Naples Daily News May 2, 2008
"SW Florida needs to invest in economic innovation"
Waiter! New Menu Please An Innovation Invitation: Répondez S'il Vous Plaît
By Timothy J. Cartwright
President of Gulf Coast Venture Forum
If “Necessity … the mother of invention” as Plato said, then it is high time for Southwest Florida to invent a new economy!
For too long our region has gorged itself on real estate development as if it were the only item on the menu in a restaurant serving economic development. This addiction has resulted in our region becoming obese, - on residential housing inventory, and soon commercial inventory - with no appetite to scan further down the menu. This obesity has created lethargic regional economic performance and taken the shine out of our sunshine state as indicated by a statewide reversal in migration trends.
In order for our region to get in shape, we must seek out a “balanced diet” and train our collective regional eye to look for other entrées on the economic development menu, in particular, those under the heading of business development.
Only now, since the real estate steak has been eliminated as the blue plate special, have people started to ask whether we as a region should sample some of the other selections on the business development portion of the menu. We, as a region, may claim to our waiter that in the past, in order to appear concerned about our soft under belly, we have ordered appetizer portions of relocation and recruitment. However, our real regional wait-ers, the voters of this region, will astutely point out that it is portion size that influences diet and, therefore, contributes most to our obese condition.
What then, should our region do to get into shape? As Plato told us, invent something.
Listening to the ancient sage, who is considered to have built the philosophical foundations of Western culture; our region must invest, support and promote an Innovation Economy. Not as the new main course served on a silver platter for our economic woes, but as part of a complete economic development program within a portfolio approach in which our region’s political officials include innovation on their economic development menu (agenda).
The dilemma with innovation is that it does not happen by itself. There are two important aspects about innovation; first, one usually fails a number of times before they succeed, and second, it does not happen by itself. While the first point is quintessential Abraham Lincoln, it is worth mentioning and learning from a man who actually built a life of accomplishments out of defeats. To address the second aspect, Southwest Florida’s political, economic, financial, real estate, education, judicial, business, charitable and media leaders must cooperate and collaborate on seeding an Innovation Economy.
Our tendency as Americans, with our focus on freedom and individual liberty, is to believe that entrepreneurs are solely responsible for innovation. To the contrary, in 2002 the Edward Lowe Foundation discovered in their study entitled Building Entrepreneurial Communities, the mythical image of “entrepreneurs is depicted as rugged individuals who single-handedly built great companies, however, the reality is that consummate entrepreneurs are networkers, who thrive in communities”. The study further explains, “Networks are essential because they link entrepreneurs to potential sources of capital, new employees, strategic alliances, and service providers”.
Think of the greatest entrepreneurial region in the world, Silicon Valley; it is not just the entrepreneurs with the ideas, but the ability to recruit a management team, find investment capital, hire expert service providers and go public - all in one day and usually before 10:30 am while finishing your latté at Starbucks. That is what distinguishes this region from the rest of the world.
Consequently, what is the recipe for an Innovation Economy? A talented and focused entrepreneur can succeed at some level in almost any region, but taking lessons from Silicon Valley, he or she is more likely, and the region with them, to prosper in a region that has the following characteristics: i) access to seed and early stage capital, ii) a university with scale or a history of specialized research, iii) an enabling regional culture, iv) professional networks of all types, v) an entrepreneurial support infrastructure, vi) “entrepreneur-friendly” government and vii) a regional brand or specialization. Therefore, our regional leaders (economic, political, real estate, educational, judicial, commercial, charitable and media) must cooperate to encourage and invest in the development of these elements. Ultimately, we, the people, must prevail upon our regional leaders to recognize the importance of an Innovation Economy as part of a long-term commitment to develop a sustainable and diverse regional economy. Everyone’s home values may depend on it, irrespective of homestead portability.
In an effort to better organize seed capital in Southwest Florida, the Gulf Coast Venture Forum, a Southwest Florida based non-profit Angel Investment network, in cooperation with the Regional Business Alliance, Florida Gulf Coast University, Hodges University, Ave Maria University, Edison College and each of the Economic Development Councils/Offices in the six county Southwest Florida Region (Sarasota, Charlotte, Lee, Collier, Glades and Hendry), have launched an initiative to establish a SWFL Regional Angel Fund. The goal is to activate some of our regional wealth and direct it towards innovation within our region and our state.
While venture capital is crucial to entrepreneurial success, it is not immediately available to start-up companies, those who are most innovative. Most venture capitalists fund companies that have survived their earliest stages and are rapidly expanding firms, or “gazelles”, as MIT economist David Burch calls them. Typically, venture capital is not readily available in the smaller amounts that might be appropriate for a very young or early stage company. Therefore, venture capitalists leave a funding gap as to time – during the earliest stages of a start-ups life, which lasts at least a year – and as to capital – for amounts under $2 million.
Angel investors, defined by the U.S. Securities Exchange Commission as accredited investors, are commonly identified as those sophisticated enough to fill the funding gap. Jeffrey Sohl from The Center for Venture Research (CVR) at the University of New Hampshire, estimates that Angel Investors provided two times the amount of the seed/early stage capital to start-ups in 2006 than did Venture Capital firm. Andrew Wong’s empirical study of Angel Investors supports this important class of investors discovering that when angels invested in early rounds, 73% of the time they did so without venture capitalist as co-investors. Therefore, Angels Investors fill the time gap by investing when venture capitalist will not and are mostly complimentary rather than competitive to venture capitalist.
Innovation Works, a State of Pennsylvania funded entrepreneurial accelerator, estimates 150-200 new technology companies are formed in the Pittsburgh Region each year. Of these, almost all will need significant seed-stage funding. Just like Honest Abe, failure will occur with over eighty percent of these, however, of the ones that do not fail, 12 – 18 could reach an enterprise value of $20 million or more and about 6 could reach a size of $50-$100 million or more. However, without an adequate supply of seed-stage investment for that number of firms, the majority of potentially successful firms may die for lack of capital.[i]
Our region, with an embarrassment of riches for this type of investor, must figure out how to activate and engage this latent natural resource into our regional economy. Early stage capital is the lifeblood of entrepreneurs and innovation. The GCVF and the supporting regional organization mentioned earlier are taking the first step; establishing a Regional Angel Fund. The State of Florida has taken the second step; establishing the $30 MM Florida Opportunity Fund (Florida HB83, which promise to invest with private funds on a dollar for dollar basis for qualified Florida based Early Stage/Angel Funds). The region’s litmus test will be the response from our local high net worth individuals.
Southwest Florida must capitalize on this opportunity to incubate a new, to our region, aspect of Economic Development. As previous described by the Edward Lowe Foundation, it is not just one entrepreneur or one angel investor acting independently but the entire Southwest Florida region acting collectively to invest, support and promote an Innovation Economy. As you consider the arguments above, remember Charles Darwin’s observation “It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change”.
To learn more, or to download the SWFL Regional Angel Fund Executive Summary please visit http://www.gcvf.com/.
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