2008 evalueserve venture capital research mahaveer

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2008 evalueserve venture capital research mahaveer

  1. 1. Business Research Identification of Venture Capital Prospects for City of Cape Coral May 20, 2008
  2. 2. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralContents1 Executive Summary...............................................................................42 United States VC Industry.....................................................................6 2.1 Overview............................................................................................................ 6 2.2 Analysis on VC Locations............................................................................... 133 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.................................................................... 234 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............................................................... 315 Venture Capital Development Plan ..............................................................34 5.1 Snapshot of Case Studies .............................................................................. 34 5.2 Primary Research Responses ........................................................................ 37 5.3 Development Plan ........................................................................................... 416 Appendix A – Research Methodology ..........................................................557 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....................................... 578 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................................................................. 689 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.......................................................... 7210 Appendix E – Interview Transcripts ............................................................. 7311 Evalueserve Disclaimer .............................................................................90 Page 2 of 90
  3. 3. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralList of FiguresFigure 1: Value of US VC Deals, 2001 – Q1 2007 ..................................................................... 6Figure 2: US VC Investments by Stage, Q1 2006 vs. Q1 2007................................................... 7Figure 3: US VC Deal Value– Q1 2006 vs. Q1 2007 ($ million) .................................................. 9Figure 4: US VC Deals, Q1 2006 vs. Q1 2007......................................................................... 10Figure 5: Top Five Sectors - VC-Backed Employment (millions)............................................... 11Figure 6: Exit Options Exercised by Venture Capitalists........................................................... 12Figure 7: US VC Firm Concentration (Q1 2007)....................................................................... 13Figure 8: US VC Investments 1990-2006 ............................................................................... 14Figure 9: Venture Capital Investment in Florida ....................................................................... 15Figure 10: Venture Capital-backed Industry Comparison ........................................................... 16Figure 11: Target Industries for Cape Coral VC Investments...................................................... 22Figure 12: Source of Investment in Florida (2004–2006)............................................................ 24Figure 13: Concentration of Florida VC Firms 2006–07.............................................................. 26Figure 14: VC Firms Located in Florida (as of 2006).................................................................. 27Figure 15: Suggestions by VCs for Cape Coral VC Development............................................... 38Figure 16: Factors Important for Development of VC Investments.............................................. 39Figure 17: Factors Important for Development of VC Investments.............................................. 42Figure 18: Generation of Funds for VC Investments .................................................................. 48Figure 19: Benefits from the Conference ................................................................................... 53Figure 20: VC Investments in Cleveland ($$ Million and Number of Companies Financed) ......... 61Figure 21: Companies by Sector Receiving VC Financing in Cleveland – 2004–06..................... 62Figure 22: Source of Capital for Fund Generation...................................................................... 63List of TablesTable 1: US VC Investments by Stage – 2007 ...................................................................... 16Table 2: Relevant Florida Research Centers......................................................................... 19Table 3: Marine Sciences Institutes in Florida ....................................................................... 21Table 4: Venture Capital Break-up in Florida (in $million) ...................................................... 26Table 5: Fund Strategy – South Atlantic Venture Funds ........................................................ 30Table 6: Florida VC and Angel Investor Alliances.................................................................. 33Table 7: Cases and their Implications for the City.................................................................. 34Table 8: Proposed Fund Strategies ...................................................................................... 50Table 9: UF VC Achievements in 2005 ................................................................................. 56Table 10: Venture Investment Program of OCIB ..................................................................... 66Table 11: List of Florida Ophthalmology Centers..................................................................... 72 Page 3 of 90
