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Send me an angel

By Timothy J. Gibbons
Published by Florida Times-Union on February 3, 2003.

Al Rossiter still remembers the cotton toilet tissue guy.

Back in 1996, a Jacksonville resident came up with a way to make the stuff, and was looking for funding to set up a plant. Seven years ago, that type of money couldn't be found on the First Coast.

So the guy went to Seattle, found some money and set up his operation, known as Linters Inc., there. The next time Rossiter heard of the guy, he remembers, was when he was featured in The Wall Street Journal as a successful entrepreneur.

Rossiter, president of Enterprise North Florida, doesn't want to see that sort of thing happen again -- and a slow change in the local economy might be making that wish come true.

The rising popularity of St. Johns County as a retirement spot has created a growing pool of potential investors, board members and management team potentials, changing the investment landscape of the First Coast.

The region is now at the beginning of a cycle that could make it more attractive to entrepreneurs, said locals who work with early stage companies. As the number of individual investors grows, it will become easier for early stage companies to find money -- and the more companies launch themselves here, the more attractive Northeast Florida will be to venture capital funds. As funds focus on the region, additional entrepreneurs are more likely to move here, generating even more opportunities for individual investors.

This is a type of economic growth that was just a dream even during the boom years of the mid-1990s.

"There was a lot of stuff happening around the country that we didn't have here," said Henry Avery, a consultant to start-ups who formed one of the area's first venture capital groups almost a decade ago. "Now it looks like there's going to be a major development of investor money here in town."

That hope for the future seems endemic among those who work with entrepreneurs.

The change in the past five years has been pretty significant, Rossiter said. "I don't think Jacksonville had at that point matured enough in the private equity investment arena," he explained. "There wasn't a critical mass. Now, there's a lot of interest, a lot of knowledge. The thing is bloody well on its way."

Risky ventures

Of course, it's not a good economic time for venture capital funds in general. After flying high during the tech boom of the late 1990s, the industry has pulled in its horns, focusing more on companies in which it had already invested rather than looking at new companies.

At the peak of the boom -- during the second quarter of 2000 -- venture funds invested more than $29 billion in 2,200 companies, according to a PricewaterhouseCoopers survey. In the final quarter of 2002, that dropped to $4.2 billion being put into 692 companies.

The Southeast region -- mainly Atlanta and Florida -- has remained somewhat strong, however, bypassing New York and Texas to come in third behind Silicon Valley and New England in the amount of money invested in the fourth quarter of 2002.

Such news is good for the First Coast, but the area only has one or two classic venture capital funds, making such activity a minor piece of the local investing puzzle. The real focus here is on individual "angel" investors.

"That's very consistent with what we're seeing on the national level," said Kirk Walden, national director of VC research for PricewaterhouseCoopers. "There is going to be a greater reliance in this economy on friends, family members and angels."

In Florida, "accredited individual investors" -- commonly known as "angel investors," a term popularized by early investors in Broadway shows -- have to have a net worth of more than $1,000,000 or an recurring income of more than $200,000.

That's a group that appears to be growing locally. The buying power in St. Johns County far outstrips the rest of the country, coming in about 37 percent higher than the national average, according to per capita income figures analyzed by the Jacksonville Community Council.

"St. Johns has significantly more money," said Ben Warner, associate director of the council. "Any way you slice it, St. Johns is attracting higher-income residents."

That doesn't surprise people like Avery, who founded the First Coast Venture Capital Group in 1993 and has seen the area struggle to get angel investors involved locally. Progress has been pretty slow, he said.

"We don't have a community that understands venture capital," he said. "That's what I'm trying to get the community to understand."

Recently, Avery said, he's been seeing signs of success, including a regular meeting of local angels he hosts at the Sawgrass Marriott. "Angels have been coming up to me," he said. "They're people that are retired, that need to do something. By being an angel, they're not just passive investors like with stocks. Playing stocks just isn't any fun."

