10 Ways we can improve Economic Development in Sarasota

I have been (somewhat) involved in the economic development efforts of our city - Sarasota, Florida. I love this town, and plan to live here a long time. However, our city (like most) lacks the economic diversity to sustain a healthy economy during tough times. Like most Florida towns, Sarasota has depended heavily on tourism and real estate.

When I first began writing this article I was going to complain and whine about how this city isn't doing the right things to help strengthen our economy - but instead I figured I should take a more positive road, and lay out ten things I would do:

1. FOCUS ON OUR ASSETS - I think sometimes we try to be what we really are not. We try to convince people we have a robust work force, or that we have an awesome tech infrastructure. We need to focus on what we have that is real, strong and what can attract a new economy. For example, Ringling Art School as one of the strongest schools in country around interactive design, animation, gaming, etc. Other assets we have is a vibrant Arts community, Mote Marine and our Film Festival. We need to leverage these assets to become nationally recognized as a destination for entrepreneurs.

2. FOCUS ON ENTREPRENEURS - Focus our Economic Development efforts on recruiting and retaining entrepreneurs. We waste time and money on trying to get "big companies" to relocate. We need to bring creative and tech professionals to our city, to build a new economy.

3. BUILD INCENTIVES - We need to have incentives to attract young, emerging companies to move here while they are able to decide where they want to grow their new company. We need to have money and programs that are aggressive in bringing them here. For example - Free Office Space - leveraging programs like the HuB Incubator is doing, or expanding on this concept into a Tech/Creative Park - where companies can apply and qualify for free rent for 2-3 years.

4. HIRE A LIASON - We need someone who is dynamic and energetic and knows how to get entrepreneurs excited about Sarasota. We need someone to visit Venture Capitalists, and other cities and incubators/colleges around the State. Constantly trying to get new startups, emerging growth companies to move here.

5. GET SERIOUS ABOUT TECH - A City needs to walk the walk... and we are not leading the way on being a "green/tech city". We need to invest in more tech infrastructure, broadband downtown. We need to show the world, that Sarasota can be innovative as a city.

6. BUILD A YOUNGER CULTURE - In order to retain and attract young professionals we need to build a younger culture in Sarasota. Projects like the VINYL FESTIVAL launched by the HuB do exactly this - it reaches out to the entrepreneur, artist, young professional and shows them this city acknowledges them, and has created a social side to our lifestyle.

7. BUILD PARTNERSHIPS - Start leveraging Assets in our city and build strong partnerships with other organizations along the I-4 corridor and around the State. Build relationships with UCF, UF and Disney. Extend research and development from these colleges and others into Sarasota. For example, create programs between - UF and MOTE or RINGLING and DISNEY... setup commercialization offices, and take IP to Products - create companies.

8. BRIDGE TECH AND TOURISM - Leverage our huge influx of tourists, and bombard them with tech/creative influence. Make them believe Sarasota is a tech-city and then they spread the word, or perhaps make a decision to move here. Make them want to start their next venture here - and not just vacation here.

9. EMBRACE SOCIAL MEDIA/NETWORKING - Expand on programs like EnergizeMyBiz.com which is a social network for Sarasota. Give all professionals the tools and ability to become more connected. Leverage online tools to enhance the local school system, government and other organizations to make the city more engaged, connected and efficient.

10. LAUNCH A GLOBAL MARKETING / PR CAMPAIGN - Take some money out of budget and launch an aggressive campaign to attract entrepreneurs and creative professionals to the area. Focus on areas where there is high entrepreneurial activity, and make it known to them that Sarasota wants to be their next home.

Hope someone is listening :)

A New Incubator

Some of you may know we had an incubator a few years ago, and unfortunately despite its success we had to let go of the space for a local school.... but now we are back again picking up where we left off... launching a new Incubator.

We chose the same location (Rosemary District just north of Downtown Sarasota) because we believe it is a perfect place to build a tech/creative cluster. The building is bigger than before, and we have bigger plans for the space.