  4. 4. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral1 Executive SummaryVenture capital financing is a significant determinant in attraction and growth of new companies inscience and technology sectors. The objective of this project is to identify and develop venture capitalfinancing capacity for development of businesses in the city of Cape Coral. One output of this project is adevelopment plan to encourage investments by different types of investors in the targeted industries thatare 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 ofventure 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 ScenarioThe City of Cape Coral, like many other cities/counties in the state of Florida, has not been successful inattracting venture capitalists to invest in the city. The state ranks 15th in terms of VC investments, despitebeing the fourth most populous state. VC investments are present in only a few counties in the state. Outof a total of 67 counties, Hillsborough, Dade, Palm Beach, and Orange counties are the only ones withsubstantial VC presence.VC Resources for the CityVC firms are mainly based in the counties with university clusters or with an active research base. Thesefirms have invested mainly in software medical devices and services companies. According to theresearch 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 CoralThe research suggests that the City of Cape Coral can prioritize its efforts for the development of venturecapital investments. These efforts can address both the supply-side (availability of VC capital) anddemand-side (companies requiring VC capital) of the venture capital equation. Page 4 of 90
  5. 5. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral1. 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/investors3. 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 ideas6. 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
  6. 6. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral2 United States VC Industry2.1 Overview2.1.1 VC Market – Size and GrowthThe US is a well-established venture capital market. In 2006, about $28 billion was invested by venturecapitalists. Venture capital fundraising is 0.2% of the total US GDP. Venture Capital firms invested $7.1billion (778 deals) during Q1 2007. This is the highest quarterly investment since Q4 2001. Though theinvestments (value) in Q1 2007 have increased by nearly 13.5% (as compared to Q1 2006), the numberof deals has declined. This indicates that VCs prefer higher investments (value) in selectivecompanies/establishments rather than spreading investments across a large number of companies.1The 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 PriceWaterHouseCoopers1 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
  7. 7. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralVC 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, therehas been a gradual increase in investments to reach about $23 billion in 2006. The future outlook is 2positive; 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.32.1.2 VC Funding – Cycle1Over the years, the pattern of VC investments has changed from providing seed capital/early stagecapital to funding companies during the growth stage. Venture capitalists have started showingpreference for investments in the later stages, as they provide easier exit routes and lower risks (e.g. thecompanies are established and there is less risk of failure). This trend has also been reflected in venturecapital investment patterns during the first quarter of 2007.The following figure illustrates venture capital investments by stage development for Q1 2006 and Q12007.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 PriceWaterHouseCoopersFor the later stages, VC investment deals increased from 267 in Q1 2006 to 245 in Q1 2007 totaling $3billion 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 perproject has increased.2 Source: http://news.zdnet.com/2100-9588_22-5860055.html3 http://nvca.org/pdf/US_VC_Rpt_06_Final.pdf Page 7 of 90
  8. 8. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral2.1.3 Key Industry Trends and Future Outlook 1The trend in Venture Capital investment has been changing from investment in software companies toother industries such as biotechnology, medical equipment, media and entertainment, Web 2.0 wirelesstechnology, and alternative energy. However, software is still one of the favorite investment options forsome venture capitalists.The life sciences industry, which comprises both biotechnology companies and medical equipmentcompanies, 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, therebyneeding huge funding.Venture Capitalists are actively investing in this industry to help companies set up their R&D labs andmeet regulatory requirements. In Q1 2007, investment in the biotechnology industry was $1.5 billion (102deals). This industry received the highest investments in Q1 2007. The investment on medical equipmentcompanies 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 attractinginvestments. Investment in the software industry declined to $1.1 billion, registering only 193 deals in Q12007, when investment in the software industry was 10% less than in Q4 2006. It is to be noted thatamong all industries, the software industry witnessed the highest number of deals in Q1 2007, which isalmost 25% of the total deals concluded during the same period. Page 8 of 90
  9. 9. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralThe following figure shows the value of VC deals in the US in Q1 2006 and 2007.Figure 3: US VC Deal Value– Q1 2006 vs. Q1 2007 ($ 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
