Statewide capital firm looks to invest $50M fund in startups

Not too long ago,  starting a venture capital fund in Florida that focuses on companies here and neighboring Southeast states was widely considered a longshot for success. Conventional wisdom held Florida was a tourism and real estate development state, not a Silicon Valley or Route 128 in Boston dotted by tech entrepreneurs. 

But with the success of Tampa-based Florida Funders and several other venture capital entities, that theory has been rapidly shifting. One of the latest venture capital firms to make a big push for Florida-wide success is Fort Lauderdale-based Las Olas Venture Capital. The seven-year-old firm concentrates on seed-stage investments in B2B software companies, and has closed two funds in the last five years. The first fund, for about $30 million, covered 15 investments. The second fund closed in early 2022 at about $50 million.

Las Olas Founding and Co-Managing Partner Mark Volchek says the firm seeks to find companies across Florida and the Southeast to invest some of those funds in in 2023.  The opportunities, at least in volume, are plentiful: Las Olas, says Volchek, engages with about 2,000 companies a year, and some 700 of those seeking funding are in Florida. “There is a lot of activity here,” he says. “Once you narrow it down to B2B and software and seed stage it starts getting much, much thinner.”

Volchek's Florida-first optimism comes as the national venture capital sector is facing a challenging 2023, according to a new report from private capital data firm PitchBook. The report found a “wide gap” exists between demand for venture capital supply nationally and the VC firms supplying the funds

In a recent video interview with the Business Observer, Volchek talked about what Las Olas looks for in startups, the state of the startup community in Florida and other industry topics. Edited excerpts: 

Why has Florida, especially Miami and Tampa Bay, become hot in recent years for both startups and venture capital firms?

Florida is a great place to do business for multiple reasons. The business environment, the political environment and all that is conducive to doing business here. I think overall there’s less competition for investments. That’s good for us but I think over time that will change. In Silicon Valley there’s so many investors chasing a limited number of good opportunities. In the Southeast there's an emerging opportunity we think we could be part of and help add value.

How is the venture capital market in Florida different from Silicon Valley, and how have firms like Las Olas and Florida Funders been able to capitalize on those differences?

The model in Silicon Valley was to put a lot of money into companies and not really think about profitability, and go for growth at all cost. Some of those models have gone away and collapsed. People are really looking for fundamentally sound businesses. I think that’s what we are able to find in the Southeast and especially Florida. These aren’t necessarily businesses that will grow from zero to $1 billion overnight and you throw a lot of money at them. But they are founders who build real businesses, with real revenue and real profitability, and that's what we are looking for. It takes a lot of looking to find these opportunities.

There’s a lot less density than we have in New York or Silicon Valley. In Florida, we have multiple major cities — we have Greater Miami and South Florida, Greater Orlando and Greater Tampa Bay. And there’s also Gainesville and Jacksonville. 

What are the biggest challenges facing Florida venture capital firms in 2023?  

One of the things we are seeing is valuations are down, which is good and bad. On the one hand, I think it’s becoming much harder to find good exit opportunities. So I think for us, for our first fund in particular, we will be holding on to things much longer, because it’s not a time to exit or sell a business. 

On the flip side, lower valuations are allowing us to make investment in companies at a lower valuation level. Our average valuation is around $10 million. What we are seeing is we can find companies that are further along for that same valuation. Rather than try to squeeze the number, we are looking for the best of the best companies that are a little further along than they had been a year or two ago, but at the same valuation. That’s good for us because we are getting some risk reduction. 

What are the challenges startups face in finding the right venture capital partners? 

It’s hard for founders to find the capital sources. There aren’t that many in Florida. One of the things we are trying to do is build an ecosystem and an educational background so that people who founded these great businesses have an easier time finding the appropriate capital sources. 

What are some of the trends you see in the technology companies Las Olas considers investing in?

We are seeing less competition for talent. That was a real problem in 2021 and the beginning of 2022. Companies then were really struggling to hire people. People were leaving, and going elsewhere for higher salaries. That has really stopped. Companies are seeing better retention and even an easier time finding staff. And I think that’s across the board, not just in technology.  

What do you and your Las Olas partners look for in startups to invest in?

The two most important things for us are the team and traction. We want to see that there’s actual product market fit so that people are interested. We want to see customers buying and showing that this product actually makes sense for them.

Many of our entrepreneurs have experience in the sector before and have started a business to solve a problem they saw in that industry. That’s where the team fits: it’s not just is it a good team — but is it the right team for the right opportunity? Then it comes down to defensibility of the company, is there a lot of competition in the space and how large the market is. I think it's really important for a venture-backed business to have a really big market, because otherwise you don’t have that big of an opportunity.