Spread the Wealth: The Gasparilla Experiment

In honor of FAQFriday, this post is about a bunch of questions our society wrestles with daily. I hope the example I share doesn't trivialize the magnitude of the questions...although I usually try to answer questions on FAQFriday, I'm the one asking today -- and I expect some answers!

Last weekend my family drove down to Tampa to see the Gasparilla Parade (there's another next weekend). Having grown up in Tampa, attending the parade is a 30+ year tradition for me and we always have a great time. This year was a bit different, though. Both of my daughters had the opportunity to walk in the parade so my wife and I watched with our extended family. We had a blast, but without my daughters sitting with me I found myself paying closer attention to the capitalism vs. socialism struggle around parade seating.

You see, my family has always been the type to arrive early (10am) and create a great viewing area for the parade (3pm). Because we arrive early, we reserve parade-side seating in a chair-encircled area about 10 feet deep and 20 feet wide. We set out lawn chairs, blankets and coolers in anticipation of a full day of family, floats and fun -- and beads!

If you've ever been to a parade as well attended as Gasparilla (half-a-million people), you may sense where this is headed...

Between 10am and 1pm, thousands of other parade goers arrive and follow the same tradition, with chairs, blankets, coolers, and family -- creating a crowd of 50,000 about one-family deep along the entire route. I'll call this group the "early-arrivers" class because they sacrificed their morning, arrived early and created a comfortable space for their families.

Then, between 1pm and the parade's 3pm start, the other 450,000 people show up. I'll call this group the "late-arrivers" class. The earliest of these are probably a "middle-class" of parade space who don't get front-row seats, but still have decent space in between the early-arrivers and late-arrivers flowing in as the parade starts.

So what do you think happens?

First, the late-arrivers almost immediately start swallowing the middle-class because of their sheer numbers and because the middle-class didn't arrive early enough to secure their space from plunder. That equalizes and aligns everyone off-street, envying the prime space held by the early-arrivers -- even though the floats are large enough to be seen by all classes and there will be more parade beads thrown, to all classes, than anyone cares to keep. Then, for the rest of the parade, it's open class warfare as the late-arriver masses slowly consume the prime viewing areas created by the early-arrivers.

It starts with the late-arrivers trotting out their saddest cases for "spreading the wealth" -- their smallest kids. This is a very successful tactic, as most early-arrivers voluntarily reduce space for their own kids to pack the curb with the newcomers -- even though it significantly alters the experience from a comfortable family gathering. Then, once their kids have space, the late-arriver adults either wedge themselves behind/beside their kids or they begin the drum-beat of "spreading the wealth" with others -- full-scale class warfare is at hand. While some battle with words, many others physically start moving chairs, coolers, blankets to take more space. As some do it, it emboldens others until...eventually...the wealth has been spread to all. The parade ends with the late-arrivers having equal (sometimes better) space as the early-arrivers and the early-arrivers trying to find the lid to their cooler that was successively kicked behind the masses.

Although we had a great day watching the parade, catching beads and seeing our girls walk by in the parade (they actually missed us because they didn't recognize our mixed group of family and late-arrivers), this social experiment was really intriguing to watch unfold. It crystallized, for me, a few observations and questions about society:
1) Why do the late-arrivers feel this is "OK" or appropriate behavior to teach their kids? What do kids from each class learn from it?
2) How would it all change if parade goers weren't just splitting confined space, but early-arrivers actually "created" space by their arrival (more analogous to how entrepreneurs create jobs and wealth in society)? Would the late-arrivers feel any more or less entitled to equal space?
3) Does any of this feel different if we just change the labels from "early-arriver" to "rich" and "late-arriver" to "poor"?
4) How would it all change if there was a governing entity who announced that the early-arrivers were expected/required to share with the late-arrivers -- the more you have, the more you have to share? Would it reduce the number of early-arrivers? Would it cause late-arrivers to be even more brazen in their takeover, because the "spread the wealth" mindset was sanctioned from above?
5) What would happen if everyone, early and late arrivers, voted just before the parade started on how to split the space and the majority ruled? Would such a vote alter people's behavior in future years?
6) There will always be more late-arrivers than early-arrivers, it's the nature of people and a bell-curve of personalities.
7) Is this one-day experiment an accelerated view of what brings down societies over hundreds or thousands of years?  Is "parade day" coming for the world, with its own distribution of "early-arrivers" and "late-arrivers"?

Burnham Institute Update

Guest Post by:

Mike Schmitt, MD

Life Science Analyst and Editor of the Florida BioDatabase

Mike can be reached at M2Schmitt@aol.com

I had the opportunity to once again attend the Foley Leadership Series sponsored by the Foley Lardner Law Firm meeting held a few weeks back at the CityArts Factory on South Orange Ave. in downtown Orlando. This facility is a way cool place to visit as it’s an old theater (built in 1916) renovated and converted into a number of art galleries on the first floor—complete with a working glass arts studio—and a full size theater on the 2nd floor with adaptability to hold and cater to a fairly large conference group. For those of you into interesting art and architecture—it’s a “must see” and a good reason to visit downtown Orlando.