  10. 10. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralThe 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 PriceWaterHouseCoopersMedia and entertainment is another emerging industry that is attracting the interest of VCs. In thisparticular industry, the total deal value has increased by 16% to $0.49 billion in Q1 2007 over theprevious quarter a year ago. The number of deals decreased from 78 in the previous quarter to 72 in Q12007.Investment in the telecommunications industry increased by 27% in Q1 2007 over Q1 2006. The totalinvestment in this sector was $0.59 billion, out of which $0.37 billion was invested in the wirelesscommunication 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 Q12007, 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 changein the VC funding pattern was also witnessed in this industry, wherein the value per deal was larger thanthat witnessed in the previous quarters.Another upcoming sector of interest to VCs is clean technology. This sector comprises companies inpower 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 previousquarter. In 2006, the total investment in this sector stood at $1.5 billion. Page 10 of 90
  11. 11. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralIn Q1 2007, other industries including computers/peripherals, networking and equipment,electronics/instrumentation, industrial energy, IT services and retailing/distribution witnessed increasedVC funding. However, industries such as semiconductors and consumer products witnessed a decline inVC investments.VC Impact on EmploymentIn 2005, venture capitalists financed media and entertainment and retail companies that employed over 2million Americans, followed by the computers and peripherals industry with 1.9 million people. Thecomputers and peripherals industry was the leading industry with revenue worth $466 billion, followed bythe media/entertainment/retail industry with $299.0 billion in 2005.The following figure shows the leading sectors by VC backed employmentFigure 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
  12. 12. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralExit Options Exercised by Venture CapitalistsFigure 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 Insight2.1.4 Industry Drivers and Inhibitors 4Key drivers for VCs in the US include innovations in the field of biotechnology, the latest developments insectors such as wireless technology, Web 2.0, and media. The other drivers that facilitated venturecapital investments in the US include strong regulatory protection for intellectual property and taxstructure.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
  13. 13. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral2.2 Analysis on VC Locations2.2.1 Industry HubsThe venture capital industry is primarily located in the Silicon Valley and New England Regions. Thefollowing 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 PriceWaterHouseCoopersMost VC firms are concentrated in California, with over 100 firms. Silicon Valley, being the software andIT hub, has attracted the maximum number of VC firms. It accounts for a major proportion of VCs inCalifornia followed by Orange County, San Diego, and Massachusetts. Florida, with 11–50 VCs, lies inthe category of states with moderate to low VC concentration. Page 13 of 90
  14. 14. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral3 Target Industries for VC Investments3.1 Venture Capital Industry in FloridaFlorida experienced heavy investments during the IT Bubble and witnessed a huge decline in investmentsafter the IT Bubble burst. The trends in VC investments in the state have been similar to that of the USVC investments, but the state has not been a favorite place of VCs. In 2004, the venture capitalinvestment 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 FinancialThe peak in the total venture investment was due to the IT bubble that subsequently burst in 2001. VCinvestments in the US recovered and stabilized in the following years. However, the State of Florida wasthe worst hit and witnessed considerable decline. Page 14 of 90
  15. 15. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralThe 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 FinancialThe 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 fundsdistributed 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 oftheir homes and moving to places to invest.” This is clear from the fact that venture capital fundingreached its peak after 2001 by attracting $1.7 billion representing 252 first-time deals in Q1 and $1.8billion 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 followingtable. Page 15 of 90
  16. 16. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralTable 1: US VC Investments by Stage – 2007Stage of Investment Quarter/2007 $ Investment / ## of Deals Deal Volume% First Quarter $1.3 billion/289 deals 34Seed/Early Stage Second Quarter $1.6 billion/378 deals 39 First Quarter $2.9 billion/ 287 deals 34Expansion Stage Second Quarter $2.4 billion/ 303 deals 31 First Quarter $3.2 billion/ 269 deals 32Later Stage Second Quarter $3.1 billion/ 296 deals 30 Source: http://www.bizjournals.com/tampabay/stories/2007/08/06/daily22.html3.2 VC Industry Focus in FloridaThe two sectors representing the largest share of venture-backed companies in Florida are software andmedical devices. If we look at the industry-wide distribution, the software sector managed to reach thehighest level after the ‘IT bubble burst’ and generated $1.5 billion through 248 deals nationwide. Otherindustries 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 peripheralsThe following figure shows the comparison between Florida and the US in terms of industries beingbacked 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
