Thomas Lin came to talk about the money to be made in commercial sales of fresh salsa and fruit salad. Monty Hatcher spoke about the demand for sophisticated blood tests. Frank Clark portrayed his company, with its computerized training system for hospital workers, as a health care Microsoft. And Kurt Long looked for capital to help finance the phenomenal growth of his customer-service software business.
During 1998, these four entrepreneurs trooped before self-declared venture capitalists at meetings of the Suncoast Venture Forum in Tampa to tout hot investment opportunities in their fledgling businesses.
Suncoast Venture Forum's investors were apparently unimpressed: All four businessmen went away empty-handed.
Some of the entrepreneurs returned the favor, blasting Tampa Bay area investors as too demanding, tight-fisted and short-sighted.
"There's not a vibrant venture capital community in Tampa Bay," said Long, founder and president of Clearwater's OpenNetwork Technologies Inc., the fifth fastest-growing company in the state last year. "They don't understand that they need to invest in young companies here."
Venture capital is intended to fuel nascent businesses as they move beyond the start-up stage. It is the cash that fills the gap after funds from family and friends dry up but before entrepreneurs head to the bank. Though some of the companies seeking venture capital are publicly traded, their stock is generally closely held and generates little outside interest. Whether it is structured as a loan or as funds in return for ownership in the company, venture capital carries high risk but potentially high rewards. When it is plentiful, as it is in Boston and California's Silicon Valley, talented entrepreneurs flourish. When it is scarce, they struggle.
Suncoast Venture Forum, which operates out of offices at the University of South Florida in Tampa, was formed to match promising West Florida businesses with interested investors. Among the investors are wealthy individuals, broker-dealers and some institutional investors who want an early look at promising businesses. Suncoast's corporate sponsors include two investment firms, Raymond James & Associates and Robert W. Baird & Co., as well as accountants, lawyers and banks.
Mike Fountain, Suncoast's executive director, said that since being organized in 1992, the group has helped arrange more than $50-million in expansion capital for 22 local companies. Deals have ranged from $500,000 to $6-million, with the average about $2-million. But in 1998, nada.
Fountain, whose group does not receive any fees or commissions for its efforts, is philosophical about last year's disappointing results.
"There have been some major changes in market conditions in the past few months and there's a little more fiscal conservatism," said Fountain, adding that two of the companies' deals fell through when the stock market pulled back in the fall. "Terms of a deal can often change dramatically. You're really riding the market conditions with this."
The reasons are as varied as the companies seeking capital. Lin, the Tampa food processor, complained that investors at Suncoast Venture Forum were looking for a flashier, more high-tech investment. But OpenNetwork's Long said his company's business simply seemed over the heads of most investors at a Tampa seminar.
There is one constant. In no case were the borrowers desperate enough to meet lenders' often stringent demands. Whether the stumbling block was the interest rate on debt or the size of an ownership stake, the result was the same: no deal.
"Venture capital is not cheap and it's based on the assumption you need it real bad," said Lin, chief executive of Tampa's Phoenix Fresh Foods Inc., who ultimately found better terms at two local banks. "It's not by accident that it's called vulture capital."
Here is a look at the four companies and their frustrating search for venture capital:
Dr. Bruce Kottke, co-founder of Integritech Inc. in Lakeland, describes his company's product as a simple blood test that can detect early signs of heart attacks.
"The test measures how sticky the blood's platelets are," said Kottke, who said dangerous clotting is caused, in part, by platelets sticking together. "We've already got drugs to block the binding of platelets. This test tells you when you need to use them."
Kottke's research is being underwritten by grants and tested in clinical studies at places such as Lakeland's Watson Clinic. Now Kottke and partner Monty Hatcher, Integritech's president and chief executive, want to make it commercially viable.
In August, the two men took their case to Suncoast Venture Forum in what Kottke calls "a run from bankruptcy."
"We went there looking for anything to keep our business viable and growing," Kottke said. "This technology could have enormous impact on patient care."
Despite a polite reception, no angel investors have stepped forward to underwrite Integritech. Another source of financing is looking positive, however.
Hatcher said Integritech has signed a letter of intent to merge with another company within the next few weeks. "Once we found out about the merger possibility, we pretty much abandoned all conversations with venture capital firms," Hatcher said.
Hatcher has both kudos and criticisms for the local venture forum. He thinks Suncoast was a valuable channel for promoting Integritech and he felt Suncoast's sponsors did a good job of selecting quality companies.
"I went to a venture forum in another part of Florida and, out of maybe 30 companies, only four had quality deals," Hatcher said. "There was no junk at Suncoast Venture Forum."
On the other hand, Hatcher discovered that only about half the audience at Suncoast were active investors. The rest, he said, were lawyers, bankers, commercial real estate agents and other salesmen, eager to sell their services to a new company.
"Half the room came up and handed me their cards after I finished my presentation, saying maybe they could help me," Hatcher said. "But these were people trying to sell stuff, not put money on the table."
