Department Manager Company Florida Capital Partners Location Tampa, Florida, US E-mail Address jdk@fcpinvestors.com Telephone 813 222 8000 Interviewer Name Mahaveer Singh Bisht, Shivakant Pandey Date July 23, 2007 Key Findings • Reason for the current location  Central location.  Airport  Not home city but lots of companies around. • Regions of investments:  Across the US with no major region. • Businesses of interest:  Distribution businesses because of low capital and high business barriers like intellectual capital and talent.  Companies Outsourcing hardstocks. • Good Potential for VC industry in Florida • Suggestions;  Airport facilities must be increased.  There must be ease of direct flights. • The company avoids businesses: Commodity products, Early stage venture deals, Hospitality, Amusement Parks, Hi-tech Products, Biotech, Real Estate, Capital intensive heavy equipment, Computer software or hardware and Retail Page 79 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Gerald Heller Designation / Department Founder Company Heller Capital Location Coral Springs, Florida, US E-mail Address GERALDHELLER@BELLSOUTH.NET Telephone 954 752 7520 Interviewer Name Mahaveer Singh Bisht, Shivakant Pandey Date July 25, 2007 Key Findings • Source of Fund  Use partners to generate funds: • Gulf coast venture forum • Angel Investors • Private Equity Firms • Florida Venture Forum. • Reason for the current location  Came to Coral Springs 32 years ago when there were mainly farm lands.  Coral Springs had future.  Located near the areas where he invested in • Regions of interest  South-east Coast because easy to operate business as the region is already developed. • Businesses of interest  Technology  Healthcare  Food & Beverage  Telecom • Good Potential for future of VC industry in Florida • Duration of investments is 3-5 years • Key Drivers will be  Education Communities  Businesses, opportunities in existing businesses.  VC follows existing businesses. • Preferred Exit Option is IPO but M&A is most common. • Others  Real Estate can attract VC for development of a state.  Its about relationships to develop good VC, the city can use its contacts.  Good Management should be the main highlight of any business proposal.  Outsourcing businesses takes place close to the industrial areas unless its ‘computer outsourcing’.  VC invests in services because of more businesses opportunities and don’t invest in manufacturing.  Large companies and research institutes like ‘Scripps’ can be brought to attract more companies.  Palm Beach County and Martin County can be looked into.  Groups operating in Tampa and Orlando can be brought to Cape Coral. Page 80 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name - Designation / Department - Company New World Angels Location Boca Raton, Florida, US E-mail Address NA Telephone 561 620 8494 Interviewer Name Mahaveer Singh Bisht, Shivakant Pandey Date July 18, 2007 Key Findings • Source of Fund:  Mainly Executive Network of HNI • Reason for the current location: Home town • Businesses of interest:  Biotech  Telecommunication  IT Industry  Healthcare  Real Estate  Retail trade  Service Industry • While investing the firm looks for:  Financial Potential of the firm  Kind of technology  Plan for Expansion • The firm might be opening offices across Florida • Potential for future development:  Tampa for good transport  Orlando  Gainesville for Biotech • Key Drivers will be  Biotech related research  Good Transport Page 81 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Alan Rossiter Designation / Department Partner Company Spring Board Capital LLC Location Jacksonville, Florida, US E-mail Address 'rossiter@springboardcapllc.com' Telephone 904 861 2400 Interviewer Name Shivakant Pandey Date July 19, 2007 Key Findings • The network established in 2002 with 40 Angel Investors from the city came together. The 40 Angel Investors created the Springboard Capital-I fund. • Regions of interest:  South-east Coast of Florida because of Deal Flow- Area already having huge cash-inflow. • Businesses of interest  Medical Equipments  IT & Telecom  Financial Services  Consumer Products & Retail Trade • Investment Strategy:  Amount required should exactly be in the range- $250,000 to 3 million  Solid Business Management- They won’t invest in a company even with a good idea but not having good Business Management • Specification of Deals:  Range $250,000 to 3 million  Duration-4-7yrs • Exit route preferred  Mainly M&A and very rarely IPO • There is a very-very substantial Potential for next 5-20 years because of untapped potential in South Florida and heavy concentration in California & Massachusetts. • Future potential for growth in  Tampa, Orlando • Key Drivers will be  Already developed VC market • Inhibitors  Few Incubators and Research Labs; Lack of Govt Support • Others  Mainly they are Business people, will only invest in Businesses and not technology.  