Gainesville tech firms attracting big money
by Anthony Clark
Gainesville company RegisterPatient announced October 8 that it had secured a $4.1 million investment from venture capital firms. The next day, Alachua company AxoGen upped the ante with news of a $21 million investment.
It was a banner week in what has become a banner year in financing for area technology companies.
Eight area companies have announced financing deals totaling more than $50 million this year, all but one since May.
That’s just what has been made public. The University of Florida’s Innovation Hub business incubator reported that its tenant companies secured a combined $7.2 million in private investments in the 10 months through June 30 and that many of the individual deals are confidential, Hub director Jane Muir said.
After years of venture capital deals trickling into the area, the money is starting to flow.
“You’re going to see more,” said Gainesville entrepreneur and investor Jamie Grooms. “This should not be a surprise going forward.”
Grooms and others in the tech community say their reasons for optimism include:
- The efforts of the University of Florida’s Office of Technology Licensing to shop research inventions to entrepreneurs and investors.
- Support from higher education, business and government to provide startups with the information and connections they need to build a company.
- State retirement fund investments in early-stage companies to lure private money.
- A growing community of tech startups in medicine, engineering and lately information technology.
With a large enough quantity of early-stage companies comes enough quality to draw the investment dollars, said Bob Crutchfield, who runs the Gainesville office of Harbert Venture Partners, a venture capital firm based in Birmingham, AL.
“Gainesville probably has more entrepreneurial activity going on per capita than anyplace else in the state,” he said.
Harbert had been researching investment opportunities and working with UF’s tech licensing office for years before opening an office in 2009 at UF’s Sid Martin Biotechnology Incubator after investing in tooth-care ingredient company NovaMin Technologies.
The firm has since moved its local office into the Innovation Hub and led the RegisterPatient deal.
Venture capital firm MPM Capital of Boston also has opened an office in the Hub.
Grooms — who co-founded both RTI Biologics and AxoGen — said there was a time when companies had to go outside the area to seek funding in venture capital hotbeds such as Boston, California or New York. Even then, deals were hard to close because of Gainesville’s location.
“They look around the table, ‘Who’s going to Gainesville for a board meeting?’ No one raises a hand. That barrier’s been broken. Then the conversation becomes, ‘Let’s put an office in Gainesville.’”
Grooms currently is serving as CEO of the Florida Institute for the Commercialization of Public Research, which provides mentorship and state funds of as much as $300,000 to match private investments into companies that spin out of university research around the state. The agency has funded 15 companies so far, including Shadow Health in Gainesville.
Florida universities receive $2 billion in research funding a year, and UF gets the largest share, so most of the spinout companies are here, Grooms said.
David “Whit” Whitney of Energent Ventures came to graduate school at UF in 2009, having already spent 10 years in venture capital in Silicon Valley.
He said he was pleasantly surprised by the amount of entrepreneurial activity here and got involved as a mentor and investor. He is the UF College of Engineering’s entrepreneur-in-residence and has invested in student startups such as Grooveshark, Trendy Entertainment, Altavian and Quilt.
“Gainesville has an insatiable thirst for knowledge and innovation, and when that is present, an investor sees dollar signs,” he said.
Whitney said he has seen more awareness from young entrepreneurs of the importance of developing products that can get to the market quickly and attract customers.
“That’s the old-fashioned way of doing business, but the digital age caused us to lose focus of that,” he said. “Free is not a sustainable business model.”
Crutchfield said venture capital firms typically invest money from institutional investors such as state pension and retirement funds that want a small portion of their portfolio in high-risk, high-reward assets, as Harbert does for Florida. They typically form a syndicate of two or more venture capital firms on each investment.
Harbert invests in companies when they are ready to go to market and need the capital to ramp up.
A syndicate typically will take a 25-35 percent ownership stake and join the board of directors.
“Then we will help a company through our experiences, our resources and our relationships,” Crutchfield said.
Harbert was lead investor in the RegisterPatient deal. Crutchfield said the firm invested at an earlier stage than usual, but an electronic medical records corporation that wants to integrate RegisterPatient’s software into its own motivated it to take a deeper look, “and then we loved what we saw.”
The firm also brought in a new CEO in Jana Skewes, who had built a couple of successful health care IT companies, to work with founder David Williams.
Crutchfield said venture capital firms plan to hold a company for four or five years. In Harbert’s case, the firm assumes the deal pays off with a merger or acquisition. With RegisterPatient, the sale could be to a large hospital system or an electronic medical record company.
When NovaMin was acquired by GlaxoSmithKline for $135 million, Harbert made 10 times its original investment, Crutchfield said.
“Gainesville is doing a remarkable job in incubating and advancing early-stage companies to a point where you’ve created a critical mass of quality investable companies in your area,” he said. “The second part is that Florida in general is doing a wonderful job of attracting venture capital to the state by investing in quality firms and really putting money to work in Florida.”
Reprinted with permission from the Gainesville Sun.