OpenNetwork Technologies Inc.
After spending several months and untold hours pitching their story to more than two dozen venture capitalists, the executives at Clearwater's OpenNetwork Technologies Inc. decided to cut the fruitless schmoozing and get back to work.
"I wanted a partner who would help me build this thing," said Kurt Long, founder, chief executive and president of OpenNetwork, which develops Internet-based software systems. "But I found the venture capitalists here don't understand technology and they're too short-sighted, looking for the big payback."
Last summer, Long and his colleagues went pounding the pavement looking to trade an equity stake in their company for about $1.5-million in cash, earmarked for developing new software. They say venture capitalists in Boston, Chicago and Washington were more responsive than Tampa investors to their requests, though OpenNetwork ultimately lost bids to companies in those cities. When their efforts failed, OpenNetwork's executives went back to building their business the old-fashioned way: by plowing profits back in.
And they haven't done badly. Founded in 1995, OpenNetwork (http://www.opennetwork.com) has been profitable since its inception and expects to have revenues in 1998 of $1.8-million.
The company, which counts GTE Corp., Tech Data Corp. and Health Plan Services Inc. among its customers, was No. 5 on a list of the state's 100 fastest-growing private companies, with nearly 600-percent growth in revenues last year.
Despite its stellar performance, OpenNetwork failed to wow Suncoast Venture Forum investors at a September presentation. The feeling was mutual.
"I don't think there was a lot of money in that room," Long said of the two dozen attendees at the Forum's dinner. "It was like being in front of a roomful of movie critics and my attitude is, anybody can criticize. Let's see you get out here on the field."
Surgical Safety Products Inc.
Frank Clark, chief executive of Surgical Safety Products Inc. in Sarasota, went to the Suncoast Venture Forum in July, seeking $2.5-million for expansion.
The former Johnson & Johnson executive sparked some interest in Surgical Safety's main product, touch-screen training software programs for hospital personnel. A tentative loan deal was put together, details were hammered out and investors did due diligence. In the end, however, the deal was called off when shares in closely held Surgical Safety, which is traded on the OTC Bulletin Board, dropped in the fall.
"The conditions the lenders put on the deal were not in the best interest of the shareholders. It was punitive if we didn't meet certain reporting benchmarks," Clark said. "So we reluctantly and respectfully withdrew."
Though Clark still is pursuing venture capital _ he made three presentations in New York City in mid-December _ the company also is using other strategies to get its product on the market. It signed an agreement with U.S. Surgical Corp., which plans to use Surgical Safety's software to train hospital personnel on its instruments in about a dozen hospitals nationwide.
Clark, who says Surgical Safety was initially funded by relatives and friends, says he believes that if the company's software proves its value in the field trials, the sky is the limit.
"Our revenues were less than $1-million in 1997," said Clark, of the tiny, 7-person company. "But I trust revenues next year will be in excess of $4-million."
Clark bears no hard feelings toward the venture capitalists who ultimately jilted Surgical Safety.
"It was a great eye-opener," Clark said. "Suncoast Venture Forum was instrumental in introducing us to several potential funding sources, though unfortunately none of them worked out."
Phoenix Fresh Foods
Tom Lin knows how to make money on fresh fruit salad and salsa. He has done it before, building Reddi Made Foods Inc. into a company with $5.5-million in revenues before selling it to a British conglomerate in 1993.
Now Lin is back in business, with headquarters and a fruit salad and salsa processing plant in Tampa, a second plant in Long Beach, Calif., and contracts to sell his packaged products to major institutional food service companies and wholesale clubs nationwide.
"We do business with Wal-Mart, Costco, Sysco and Dobbs International," said Lin of his new company, Phoenix Fresh Foods off E Hillsborough Avenue. "We want to be a national, not a regional company. But when we sit down and talk to local investors, they don't see it that way. The investor base in Tampa has a very small community mentality and a very narrow view of what business is about."
Lin, who says his company is doing about $500,000 a month in sales, said he felt the investors at Suncoast Venture Forum were looking for a sexier, quick-hit investment. Though a couple of deals were put on the table, Lin turned them down after realizing that he could lose his company to the investors if he didn't meet certain sales projections.
"My lawyers advised me that those deals were loaded with potential risk and could cost me the company if I didn't make the numbers," said Lin, who has financed Phoenix so far largely from personal savings. "On one hand, the deals looked real promising. On the other, they were outrageous."
Rather than resort to venture capital, Lin has been able to secure bank loans from two local banks to finance expansion for his rapidly growing company.
In retrospect, he says the experience of having to present his company to a roomful of investors was a good one.
"I learned how to get up in front of a group of people and talk and not make a fool of myself," said Lin, whose company has 50 employees. "And, in a way, dealing with venture capitalists was better than going to school for my MBA. Except this is real, and you can actually lose your business if you're not careful, not just flunk out of school."