Florida Wants a Slice of the Tech Industry

Aidan Augustin had a problem. His marketing company had relocated to Austin, Texas, in the hopes of securing enough venture capital to grow. He quickly realized he had a choice: Stay and fight it out with hundreds of other companies for funds, or move to a smaller market where he'd have to scramble to find willing venture capitalists.

Augustin, co-founder of Feathr, made an unconventional move for a serious start-up. He went to Florida.

A Florida native, he sees the state as a compromise—an area where he can have access to venture capital and talent without the intense competition and high cost of living found in Austin, New York or Silicon Valley. "Here, we could be a big fish in a small pond," he said of moving his company to Gainesville, Florida.

Florida has long been a state divided. Between the sandy beaches filled with retirement homes, Little Havana, the Deep South and its swampy Everglades, the Sunshine State has always resisted a solitary definition.

Florida's start-up scene is no different. Several cities are vying for the de facto role of being the state's tech capital, but there's no clear winner yet, even as access to funding increases and entrepreneurs move to the state's urban centers.

"The start-ups in the state still have a very difficult time raising money compared to hubs in New York, Texas—and of course Boston and California."

As enthusiasm for start-ups has spread over the past three years, the cities of Miami, Orlando, Tampa and Gainesville have emerged as the likely candidates to one day be the state's own Silicon Valley. In fact, the state has a history of successful start-ups: The music-streaming giant Grooveshark and virtual reality platform Magic Leap both got their start in Florida.

But while some in the tech industry say each city has its own niche market, others worry limited venture capital is being spread too thin.

"Florida's start-up scene is trending upwards with hubs in Gainesville, Orlando, and Miami specifically," University of Florida business professor Jim Parrino said. "The start-ups in the state still have a very difficult time raising money compared to hubs in New York, Texas—and of course Boston and California."

Ricardo Mesquita, CEO of The Lab Miami, said South Florida's tech scene is focused on hospitality, hospitals, tourism and Latin America—much like the city itself. Miami Beach and downtown Miami are dotted with a half-dozen hospitals, while the city's entrepreneurs are incubating businesses focused on virtual doctor visits, digitized hospital records, and nanoparticle drug delivery.

A quick trip up three hours north, and you'll find the tech scene is more focused on a new space race, including tapping into commercial space travel. Small-scale companies exist alongside tech behemoths like SpaceX and Blue Origin. Earthrise Space, for example, is a non-profit agency that selects college students to work on commercial and government space contracted projects and aims to be part of the team that wins Google's Lunar XPrize for landing the first private rover on the moon. One Orlando company, brandVR, creates virtual reality experiences at Kennedy Space Center.

"Almost every major city in Florida has a start-up tech scene," Augustin said. "I always wonder if we collectively are preventing one city from being especially successful, kind of cannibalizing each other. It might be net better for our state to have one hub."

Inside The Lab Miami, a popular co-working space for start-ups, employees from 3D printing businesses work steps away from app developers, technology lawyers, and day traders.

Mesquita said Miami's start-up scene is differentiated by its immersion in the South and Central American markets, as well as its ability to offer Hispanic entrepreneurs entry into US markets.

"We have a lot of entrepreneurs coming in from Latin America. They want to set up their businesses here to launch them in the American market," he said. "I think that Miami still has the connectivity, the diversity, the connection to Latin America that doesn't happen elsewhere."

Businesses that thrive are often focused on providing services for the area's biggest industries: namely, its hospitals and hotels. South Florida is home to burgeoning start-ups like Modernizing Medicine, a medical tools business founded in 2010 that is valued at more than $91 million, and mobile finance company YellowPepper, valued at $39 million. Uber and Apple recently opened branches in the area, too.

The venture capital also started pouring in last year—although The Miami Herald recently reported VC funding waned in 2016—and incubators are setting up shop, including Miami Dade College's The Idea Center backed by the Knight Foundation.

The swath of the state from Tampa through Orlando to Cape Canaveral has been dubbed the "High-Tech Corridor" by a collection of local economic development organizations, and tech ventures there are typically focused on electrical engineering, communications, wireless and problems related to commercial space flight.

Gainesville's start-up scene is smaller, but as the home to STEM-focused University of Florida, it has a steady source of early employees. The university opened a co-working start-up space, the Florida Innovation Hub, in 2012 to provide matching funds and mentoring to help students' companies get off the ground. The building is now filled with about two-dozen start-ups, University of Florida spokesman Steve Orlando said.

But the heart of Gainesville's start-up scene came from a now-defunct business.

The city's biggest start-up, Grooveshark, collapsed in 2015 after a legal battle with Universal Music Group, Sony Music Entertainment, and Warner Music Group over copyright issues. This ended up spinning off a dozen or so new businesses from former employees, Augustin said.

Despite the crash of the music streaming business, Gainesville-based Admiral CEO Dan Rua and Augustin each attribute their current businesses in part to Grooveshark.

"When forest fires happen, it creates entirely new growth. When you have layoffs, it creates this next explosion," said Rua, who had been an investor in Grooveshark. "When they were wrapping up last year, Facebook and Google [were] flying in to pick up this talent with big packages… Everyone at Admiral is a former Groovesharker."

Despite the half-dozen university-funded student incubators across the state, the input from various city chamber of commerce departments and the lack of a state income tax, Florida has a long way to go before it's ready to compete with New York, Silicon Valley and Austin, Texas. Experts said that barrier has less to do with a lack of a tech capital, but much more to do with a lack of capital.

"There's actually a lot of money in the state of Florida, private capital, but most of these people are not active angel investors," Augustin said.

Rua, who spent much of his career as an investor, said the network for getting private individuals' money into start-ups isn't there yet. Forbes magazine notes out of the nation's 400 richest people, 40 call Florida home. Plus there are about 383,000 millionaire households in the state.

So far, they've preferred to spend their money on real estate and other investments, Rua said. But he thinks they could be convinced to become angel investors if they see the potential.

"The big missing piece is the capital. We have the talent, we have the tech," Rua said. "The state needs more early-stage funds. It remains an absolute green field."

That lack of funding, especially early-stage investors, will continue to hold Florida back, Parrino said.

"Although Florida is one of the largest states in the country by population, the share of VC dollars coming to the state is less than 2 percent of the [national] total of VC funding on an annual basis," he said in an email to Motherboard.

"Traditional series A investors that would historically invest in seed rounds have mostly moved to a funding criteria that requires proof of concept (meaning revenue generating companies)," Parrino added. "This has made it increasingly difficult to raise seed financing and angel investing continues to fill the gap in that area."

Until the start-up community figures out how to bridge that gap, they'll keep growing and honing their niche environments—all competing for the same small pile of cash.

"There just was not sophisticated early-stage capital," Rua said. "Early-stage VC funders that will get involved when there's no income or little income are the lifeblood of areas like Silicon Valley or Austin."

Get six of our favorite Motherboard stories every day by signing up for our newsletter.