  17. 17. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralOne of the most important features of all successful VC-attractive locations is that there has beendevelopment of a specific industry cluster in these locations — Silicon Valley (technology products,especially software); Texas (telecommunications and semiconductor); Israel (communications andtechnology products); Palm Beach County (biotechnology); and others.On similar lines, the City of Cape Coral Economic Development Office is taking initiatives to developsector clusters in the Pine Island Corridor, Hancock Creek and Indian Oaks Commerce Parks and theAcademic Village. Research supports a focus on the following industries in order to provide investmentopportunities 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 identifiedbased 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 SciencesAccording to the primary research, most VCs in Florida are seeking investments in the life sciencessector. This sector has also been one of the sectors preferred by VCs throughout the US. In Q1 2007, thebiotechnology sector secured maximum investments with $1,489 million in the US. The life sciencesindustry also includes ‘medical devices and equipment’ and ‘healthcare services’ with $1,078 million and$161 million investments, respectively, in the US.5In Florida, VC investment in life sciences has mainly been around university clusters or has beenassociated with research centers. Business clusters in Gainesville University, University of CentralFlorida, Orlando, and Scripps in the Palm Beach County are among the leading life sciences clusters inFlorida.With a population of over 150,000, the City of Cape Coral has plenty of demand for health services. Thecity provides fair opportunities for the health services business which can attract venture backedinvestments.The city also has a division of a small eye testing research center -- the Ft. Myers office of RetinaConsultants of Southwest Florida, PA and the National Ophthalmic Research Institute at RetinaConsultants 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 mayalso be leveraged to encourage VC financing in the city.5 Source : www.technopoli.net Page 17 of 90
  18. 18. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralIn 2006, Scripps signed an agreement with the University of Central Florida in Orlando to encourageresearch cooperation in the region. Scripps Florida has been able to attract a good number of companiesin 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 USDepartment of Health and Human Services).3.2.1.1 Importance of Regional Research Centers for Life SciencesAbsence 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 factorsresponsible for development of VC’s across the globe.According to primary research with the venture capital firms, having a research center provides thefollowing 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 hassuccessfully attracted private sector investors who have announced intentions to construct a researchpark 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 TargetsResearch labs, (for example: clinical-research laboratories and pharmaceutical research centers) do notnecessarily require regular university assistance because some research centers are run by doctors andhospitals associated with nearby locations or they operate as independent research facilities utilizingfunds from clients and public and private sector grants.When considering the potential for such laboratories in Cape Coral, it is prudent to consider existingenterprises that provide patient care linked to clinical trials and other research. The main health-relatedconcerns for the aging population of the City of Cape Coral are6: • Cardiology • Ophthalmology • Dermatology • Dental6 Source : Primary Research Page 18 of 90
  19. 19. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralTable 2: Relevant Florida Research Centers Name About the research center Implications The Florida Hospital, a chain of hospitals in Central Florida, has dedicated research centersFlorida Hospital The cardiology research center for each of the main medical departmentsInstitute of of the Florida Hospital can specializing in hemostasis, thrombosis andTranslational provide a base of expertise for cancer. The cardiology research center performsResearch 7 expanded research in these approximately 1500 advanced cardiac disciplines. procedures annually, the highest number across the US. Tigris Pharmaceuticals, a privately held drugTigris development company, specializes in finding The pharmaceutical company isPharmaceuticals cures for cancer patients. The company is in its in the expansion stage, whichInc. 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 servicesHill Top companies operating through various research The city can use the expertiseResearch 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 ConsultantsNational The institute that mainly deals in of Southwest Florida and serves through satelliteOphthalmic 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 researchInstitute 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.htm8 Source: http://www.tigrispharma.com/9 Source: http://www.hill-top.com/10 Source: http://www.nori.md/index.htm Page 19 of 90
  20. 20. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral3.2.2 Professional ServicesVenture 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 dataprocessing, equipment rental, personal and office supply services,advertising, travel and tourism and facilities providers, are notcapital-intensive. These business services reach break-even at a According to Florida’svery early stage and therefore can be an option from the investors’ Department of Labor Marketmoney-recovery point of view. Statistics, the business and professional servicesIn the City of Cape Coral, the service industry can be of great sector experienced aimportance 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 anoutsourcing 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-educationprograms. According to a senior executive at Communications Equity Associates, supporting largetechnology-based industries may be difficult for the City of Cape Coral due to the lack of opportunity forhigher studies in highly technical fields.3.2.3 Retail TradeRetail trade is mentioned in this report because it provides a quality of life that is demanded by advancedtechnology companies and their VCs.In the period 2003-2008, Cape Coral experienced an unprecedented increase in construction of retailtrade centers. Retail is a major employer in the region. This is important because it indicates the quality ofworkforce, 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 andother financial institutions. The sectors that have strong presence in the country provide a huge potentialfor various support services in the city, such as office supplies, facility providers, and courier services.11 Source: Primary Research and Evalueserve Analysis12 Source: Primary Research Page 20 of 90