A pool of talent

That willingness to get involved will also help Northeast Florida attract start-up companies, several financiers said, since it provides a talent pool that entrepreneurs can draw on.

"The key to having more fundable deals is to bring together interesting ideas with capable management and the funding to make it happen," said Dan Rice, president and chief executive of Mayport Venture Partners, a small, locally based venture fund. "It helps to have a bigger network of people who want to spend time being involved in getting stuff started. When someone retires from New York or Boston and moves down here, they don't forget who they worked with. They bring a network of potential management."

Mayport Ventures was founded 2 1/2 years ago by Rice and his father, former Barnett Banks CEO Charles Rice, and now has investments in four companies, two of them in Northeast Florida. The firm would prefer to invest locally, Rice said, and the area is on the verge of providing more companies that warrant such involvement.

"I think over time that it's going to grow," he said. "There's been a history of companies growing here. I think we'll see more."

That lure of potential leadership already in the area has attracted the attention of Accseus, an organization that works with scientists at universities and federal laboratories to commercialize inventions. A spin-off of the Central Florida Innovation Corp., the organization recently opened a Jacksonville office in a bid to locate new companies here.

Northeast Florida has become a popular place for executives who have sold their companies, struck it rich during the boom years or have a well-funded pension plan and are looking to relocate, said Warren Miller, president and CEO of the local Accseus Center. "They might be independent, but not wealthy, and they're looking around for what to do next," he said.

Ponte Vedra Beach has a lower cost of living and nicer climate than, say, Boston, Miller said, and the influx of wealthy retirees makes the area even more attractive to other retired or semi-retired executives, letting them socialize with people like them.

The number of angels locally led Miller, who worked with CFIC in Orlando, to open up the Accseus office here, he said. "I know there's investors here because I'd see them traveling to Orlando and Atlanta," he said. "If we can bring investments here, the money will stay here."

Gaining traction

Having angels keep their money in the area is vital for local entrepreneurs, especially since the dot-com bust has led venture capitalists to invest in companies only after they've grown a bit.

"During the bubble years, venture capitalists acted like angels," said Ashton Hudson, managing director and general counsel of Rock Creek Capital, a traditional venture capital firm that was founded in Jacksonville in the 1990s. "Those days are gone. The excessive funding has been wrung out."

Rock Creek has always been more conservative, Hudson said, so an increase in angel capital is a good thing for the firm. Angel investors help start-ups get to the level where a fund like Rock Creek can feel more comfortable investing.

"As more angel money is deployed locally, there's more opportunity for traditional venture capitalists locally," Hudson said. "We would love to have opportunities to invest more capital in local companies."

The decision by venture capital funds to target companies that are farther further along the growth curve is one of the things that led Rossiter, the Enterprise North Florida president, to begin Springboard Capital, a fund that primarily invests in companies that are still on the verge of generating revenue.

The fund has 33 members, all partners in the limited liability corporation. Unlike angel clubs, Springboard invests as a group: After the members screen companies and exercise due diligence on those that pass, the group decides as a whole if the company gets an investment. Similar to angels, though, Springboard gets involved with companies before they start generating revenue.

The group focuses on investments around the area -- dealing with companies from Savannah, Ga., to Tallahassee -- in an effort to develop the entire entrepreneurial culture here.

"If Jacksonville and Northeast Florida have the resources they need, entrepreneurs will come here," said Rossiter, who serves as administrator of the fund. "It's very gratifying to see things starting to get traction. There's just an amazing amount of capital here."

Jacksonville is just beginning to climb that upward trend, said Miller, the Accseus president, and it will be years before the city is comparable to an Austin, Texas, or Charlotte, N.C. -- but he thinks the area is on its way.

"It's not going to be real quick," Miller said, "but it's already begun."



About

This is a showcase of the work done by Timothy J. Gibbons during a journalism career now stretching back more than a decade.

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