Most people define an Incubator as a place you provide office space to startups, and maybe give some advice here and there. This is not our model.

Sure, we want to help entrepreneurs and yes, startups will work out of the space - but this is really not the mission of our incubator.

Our mission is to change the landscape and perception of our city on multiple levels - social, economic and political.

Video Distribution - a New Market

I have been involved in a company (ThisWeekInc.com) for a while, and I believe there is a lot of potential in creating and distributing content on the web - specifically video. We have decided to focus on the local market and getting info out to tourists (afar and visiting).

Here is a sample of what we have done:

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The Florida Opportunity Fund as I see it....

Okay... I finally was able to get the info on the Florida Opportunity Fund. (This is the 30M dollars given by the State to help fill the funding gap for startups to VC's, and also attract more capital to the State by investing with VC funds, Angel funds (inside and outside the State).

I am not sure what the best use of the funds would be - but let me start by saying 30M is a tough number to work with. Its not enough to really attract big V.C.s who manage 250M+ funds and its not enough to really spark new angel funds... (e.g. make some good people get off the couch and start raising money with the potential to get matching funds).

So where will this money go? It seems like most of it will go to V.C.s who really don't make investments in Florida - but now "suddenly" see the opportunity because they can take some of the State's money. Maybe some of it will go to local funds - but who? There is only one true VC Fund in Florida (Inflexion) and only 3 organized Angel funds (Startup Florida, Emergent and Springboard). Of course there may be more out there - but I haven't run across them, and certainly haven't seen them actively sharing deals.... but who knows?

Even if there are other Angel funds, I don't expect a lot of the 30M going to them, because the fund can only invest up to 50% of the total fund. So I would estimate (maybe) 3M will go to Angel funds (each fund getting 250k-500k?).

So does this solve the problem of Florida? No.

Will this help startups and early-stage companies get funded? No.

Will this make out-of-state VCs look at Florida? Sure. Only because they have to. But they will claim there are no "mature deals" and sit on the money.

So what will this Florida Opportunity Fund do? It will go to VC's (mostly out of state) who will sit on the money - wait for deals that meet their criteria - and find their are none.... because (surprise) we lack the angel capital to bridge (see cartoon above) these deals to be VC ready.

Think about it....here are the scenerios

1. Scenerio A: I am a managing partner of a 200M fund in Boston. I get 1.5M from Florida to look at Florida deals. Do you think I am going to really care about Florida? Maybe I open a 200 sq.ft office in Orlando, and have a MBA student look at Plans, and every once in a while, hear a pitch....

2. Scenerio B: I am an Angel Fund in Florida, and I raise 1-2M amongst angels, and I get 300k from the Florida Opportunity Fund. Whooopee! Where am I going to invest all this new money?

3. Scenerio C: I am a VC Fund in Florida and get 2M from the Florida Opportunity Fund - GREAT!!! but how do I raise the rest of the money to close my next fund? Who the hell in this environment is going to invest in a VC fund in Florida?

(excuse my rant)

Maybe I am not seeing the big picture.... but I think I have "some" experience in funding companies, growing startups and building businesses in the State of Florida. So I only can offer my opinion.

(If anyone cares.... here is what I would do with the 30M)

1. I would fund all Angel Funds associated with Universities (e.g. Emergent). I would invest 1-2M into each Angel Fund, with a requirement they invest 100% in Florida Companies. I would formalize a link between the Tech Licensing offices to these funds, and close the gap between Research (in Universities) and Commercialization. This would be around 10M of the 30M (if we did 5 major universities)

2. I would pick 2 to 3 Major Venture Funds and invest 5M into each one but require them to open and staff an office in Florida. I would require them to have a Managing Partner in Florida full-time. I would require them to invest 10% of this money annually at a minimum. If these funds are big funds, they will draw other smaller funds to move to Florida. They would also be able to lead big rounds of investment and draw from other out-of-state funds, and give other funds a high comfort level to invest in Florida if the "big" fund has smart people here watching the deal. You don't need 10 big funds in Florida... you just need a few to start to show a presence. (BTW, this is not unlike what the past Governor did with Scripts)