  21. 21. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral3.2.4 Marine SciencesAccording to the report from Enterprise Florida, marine sciences are considered to be one of theemerging technologies in the country.Cape Coral has 400 miles of canals: Marine research institutes are usually set up in places that have aproximity to large seas and oceans. Moreover, the ties with universities provide them with laboratoriesand supporting infrastructure primarily in the areas of biology and chemistry, with special emphasis onmarine science. Several satellite centers of this type have been established in the southwest Florida gulfcoast area but increased concern about global warming and ocean health may provide a spring board foradditional such investment – with facilities in Cape Coral.Table 3: Marine Sciences Institutes in Florida Marine Institute Associated University Location in FloridaCenter of Excellence in Biomedical and Florida Atlantic University Boca Raton, southeast FloridaMarine Biotechnology St. James Island in northwestCoastal and Marine Laboratory Florida State University FloridaHarbor Branch Oceanographic Inst. Florida Atlantic University North Ft. Pierce, Florida Florida Institute of Sea Harbor DriveHubbs-SeaWorld Research Institute Technology, UCF Orlando, FloridaRosenstiel School of Marine and Rickenbacker Causeway University of MiamiAtmospheric Studies Miami, FloridaWhitney Laboratory for Marine Ocean Shore Blvd. University of FloridaBioscience St. Augustine, Florida Source: Enterprise FloridaOcean science and technology is a growing national priority and there has been a growing demand forinstitutes dealing with this subject in Florida. These institutes can also provide courses to students inmarine science and marine biotechnology.One model that warrants special attention is the Florida Atlantic University/Harbor Branch OceanographicInstitution 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 withspecial 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 andenvironmental education. In addition to the labs, the building includes meeting rooms that offer videoconference facilities. Page 21 of 90
  22. 22. 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
  23. 23. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral3.3 Start-Ups in the Target IndustriesThe 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 Allianceand the Florida Venture Forum, agreed that there has been very little VC activity in the Cape Coral andSouthwest Florida region to date. This lack of a success story in VC investments in the city will likely be adeterrent. Around 75 respondents from various companies, venture capitalists, angel investors andexecutives of VC networks held this opinion; and the research suggests that in the near future there areno 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” thatare demonstrating they can also attract venture capital.3.3.1 Fragmented Industries14Fragmented industries are usually labor-intensive industries with lower technical requirements andcomparatively 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 ofCape Coral. These companies are promising prospects for Cape Coral because they do not requireheavy investments for infrastructure and operations. Moreover, they are not dependent on technicalknowledge 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 trustAccording to primary research with local VC firms and networks, start-ups/companies in fragmentedindustries 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
  24. 24. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral4 Potential VC Resources for Cape CoralThe 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 FinancialThe City of Cape Coral faces a challenge of limited investors for venture capital projects. According to theresearch (primary and secondary), we have not identified any venture capital/angel investor network inthe city. In addition, we have not uncovered any venture capital investments in the city. This lack of VCexperience is an impediment that must be overcome.The challenge for the city government is to encourage its wealthy, but stealthy (not much enthusiasmabout investing in businesses) population to develop a VC network that can invest in the new/existingbusinesses.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 ventureinvestments 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
  25. 25. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral4.1 Venture Capital FirmsA VC firm is generally a private partnership or closely-held corporation funded by private and publicpension funds, wealthy individuals, endowment funds, foundations, corporations, foreign investors, angelinvestors, etc., and venture capitalists.15 They usually invest, alongside management of potentialcompanies 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 theirexpertise, technical skills, and business experience gained from other ventures. Sometimes, theircontribution is limited to overseeing the venture apart from providing information to a beginningentrepreneur.