The conference gave a nice update on current cancer research being conducted at the Burnham Research Institute along with an update of the progress on opening the Lake Nona medical complex (read more in a nice article by Robyn Shelton).

For those of you not familiar with the Burnham Institute for Medical Research, it’s a world class research center originally based out of La Jolla, California with over 600 scientists on staff on the west coast.

They are currently located in a temporary 14,000 square foot space in southwest Orlando, but plan to open a 175,000 square foot facility in the Orlando Lake Nona medical research campus (located between the Orlando International Airport and the University of Central Florida in southeast Orlando).

The institute is still on track to complete “phase 1” and open this April. They currently have around 65 employees and will expand to over 300 employees as the institute goes forward. Although Burnham does research in various biomedical area, the focus here in Central Florida will be on diabetes and obesity—a field that is relatively understudied in the basic sciences. Florida will provide an excellent source of patients for clinical investigation as our State has a fairly high rate of both obesity and diabetes. Current research being done at other diabetes centers around Florida will also provide opportunities for collaboration.

Burnham is poised to become a serious player in the life sciences with easy access to just about any other biotech center in Florida along with being adjacent to a good airport.

It’s good to see the biomedical industry really taking shape here in Florida. California and Massachusetts—take note!

Riskmasters Know How to Prioritize

You have probably already heard that VCs love to back serial entrepreneurs, but why is that?  What makes them special?

Well, it's a mix of things, but one trait I've witnessed across a decent sample size is the ability to prioritize and reprioritize in a nimble, but thoughtful fashion.  All entrepreneurs are risk-takers, but the best are Riskmasters.  The skill shows itself early in the life of a company, particularly when founders plan their funding path and use of seed funds.

Given many possible to-dos in the early life of a company, first-time entrepreneurs will often prioritize the easiest items first or focus on developing the full-function product they envision.

Serial entrepreneurs, however, immediately start prioritizing risk reduction.  In particular, they focus on the todos that address the largest risks in the business or the largest hurdles to securing institutional funding.  Those may be the hardest todos, but they know all other progress is a phantom until the most important risks are addressed.

One of the most effective prioritizations is to realize that first generation products don't have to do everything.  In fact, it's worthwhile to ask "what is the minimum the product has to do for a customer to buy or an investor to feel core technology risk has been removed?".  Reaching a v1.0 sale is huge for company value creation and attracting investors.

The same holds true for management risk.  Investors don't expect a full management team, particularly if it's filled with B players.  Serial entrepreneurs prioritize the key hires that are needed to execute the business or secure funding.

Lastly, the same holds true for market risk.  If the key question for investors is market size, serial entrepreneurs prioritize data gathering to prove a large market.  If the key question is competitive threats, they prioritize functionality or partnerships that provide a unique competitive advantage.

The benefits of this prioritization are multifold, but at least two important outcomes occur early.

1) Seed capital required (and resulting dilution) is minimized because funding isn't required to boil the ocean, but only to accomplish specific risk-reducing milestones; and

2) Institutional investment comes earlier as key risks are removed, providing capital and relationships to accelerate the business sooner.

What are some examples you've seen of Riskmasters, where prioritization simplified execution or fundraising?

FYI: Although I used serial entrepreneurs as an example of a Riskmaster, they can come in all shapes, sizes and experience levels.  My former partner Tim Draper (pictured above), who coined the term Riskmaster for entrepreneurs, has started his own blog on entrepreneurship and venture capital.  If you haven't already subscribed, you probably should -- the man is smart and crazy, like a fox.

SEBIO Conference: Sharklet Chomps the Shootout

Guest Post by:

Mike Schmitt, MD

Life Science Analyst and Editor of the Florida BioDatabase

Mike can be reached at M2Schmitt@aol.com

The annual Southeast BIO Conference (SEBIO) meeting wrapped up several weeks ago in Palm Beach on December 5^th.  I was not able to attend due to prior family commitments up north…and by the way—I just returned from a foot of snow in Buffalo—an experience that jogged my memory as to why I live in Florida (I’ll take a jab at my upstate NY friends now, before they once again remind me of hurricane season in June).

Readers may remember I’ve previously written about SEBIO which is a non-profit public/private partnership to promote the development of the life sciences throughout the Southeast.

Florida had 7 companies present at the meeting in addition to having technologies from the University of Florida as well as Florida International University compete in the BIO/Plan Competition.

Of the Early-Stage conference participants (primarily those with no prior institutional funding), 4 of the best companies were selected for an Early-Stage “Shootout” where they had a chance to do a full presentation to all of the investors attending the forum.