They even invest in North Carolina & Georgia. Page 82 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Francisco A. Garcia Designation / Department Partner Company Easton Hunt Capital Partners LP Location Miami, Florida, US E-mail Address garcia@eastoncapital.com Telephone 305 361 6479, 305 285 0220 Interviewer Name Indranil Dey Date July 20, 2007 Key Findings • Businesses of Interest:  Life Sciences,  Technology and  Traditional Business • The firm invests in all the stages of business. • Exit Route preferred:  IPO  Strategic Sale Page 83 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Robin Kovaleski Designation / Department Executive Director Company The Florida Venture Forum Location Tampa, Florida, US E-mail Address robin@floridaventureforum.org Telephone 813 765 2867 Interviewer Name Mahaveer Singh Bisht, Shivakant Pandey Date July 27, 2007 Key Findings • VC goes in the region of existing deals. • Retirees in cities like Cape Coral, invest back in the region they belong to. • Angel Investors on west coast are stealth investors, they do not want to be contacted. • Scripps in West Palm Beach has brought Florida on business map. • Its right time to attract VCs from outside because individuals are moving out of their home to invest. • The Florida Venture Conference for 2009 is scheduled in Naples. • Potential regions for VC investments:  Jacksonville  Tampa  Orlando  Miami • Suggestions:  Easy connectivity to airport.  Florida Venture Conference should be organized in Cape Coral. Page 84 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Matt Walters Designation / Department NA Company Strategica Service Corp Location Miami, Florida, US E-mail Address NA Telephone 305 536 1414 Interviewer Name Mahaveer Singh Bisht Date July 24, 2007 Key Findings • Reasons for current location:  Home Town  Investment opportunities  Good Contacts in the region • Businesses of interest:  Real Estate  Telecommunications  Health Care  Financial Services and others • Invest in the businesses having a potential of turning around in 12-24 months. • They are merchant bankers. • Huge potential for businesses in Florida • Suggestions:  They must focus on technological innovation, research centers.  Should develop talent pool in terms of enterprising individuals Page 85 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name - Designation / Department - Company Sun Capital Partners Location Boca Raton, Florida, US E-mail Address NA Telephone 561 394 0550 Interviewer Name Mahaveer Singh Bisht Date July 27, 2007 Key Findings • VC investments depend on the level of research that is existent in the region. • Deal flow (existing success stories) are most important to attract VCs • In general the City of Cape Coral lacks in requisite entrepreneurship skills. • Suggestions:  Focus on generating deal flow, inviting larger businesses to the city.  The key problem for the city is no exit options available for the VCs, this can be resolved if larger companies get attracted to the region. Page 86 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name - Designation / Department - Company Visionaria Venture Capital Location Aventura, US E-mail Address Telephone 305 932 1952 Interviewer Name Mahaveer Singh Bisht Date July 19, 2007 Key Findings • Reason for current location: Home city. • Preferred region is mainly Florida for easy supervision. • Businesses of interest:  Life Sciences,  Technology and  Traditional Business. • Key driver for investment: Availability of Investment opportunity Page 87 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Leslie Corley Designation / Department President & CEO Company LM Capital Securities. Inc Location Boca Raton, Florida, US E-mail Address Telephone 561 981 8410 Interviewer Name Indranil Dey Date July 24, 2007 Key Findings • Source of Fund  HNI and institutions • Businesses of interest:  Consumer Products  Industrial Goods  Might start investing in Biotech • Investment Stages:  Expansion  MBO • Specification of Deals  Invests up to $1 million  Duration 3yrs – 7 yrs • Exit route preferred  Sale of investment to 3rd party  Sale of Business • The firm helps in strategy formulation. • The VC industry in Florida is just at growth stage and have potential for future growth • Future growth in  Tampa  West Palm beach  Miami • Key Drivers will be  Availability of Investment opportunity Page 88 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral Interviewee Details Name Richard Molloy Designation / Department Co-Founder Company Florida Gulfshore Capital Location Naples, Florida, US E-mail Address rmolloy@gulfshorecap.com Telephone 239 659 0288 Interviewer Name Indranil Dey Date July 24, 2007 Key Findings • Source of Fund  Executive Network of HNI and institutions • Reason for the current location:  Home Town  Tax Incentives  Proper Transportation  Local Intellectual resource • Businesses of interest:  Information services  Industrial Goods  Consumer Products • The firm does not fund discoveries. • Specification of Deals  Invests up to $3 million  Duration-5yrs • Exit route preferred  IPO  Trade purchase • Potential future growth in  Tampa  Orlando • Key Drivers will be  Availability of Investment opportunity  Availability of critical Mass, in terms of capital and similar firms • Inhibitors  Lack of government support  Lack of availability of capital and investment opportunities Page 89 of 90
    • Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral 11 Evalueserve Disclaimer The information contained herein has been obtained from sources believed to be reliable. Evalueserve disclaims all warranties as to the accuracy, completeness or adequacy of such information. Evalueserve shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. Evalueserve Ryan Maurer Ryan.Maurer@Evalueserve.com Tel: + 1 321 206 8861 Fax: + 1 321206 8861 United States Neetu Jakhar Neetu.Jakhar@Evalueserve.com Tel: +91 124 415 4200 (Ext: 527) Fax: +91 124 256 2393 India Project Team Mahaveer Singh Bisht Indranil Dey Mayank Diwan Shivakant Pandey Bhavya Sehgal Atanu Ghosh Editorial Team Atiya Warsi Manjusha Dutta Page 90 of 90