Plant a small seed, and mighty things will grow. That’s the basic idea behind investing in startup entrepreneurs, especially those whose field is technology – where things are changing at lightning speed, and the next million-dollar idea is very likely right around the corner.
An investor network and online investing platform, Florida Funders was founded in 2013 by David Chitester, who didn’t invent the online venture capital business model – it’s a streamlined way of putting ambitious entrepreneurs together with those looking for solid investments, including equity crowdfunders – but he refined it, and made a terrific success of it.
“Florida Funders itself now has a $10 million fund, and they’re going for 15,” Chitester says. “So the crowd and the fund share the deal. That didn’t exist five years ago.”
Chitester left the company last year, although he remains a stockholder. He and his wife Kathleen – she’s his business partner – took a vacation on Little Gasparilla Island, near Fort Myers. In short order, they fell in love with the place, bought a lot on the beach and made plans to build. The object, Chitester explains, was retirement. He was pushing 65.
But island construction, with materials having to be brought in via barge, is a slow process. Three years minimum, the Chitesters were told.
Faced with more spare time than he cared to spend, David Chitester simply started another company.
Headquartered in St. Petersburg, Seedfunders provides funding and mentoring to pre-revenue tech concepts and startups. “Pre-revenue scalable technology with a clean cap table,” is his one-line. “And that means from the clean cap table, we’d like to be the first professional money in.”
He relishes the challenge, and the risk, of launching something new. By concentrating on pre-revenue scalable technology, he’s focusing the company’s talents – and his investors’ money – in a way that the fledgling Florida Funders did not.
“When we started Florida Funders, we didn’t have an investment thesis at all,” Chitester says. “People would say ‘What are you looking for?’ and I’d answer ‘I don’t know what’s out there, what’s investable.’ I knew that when we started my company Red Vector, we needed money. I knew that there were people who start restaurants that need money.
“For the first year, we looked at everything. Tons of things, and we wasted a lot of time because many of them, eventually, weren’t investable.
“So when I started Seedfunders, I knew I needed to be focused. It’s just me and my wife, and our partners. I’m the only day to day person, but my partner Irv Cohen is significantly involved as an investor and partner as well. I said ‘I have to have an investment thesis that is very targeted.’”
Scalable technology, he stresses, is key. “That means things that are ‘this big’ right now, but with a little bit of funding can be 10x, 20x,” he explains. “You don’t get that with a restaurant or a Mom and Pop-type thing. We see all kinds of people who want to open a gym. Those things are just not scalable technology.”
These days, he says, the smart money is investing is medical technology. “I’m not an expert in MedTech – my background is EdTech – but some of our partners are really, really into the medical. And coincidentally, the first three term sheets that we’ve issued, all three are in MedTech. It wasn’t a target – we’re looking at EdTech, MedTech, FinTech, Internet of Things and AI.”
Everyone, of course, thinks their business idea is the hottest thought in town, and that getting it funded should be a snap. Once the budding entrepreneur gets his or her foot in the door, Seedfunders has a six-part due diligence process before anybody gets close to anybody else’s money.
At the pre-revenue stage, “there’s very little historic financials – but are the projections reasonable? They’re never right, but how did they go about making the projections?
“If we look at your projections and you say in three years, you’re going to have three million in revenue, and a million and a half in profit, we know you don’t know what you’re doing. Nobody makes 50 percent profit!
“You have $200,000 in profit, let’s look at your process. Forget the number, what was your process for getting there? Is it ridiculous or is it feasible?”
It’s not exactly Shark Tank, although “The pitch is important,” Chitester explains. “I’ve seen a lot of bad pitches for decent ideas, and I’ve seen a lot of really good pitches for bad ideas. And unfortunately, investors sometimes get blindsided by the pitch – they think ‘Oh, that’s really good, he’s a good presenter’ – but when you pull back the covers, what is it? What’s there?”
The project’s legal history – who actually owns the idea? – is thoroughly investigated, as is the competition – is someone else already doing this?
The technology itself comes under a microscope, and Chitester insists on the participation of an expert in every field. “For example,” he says, “we have an associate that’s an expert in AI. I can honestly say I don’t know much about it, myself.”
According to Chitester, local funding – investment money originating in Tampa Bay – is booming. He cites PeerFit, the innovative, Tampa-based wellness collective as an example.
“A year or two after I met Ed Buckley, the founder, Florida Funders made the first investment, through the crowd and some of the partners, and he got some traction,” Chitester says. “In 2017 he raised $10 million. All local funding, all from the Tampa Bay area. That’s changed tremendously in the last five years.”
Success stories like that would keep most investment consultants content to stay put and watch the snowball getting larger.
David Chitester, however, is not like most investment consultants. “I’m a startup guy,” he laughs. “I start stuff. In three years, will it be time to turn Seedfunders over to somebody? I don’t plan that far ahead, but if I did, in three years we’d hire somebody to replace me, and keep the company going.
“I would be the Chairman, and come to meetings and all that … but I would be out of the day-to-day operations.”