I’m happy to say that for the second year in a row, Florida has won the “Shootout” with Sharklet Technologies.  I should also mention that both Sharklet as well as last years “Shootout” winner, Transgeneron Therapeuticsare current residents of the University of Florida Sid Martin Biotech Incubator.  Transgeneron also appeared at this years meeting as a Main-Stage presenter. Needless to say, this reflects well on Florida and the Sid Martin Incubator—congratz to David Day, Patti Breedlove and Jane Muir!

Sharklet is a biotechnology company that develops and brings to market surface technologies (inspired by the antimicrobial properties of shark skin) that are designed to inhibit or enhance microorganism growth to make the world a healthier and safer place.

“We are delighted to have been selected as the winner of the SEBIO Early-Stage Shootout as the win validates that there is significant interest in Sharklet and a pressing need for an environmentally friendly and no-kill strategy for bacterial control in the healthcare market,” said Joe Bagan, Sharklet Technologies’ chief executive officer.

The BIO/Plan Competition (which is intended to identify and support newly created venture-fundable entities in the life sciences) had 10 finalists this year with 3 involving Florida technologies (a good showing). 

This is no small deal as the winner was awarded unrestricted, non-dilutive venture funds (valued at $100,000 in cash and services) to launch the enterprise and implement their business plan.

Here are the 3 from Florida (I don’t think that any of these very early entities have websites yet).

Cardiac BioSolutions: A device company developing revolutionary percutaneous heart valve (PHV) products, such as a more durable artificial aortic valve with the beneficial properties of a natural tissue valve, and a catheter delivery system which can be used with any percutaneous valve (Florida International University).

Ribotheron: A discovery stage company employing hammerhead ribozymes that block replication of herpes viruses I and II as a novel anti-HSV therapy, initially for corneal infections (University of Florida).

NeuroPoetix: A new drug development company that combines insights and advances in stem cell biology and knowledge about the central nervous system (CNS) to significantly progress the development of drugs to treat serious diseases of the brain (University of Florida).

The winner of the BIO/Plan competition was Cerene Biomedics, from North Carolina.

Cerene Biomedics: A device company developing an implantable device to prevent focal epileptic seizures by delivering targeted thermoelectric cooling to the neocortex, anticipated to be first line therapy for many patients suffering from uncontrolled seizures (Duke University).

For the very early stage life science entrepreneurs, it’s time to start thinking ahead as the BIO/Plan application process usually begins in February of each year.  Readers can check out further details at the SEBIO website.

Florida Opportunity Fund

Despite my time off the grid for the holidays it was hard to miss some of the buzz around the recently announced Florida Opportunity Fund.  It didn't hurt that I've been following the topic closely for the last year -- you can imagine it's close to my heart.  The origin of the Florida Opportunity Fund stems from legislative action in 2007 creating roughly $30M of capital focused on in-state early-stage venture capital: 2008->Chapter%20288->Part%20X">The Florida Capital Formation Act.

The logistics of deploying that capital properly is that Enterprise Florida was given the responsibility and funding to create a custom fund-of-funds (FoF), including a governing board and professional FoF managers.  The governing board was announced back in 2007, including Pete Pizarro, Kenneth Wright, Diane Cook, Paul Hsu, and Andy Hyltin. 

The recent announcement covered the selection of its FoF manager: Florida First Partners, a joint-venture between Milcom and Credit Suisse-Customized Fund Investment Group.  That announcement essentially signals the Florida Opportunity Fund is open for business and looking for quality Florida-based venture funds to leverage Florida's pool of talented entrepreneurs and world-class technology into superior venture returns.  Jennifer Dunham and Melford Carter are the current contact points for inquiries.

So, those are the facts, what's my interpretation?

I think it's another smart step in the right direction.  A pool of $30M split among a few early-stage venture funds isn't going to change the state's venture ecosystem overnight.  However, I've seen firsthand how quality in-state lead investors bring national venture dollars to the state.  For example, Inflexion, Florida's Venture Fund, has experienced 11-18 dollars of co-investment for every Inflexion dollar invested into early-stage companies.

Now that the politicians have taken a key step, setting up the fund with its core goals, it falls to the Florida Opportunity Fund to deliver on those goals, in the face of a difficult macro-environment, plenty of naysayers and likely political pressure along the way.  Florida presents unique challenges and opportunities for early-stage venture funds, requiring local access to multiple hotspots across the state combined with national relationships.  Early-stage company building is a local business and flying in for periodic board meetings, even by the largest funds in the country who will claim some Florida connection, just doesn't cut it for early-stage.  

Local effort + national networks + quality track records = superior investment returns for the Florida Opportunity Fund.

That said, just as Inflexion alone hasn't filled the early-stage venture gap in Florida, the Florida Opportunity Fund isn't a silver bullet.  Participation by angel groups, the State Board of Administration and the state's largest university foundations are also critical.  However, if we're all successful harnessing the vibrant and passionate technology entrepreneur and research base in the state, it will be a transformational success for Florida both in investment and economic terms.