The Covid-19 coronavirus pandemic has not slowed work for Florida Funders.
The Tampa-based organization, a hybrid venture capital fund and crowdfunding platform that invests in tech startups, is as busy as ever, managing partner Tom Wallace told the St. Pete Catalyst.
“We have over 40 companies in our portfolio that we are very closely in touch with. We reached out to every one of them to talk about how much cash they have, how much runway they have, how this is affecting their business, what their plans are,” Wallace said. “We’re trying to help in any way we can, and one of those ways is funding. We have about $3 million in dry powder in our fund and we’re trying to figure out what companies might need funding, how many are in dire straits, and assessing how we’re going to deploy our capital.”
Some founders who launched their companies in a booming economy need more hand-holding.
“A lot of these founders have not been through any kind of situations like this before, and most of us have the gray hairs to show we have, although maybe not like this. This is unprecedented,” Wallace said.
Florida Funders also continues to look at new deals, although it has put investments on hold for a brief period, about 30 days, to assess what its existing portfolio companies need.
Investors tend to sit on the sidelines when there’s an extreme volatility in the market, Wallace said, but there also are tremendous opportunities right now.
He cited companies that offer remote working technology as well as those in healthcare and digital health. Another strong sector is e-learning — an industry with which Wallace is very familiar. He’s the former CEO of RedVector, a Tampa online training company that’s now part of Vector Solutions in Tampa.
“Anybody who has some good distance learning solutions for K-12 and colleges, that’s a great place to be right now,” Wallace said.
With “safer at home” and similar measures in place across most of the Tampa-St. Petersburg area, investors who are used to meeting with prospects in person have had to learn new methods of communication.
“We’re living on Zoom. We have Zoom meetings all day long,” Wallace said. “For most of these founders, we already have close relationships. We invested in them two years ago or three years ago and we know them pretty well.”
That could create a permanent new way of working.
“We’ve always wondered if we do could more digitally,” Wallace said. “When we present our companies, we’ve done lunch and learns, where a founder comes in and we have 20 to 40 investors in our office. We record them and put them up on our portal so those who can’t attend in person can always watch them after the fact. We’ve started to think, as we start back up, can we do more of this digitally. I think we’ll all learn from this. I think we’ll all become more adept at remote working and digital conversations.”
Investing in startups is a long-term play in any circumstance.
“I think some of our companies will do very well through this, but we plan on about one-third of our companies not making it anyway … Some of them, this may accelerate them getting there.”
Wallace expects startup valuations to drop.
“If 2008-2009 was any indication, valuations will come down. From an investor’s standpoint, it will become a more pro-investor situation. In the last few years there was so much capital chasing deals that it was a very pro-founder environment. Valuations were high and we’ll see a correction in that and that bodes well for investors,” Wallace said. “On the founders’ side, it will be a more competitive environment, valuations will come down and there won’t be as much capital chasing deals, so they’re going to have to really stand out.”
The million dollar question, Wallace said, is whether that will occur in one month, two months or longer.
“We’re really dealing with two crisis right now. We’re dealing with a financial crisis and we’re dealing with a health crisis and those two things are tied together. At some point they will separate. When the curve flattens, it will be interesting and a good opportunity for early stage tech investing.”
He’s encouraging patience on the part of both investors and startups.
“I’m a big believer in our resiliency and capitalism. I think capitalism is already showing that increased test kits, masks, respirators, ventilators will come from the great companies in this country, and I think on the back end of this will be some really good investment opportunities.”