In an effort to give Florida startups a boost, Gov. Jeb Bush has proposed that the state legislature earmark $75 million to provide startup and early-stage funding for fledgling companies.
The $75 million is part of a $630 million economic development package that the governor asked legislators to include in the 2006-2007 budget. The package is aimed at helping diversify Florida's economy and reduce reliance on tourism. The state legislature has 60 days to respond from Bush's March 7 State of the State address.
Although the state is boasting its lowest unemployment rate in 30 years, and sales tax revenues this year are expected to bring in as much as $3.2 billion more than originally predicted, some parts of the state's economy aren't keeping pace. Florida attracted only 1.42% of the total venture capital funding in the U.S. in 2004, according to a report put out last year by Enterprise Florida, the state's economic-development office. The numbers were even lower for early-stage funding (1.2%) and seed funding (0.3%).
"We have to continue to grow our innovation economy if we are going to compete worldwide, said Bo Taff, deputy director for the governor's office of Tourism, Trade, and Economic Development. Taff said it is important that ideas and technologies developed in the state's universities, or at the newly arrived Scripps Research Institute, make their way beyond the lab and into commercial application.
"I very much applaud the governor's plan to start down the path to solve this issue, said Sue Washer, CEO of Applied Genetic Technologies in Alachua, Fla., identifying the gap in funding for new ventures as a well-known Achilles heel. "Specifically in Florida, where many of the companies are early stage, I think that we have a particular challenge.
Applied Genetic Technologies raised $24 million in two rounds of funding without any help from within Florida. Although the company stayed in the state, many firms end up moving to where they find the venture capital.
The $75 million in contingent tax credits would be used to attract venture capital from investors by guaranteeing a return. The money raised would be invested with established venture-capital firms that had agreed to match the Florida funds and invest in early-stage startups in the state. The matching by the venture-capital funds could theoretically double the $75 million into $150 million for Florida startups. The tax credits would only be sold to reimburse investors if the overall investments failed to reach a yet-to-be-determined minimum return.
Seven states have already adopted similar systems as a way to bring in venture capital. None of the tax credits have been redeemed in any of the states. Oklahoma was the first state to try the system, starting in 1992. In December 2005, that fund passed the $100 million mark for investments in local firms.
The sort of incremental progress Oklahoma has shown makes some feel the Florida proposal is more than just a political gesture.
"Florida is bigger than Sweden, said Arnold Heggestad, director of the Center for Entrepreneurship & Innovation at the University of Florida. "Our problem is always scale. We are trying little things that don't have an impact.
Heggestad said he supports the idea, but would like to see bolder programs across the board. "You look at California, and they invest in cell therapy and they put up $20 billion, he said. "We put up $30 million and we are all happy about it.
M.J. Soileau, the vice president for research at the University of Central Florida, agrees that $75 million alone will not solve the problem. "It's not enough, he said. "It's never enough.
But Soileau said he does see the program as an important step in the right direction. "It is part of our economic development strategy for the state to promote an atmosphere where new companies can start and grow and prosper.
For Noro-Moseley Partners, an Atlanta based venture-capital firm that already does business in Florida, the proposal is a positive sign. "They are on the right track in terms of trying to create a very venture-friendly ecosystem in the state, said general partner Alan Taetle, whose firm currently has three active investments in Florida, and has had 11 total in the past decade.
Noro-Moseley focuses on companies that already have between $1 million and $2 million in revenue. Taetle said he is waiting to see if the governor's proposal has a significant impact, but, he added, "It would be nice to have some other venture funds that are really early stage, seed/start-up focused.