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 theamount of deal flow occurring in that region. Furthermore, deal flow is a result of the existing businessand research developments in the region. The other factors that VC firms usually seek beforeapproaching 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 Transfer4.1.1 VC Firms in FloridaCurrently, there are about 35 venture capital firms in the State of Florida. A majority of venture capitalfirms are concentrated in populated counties, such as Hillsborough and Dade.17Similar to many other states in the US, the sectors receiving venture capital investment in Florida aresoftware, medical devices, biotechnology, and telecommunications. For instance, the software company,Informa, based in Maitland in Orange County received risk capital in 2006.18According to a Moneytree report, Florida based start-ups collected just 0.5% of $5.8 billion investmentsdistributed nationally in 2005. This is a clear indicator of Florida not being a preferred destination for start- 19ups.15 Source: http://www.indianchild.com/venture-capital-firms.htm16 Source: PricewaterhouseCoopers/National Venture Capital Association MoneyTree™ Report17 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.asp18 Source: http://www.floridatrend.com/print_article.asp?aID=4679419 Source: http://www.tampabay.org/press.asp?rls_id=1326&cat_id=1& Page 25 of 90
  26. 26. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralTable 4: Venture Capital Distribution in Florida (in $million)Stage 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Seed/Early Stage 9.4 9.5 9.7 11.7 14.0 19.4 14.0 10.1 10.1 11.3 8.6 6.7Later/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 FinancialThe 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 FloridaNote: There is a possibility that there are more venture capital firms present in the region, but there is noadditional information on the counties marked in white.Research institutions are spread throughout Florida, unlike those in Massachusetts, California, Georgia, thand North Carolina, where research centers are well-developed and dense. Florida ranks 15 in terms ofVC 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 abrief car ride to see most of the investment opportunities in other states,” but in Florida, he has to spend agood amount of time scheduling and arranging travel to have a look at the opportunities. Page 26 of 90
  27. 27. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralThe 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 FloridaThe Miami to West Palm corridor and the Tampa Bay to Orlando regions have been the hotbeds forFlorida’s VC investments. However, most primary respondents feel that there are not enough deals tomatch the available wealth in the region. Recently, there has been a fair amount of investments in thetechnology-oriented space. VCs are looking for companies with strong market potential and high barriers 20to entry (patents).The government of Florida has developed strong initiatives to encourage technological development. Todevelop business incubation the State has established “Centers of Excellence” at research universitiessuch 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 arenow 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, retailbusiness, real estate support services, and online marketing. Homeland security and services for theelderly have also witnessed growth in VC-backed financing.214.2 Angel InvestorsAccording 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 orwho operated their own businesses at some point in time.20 Source : Primary Research21 Source : Primary Research Page 27 of 90
  28. 28. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralSuch investors typically utilize income and capital gain tax relief and seek high capital growth of about35–40% per annum, with some active management involvement. They normally invest in entities that areclose 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 freshcapital in lesser developed regions. In 2005, more than half of all new venture capital raised in Canadacame from individuals who contributed $1.3 billion out of the total $2.2 billion invested. Angel investors donot 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, agood 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 thanan individual investing in a single business. This helps in diversifying risk. The development of a group ofangels 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 preferdeals where they have a fair idea of the local business and community22. Therefore, identifying suchparticipants 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 Investors23Corporations, for pure profit motives, invest at the pre-seed stage in commercializing technologies as theyshop 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 futurepotential to add value to their business. Corporate Venture Capital (CVC) investors can be attracted tothe 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 theNational Venture Capital Association (NVCA). CVG is a group of corporate investors who help to provideinformation, education, and networking for corporations, thereby enabling them to concentrate oninnovation and achieve growth through successful strategic venturing. CVG aims to build bettercommunication and practical cooperation across all parties in the venture process: corporations, venturecapitalists, start-up companies, and the research community.22 Source : Primary Research23 Source: http://www.henley-incubator.com/downloads/report_corporate_venture_survey.pdf Page 28 of 90