This would cost 10 to 15M (5M in each fund)

3. With the rest of the money - I would create a Micro-Loan that issues loans to startups / emerging companies that need up to 50k and don't need 1M-2M to launch. This would be secured by assets/stocks/personal guarantees - but be more flexible than traditional SBA loans. I would use the Angel Funds and VC funds as channels to refer deals for the micro-loan program... This way if an entrepreneur needs 20k to buy equipment, they can get started, and potentially later raise money from the Angel funds (100k-250k) or from VCs (1M+).

I believe this approach solves a bigger problem in Florida which is 1) There is no gap funding 2) There is no name brand VCs to validate the State and 3) There is no seed funding.

(sigh)

I said my piece. I will go back to my garage.... and work on the next startup.

Why isn't the Florida Venture Forum online to watch?

I guess it's probably my fault - but I missed the Florida Venture Forum again this year. Primarily because most presenters are later stage companies, it doesn't really match my investment criteria - however - I should have gone.

If you did go, I would like to get your feedback on how it went (leave a comment) - I wish they would webcast the presentations - what a great way to get more exposure, and let lazy bums like me see the presentations....

Top 5 Reasons why Tech Incubators Fail

I have read a lot of articles and reports about how Incubators help local economies and drive innovation - but I rarely come across anyone talking about why they fail. We have been running a "quasi" incubator for 6 years and so I thought I would share some of our thoughts from our experience.

1. People. I would say that the people running the incubator is the most critical element. I visit incubators where they are managed by an administrator or college professor - and they struggle to find ways to relate to entrepreneurs in the incubator. Also, there needs to be some level of respect between the management of the incubator and the tenants - they need to feel like the people helping them have 'been there and done that'.

2. Lack of Services. Many incubators feel their primary value is giving real estate, Internet access and a printer. This of course makes no sense. Why does this help anyone start a successful company? Sure, it may help keep costs low - but many entrepreneurs (especially successful ones who have had ventures in the past) can work from home or knows someone with a little extra office space. The key to incubation is providing high-value services like technology development, operations, sales and marketing and even temp-management.

3. Location. The location of the incubator matters because it is supposed to draw in a variety of people (investors, service providers, entrepreneurs, etc). Sometimes they put an incubator in an area way outside town that needs economic impact - but is not convenient for people to visit, and entrepreneurs don't really want to be in the middle of nowhere. Entrepreneurs want to be near the action, in a vibrant location where they can connect with other people easily. Downtown locations in my opinion are the best locations. Of course most incubators are located in a University because its convenient for students - but if you are doing an incubator to attract entrepreneurs who are not in college - a city location is a must. Any other location, will drastically reduce the value.

4. Funding. Incubators can help with a lot of aspects of starting a company, but the most important need in many cases is funding. Obviously most incubators are not set up to write an investment check, but it should have relationships with local investors and venture capitalists. It also should be able to help refine the business plan and make sure it is ready to present to investors (go back to #1 People). If there is no link to funding, incubators have a hard time creating sustainable businesses.

5. Politics. This may be the killer for a lot of incubators (typically before they even get started). Since most incubators are tied somehow into public funding (usually a University, City or County) there is always politics in play. Politics can play a role in who runs the incubator, where it is and how its managed. These decisions can be made to please the powers that be, but can completely ignore the needs of the entrepreneur.

In summary, I think an incubator is actually a lot like a startup itself. It needs good management, good product and good execution. And for the most part - Incubators succeed because they address the needs of the entrepreneur. This is what is sometimes lost in the discussion.