  29. 29. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape CoralAnother example of CVC is the Connecticut Venture Group.24 It is a voluntary professional organizationthat is committed to connecting the leading Venture Investment Professionals with high-growth emergingcompanies. The key objective of the group is to assist in growing enterprises through the promotion ofcapital investments in the region. CVC is funded by individual and corporate members as well as varioussponsorships.CVCs usually invest in new regions and technologies to hedge their risk. For example, Intel and Dowoperate venture capital funds, supporting entrepreneurial ventures along with other venture capitalists, tostay 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 FloridaVC funds are the prime investors in early stage and seed capital investments. Theyusually invest in lesser developed regions and SME businesses.4.4.1 The Florida Opportunity FundOn June 20, 2007, $30 million was approved by the FloridaCapital Formation Act to encourage VC investment in the state. “Attracting such VC fundsThe state has allocated $30 million to the fund. It is a fund that will help the city to developconsists of various smaller funds from different investors that will initial VC investments.”invest in other VC-backed funds, thereby minimizing the risk forinvestors. According to the policy under this fund, the state will Robin Kovaleski, Executiveinvest in equal proportion to that of VCs as long as it is directed Director, Florida Venturetowards 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
  30. 30. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral4.4.1.1 South Atlantic Venture Funds25Table 5: Fund Strategy – South Atlantic Venture Funds Description/Benefits Provide capital for privately owned and rapidly growing companies located inObjective Florida, the Southeastern United States and Texas. The firm is the largest VC firm in Florida and is one of the largest private equityCapital 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 includingInvestment communications, healthcare, technology, manufacturing, consumer products, andStrategy specialty retail. Make equity investments ranging in size from $1.5 million to $7.5 million.4.4.2 The Cypress Equity FundIn 1995, the Enterprise Florida Capital Partnership, Inc. created the Cypress Equity Fund as part of astrategy to facilitate VC funding in businesses in Florida. The fund’s purpose is to facilitate initial venturecapital investments by Florida private financial institutions and institutional investors, and provide ameans 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 capitalFunds 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 DevelopmentBoard, is responsible for the overall management of the fund.4.4.3 Community Investment FundsCommunity investment, also called alternative investment, is the investment in community loan funds thatprovide capital to local entrepreneurs, cooperative or community-oriented enterprises (such as worker orconsumer co-operatives), regional development bonds, not-for-profit enterprises or community loanfunds. These funds use volunteer and public resources to establish funds, identify borrowers, managerisk, and raise capital. These low-cost resources enable community investment funds to provide capitalthat cannot be offered by banks and other for-profit financial institutions. They are also responsible for the 26development 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 communitydevelopment 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.htm27 Source: Development of Federal Tax Credits to support Community Investment in Canada, November 2003 Page 30 of 90
  31. 31. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral4.5 Venture Capital Networks in FloridaVC networks usually emerge from the initiatives of a few retirees and amateur businessmen. Forinstance, 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 emergingand 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 capitalinvestor. This matching is either done online, by comparing the parameters and criteria provided byinvestors and entrepreneurs, or through periodic meetings and presentation programs, like the FloridaVenture Capital Conference organized by the Florida Venture Forum.The networks bring together angel investors, venture capital firms, and private equity groups seeking newinvestment opportunities globally or in a particular region. The board of directors of such networksconsists of a few angel investors and academicians who are involved in research labs and incubatorfacilities at their universities and people from the top level management of venture capital firms andprivate equity groups. Sometimes, there may be representation from government bodies such as theEconomic Development Councils. 28Besides 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 NetworksAccording to a senior executive at SpringBoard Capital LLC. in Jacksonville, VC networks are formed toserve as a community for angel investors in a particular area. These networks generally originate from thehome cities of angel investors. For example, Springboard Capital was formed to provide a commonplatform to a group of 40 angel investors in 2002. These investors try to include a few VC firms andacademicians 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 asresearch labs and incubators, or the presence of some lucrative government incentives. These factorscontribute to generating and maintaining deal-flow in a particular area. According to a senior executive atAngel Investment Forum of Florida, the forum is planning to open a new chapter in North Orlando. Themain driver behind this decision was the ‘Re-Branding Strategy to Attract Technology Companies inOrlando’ 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 aparticular area are the presence of Attractive Intellectual Property and Business Resources. TheEmergent Growth Fund enjoys the presence of the University of Florida, which contributes to thedevelopment of intellectual property. Moreover, various research centers have helped the area become ahub for biotechnology.28 Source: http://www.legis.nd.gov/cencode/t54c34.pdf Page 31 of 90
  32. 32. Evalueserve Business Research Study on Identification of Venture Capital Prospects for City of Cape Coral4.5.2 Florida Angel Investor and Venture Capital NetworksPrimary 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. 304.5.2.2 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 OReilley Group. 314.5.2.3 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 Website30 Source: http://www.gcvf.com31 Source: http://www.emergentgrowth.com/public/index.asp Page 32 of 90

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