What is the economic impact of a Tech Startup? (Part I)

I thought it would be interesting to take a high level look at what the "economic impact" of a Tech Startup is on average. A lot of local economies are suffering because they either depend too much on tourism or real estate - or perhaps their core industries are dying (e.g. manufacturing, etc). Every local economy wants to diversify, but the big challenge is finding the best way to grow new businesses or convince other businesses to move to the area. Many times they shy away from "startups" because they are too risky, or don't present an immediate opportunity for hundreds or thousands of jobs - but in my opinion investing in startups is the best and ultimately the quickest way to creating the right kind of jobs, and boosting a local or State economy.

Here is my logic:

Lets start with the micro-economics of an average Startup. Most tech startup acquire venture funding. On average I would say 80% or so raise around 500k to 1M in funding (even the bad ideas get money in the beginning). The other 20% usually go on to raise more money - up to 5M or more. In States with concentrated Venture Capital, these stats change quite a bit - but I am being conservative in my estimates because my experience is in Florida (which is not strong in later stage Venture Capital).

So where does this money go? Well it goes to people, services, rent and marketing. And it is spent quickly. This is what makes a Startup an interesting catalyst for economic growth. Even though they don't have a lot of money in the bank - they spend it quickly (unlike larger more established companies).

So for example. compare an established 10M revenue 'non-tech' company, and a startup that has 1M in the bank for growth. I would argue these two companies have a similar economic impact in non-payroll type investments - e.g. Marketing, Outsourced Services, etc. Ofcourse the 10M company has a bigger payroll, but they most likely are not spending a large of money locally in new development, marketing or other services. So the startup may spend 250k-500k in these services in the first year or two, while the more established company has reduced its "growth spending" and is simply trying to find ways to cut costs, and maintain profitability.

So, then the natural discussion next is about jobs? Does a company with 30 employees (low-paid manufacturing, etc) have a bigger impact then a tech startup with 4 (high-paid employees)? Of course the amount of payroll is bigger with 30 employees - but my argument is that they make less of an impact, because they have less of an economic impact, because they are not spending outside the basic living expenses (house, food, clothing, etc). The higher paid employees are going out for dinner, buying big screen T.V.s and paying for dry cleaning. So although the non-tech established company is spending 100k per month on payroll, most of it is going to mortgages, groceries and gas.

So by now, you should see my position clearly - Size doesn't matter - Spending does.

POINT: Tech Startups and their employees' money has more impact on a local economy.

Now, lets look at long term impact. Obviously, the Non-Tech company will start to face more competition, and their product margins will shrink, and ultimately they will either need to move most jobs overseas or downsize. So now, the 30M revenue company is spending much less in the local economy. On the flip side - the Tech Startups will continue to grow (and yes, a few will die - but not until they spent all their money). Those that do survive, will grow quickly and become 5-10M revenue companies, with 10 times the economic impact of the 30M non-tech company.

So now you have a 10M revenue tech company - who needs to hire more high-paying jobs, and is spending more on local economic services - and ultimately will also spin off new companies as employees leave with their ideas and start new companies.

Final Breakdown

Take any local economy that wants to grow, diversify and make a real investment in building a strong business community - I would argue that putting 50 Tech Startups in that city, versus trying to get 10 established "non-tech' companies each having 20-30M in revenue to move to the area is the better choice.

At first glance, you would think its a no-brainer to choose the established companies. 50 Tech Startups = less than 100 jobs, no revenue versus 10 companies with 30M in revenue each = 300M in new revenue and probably 1,000 jobs.

For me, I would take the 50 Tech Startups - anyday. Even if they all fail, the economic impact over the short term will be greater than the established companies - and all the "jobs lost" if they did fail, would be entrepreneurs that would turn-around and startup something else.... and the cycle would be never ending as long as the local community supported them.

POINT: Failed Tech Startups does not mean jobs are lost - they just start something else and continue the cycle.

What does it take for local community to build a Startup Community. Simple.

1) Incubator run by entrepreneurs

2) Angel Investment Fund

3) Supportive Business Community

4) Strong Entrepreneurial community

5) Local Government support

(I'll save the details for next blog post)