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FVF’s “state of the industry” panel with Robert Faber

faber fvf

Robert Faber (L) discussing our state’s entrepreneurial ecosystem.

This past Friday BPV principal Robert Faber helped cap off the 24th annual Florida Venture Capital Conference as part of the “State of the Industry” panel discussion.

The panel covered several topics, including: new non-traditional sources of capital attracted to our state’s (and region’s) attractive business climate, start-up valuations, and how critical it is for an entrepreneur to do his or her homework on potential venture partners.

The Miami Herald reports that all of the panelists were “optimistic about opportunities in 2015″ and foresee “a strong year ahead.”  We look forward to seeing many of you next year at the Vinoy in St. Petersburg for the 2016 Florida Venture Forum conference.



BPVIII exceeds target, closes at $164 million, makes first investment

Ballast Point Ventures announces the final closing of its third venture capital fund. Ballast Point Ventures III and affiliates closed with commitments of more than $164 million, exceeding its initial target of $140 million.

Founded in 2002, Ballast Point Ventures provides growth equity venture capital to rapidly growing private companies in the Southeast and Texas. BPV has partnered with over thirty companies in its first two funds within its target industries of health care, technology-enabled business services, communications and consumer. The new Fund’s investors include large institutional investors, family offices and over sixty successful entrepreneurs.

“The BPV team appreciates the strong support of both our previous investors who have partnered with us again and a select group of new partners who are joining us in BPV III,” said Partner Drew Graham. “We are excited to continue helping entrepreneurs build outstanding growth companies throughout Florida, the Southeast and Texas, and we are encouraged by the high level of entrepreneurial activity we continue to see in the region.”

Ballast Point Ventures has been the most active investor in Florida companies over the past ten years.* Ballast Point Ventures III recently made its first investment in PowerDMS, a technology-enabled business services company based in Orlando, Florida.  PowerDMS provides technology solutions utilizing a Software-as-a-Service model in the Governance and Risk Compliance and Enterprise Content Management sectors.

“We have been fortunate to partner with an impressive group of talented and driven entrepreneurs,” said Partner Paul Johan. “We cherish those relationships and look forward to partnering with more great entrepreneurs as we invest BPV III. Successful private growth companies not only create tremendous value and often reinvent industries, but they also provide the vast majority of new jobs in this country.”


 * Growth equity and venture capital investments of at least $2 million in private Florida companies, based on 2003-14 data from the Dow Jones VentureSource database.


Moneyball moment for restaurants

Anthony Lye – President and CEO of portfolio company Red Book Connect – writes in Restaurant Hospitality magazine that widely available mobile and cloud technology have created a “Moneyball moment” for the restaurant industry.

The restaurant industry is having its Moneyball moment. Now that mobile and cloud technology are cheap and widely available, any restaurant can collect, analyze and act on huge swaths of data. Whether you have an Oakland A’s or New York Yankees budget, your restaurant has the ability to cut costs and increase profits by using big data that was invisible until recently.

When you collect in-store, near-store and above-store data, and then connect it all together in the cloud (i.e. on powerful computers located outside your restaurant), you see problems and opportunities that have gone unnoticed. You can begin to change conventional processes that have been killing your profit margins and losing you customers.

In-store data is all the information that comes from your restaurant. Your POS devices, fryers, refrigerators, temperature sensors and labor scheduling system can all communicate useful data. Combine them in the cloud, and you can detect patterns.

For example, one global restaurant brand learned that its fryers were a huge source of inefficiency. Five times per year, when they added new menu items, all 100,000 fryers had to be reconfigured and each required 30 minutes of labor. So, the company developed a way to push new instructions to fryers via the cloud. Now, an IT guy clicks one button, and all 100,000 fryers know how to cook the new menu item. It’s similar to the way Keanu Reeves learns Kung Fu in The Matrix.


By comparison, near-store and above-store data is all the information that originates outside the restaurant and above the restaurants in the company hierarchies. Near-store data includes weather, Yelp reviews, sports calendars, school holidays, special events and any other external data that could affect revenue and therefore the inventory and labor.

Normally, a good manager keeps an eye on the near-store data and adjusts inventory and labor based on experience or gut feel. When you instead connect all this data in the cloud and compare it against sales, both real time and historical, you can build much more efficient labor and inventory models for your restaurant. Instead of guessing, your managers forecast inventory and labor needs with fewer errors, all on their smartphones.

Related stories:



Where are the start-ups? – Part II

The U.S. Census Bureau reports that the total number of new business startups and business closures per year -- the birth and death rates of American companies -- have crossed for the first time since the measurement began6 years ago the number of business start-ups fell below the number of business failures, and it has yet to recover.  This leaves us a stunning 12th among developed nations in terms of business startup activity.

So argues Jim Clifton, Chairman and CEO of Gallup, who cites data that show 20 million of the oft-reported 26 million businesses in America are inactive.  Only a small % of the remaining 6 million are responsible for job growth:

Of those, 3.8 million have four or fewer employees — mom and pop shops owned by people who aren’t building a business as much as they are building a life. And God bless them all. That is what America is for. We need every single one of them.

Next, there are about a million companies with five to nine employees, 600,000 businesses with 10 to 19 employees, and 500,000 companies with 20 to 99 employees. There are 90,000 businesses with 100 to 499 employees. And there are just 18,000 with 500 employees or more, and that figure includes about a thousand companies with 10,000 employees or more. Altogether, that is America, Inc.

A common misconception lumps together “lifestyle” companies and high-growth start-ups. Job growth comes mostly from new businesses that grow rapidly, not the more common short-hand of “small businesses.” The jobs created by high-growth companies, busy inventing products and services (and sometimes industries), dwarf those lost in the ongoing employment churn experienced by small businesses. The net result is remarkably stable cumulative job creation from start-ups despite their high failure rate.

Mr. Clifton also writes that “Entrepreneurship is not systematically built into our culture the way innovation or intellectual development is.”  Very true, as this podcast from AEI argues in even greater detail.  The entire wide-ranging podcast is worth a listen. A few highlights:

  • The economy needs more than a narrow rebound in tech entrepreneurship, especially since the current rebound has been accompanied by an uptick in “hardening” or consolidation as early firms are gobbled up before they boom.
  • Using job creation as a measure is problematic because fewer people work for Twitter or Facebook than their previous equivalents – by the nature of what they produce. Michael Spence divides the US economy between the one that competes globally vs. the local market (tradeable vs. non-tradeable). The former generates national wealth but will employ fewer and fewer people; however, that’s what sprinkles money around the non-tradeable localities. “Not everyone can work at Google or Apple.”
  • Innovation can be costly for individuals and firms in the short run, but is the key to wealth in the long run. E.g., productivity enhancements in low-tech/low-wage firms, consolidation that drives out less efficient mom&pops, and innovation that pushes stale incumbents out.

High profile firms such as Google and Facebook (hardly start-ups, anymore) enjoy outsized awareness because they’re personal and omnipresent, and belie the fact that the data show declining business dynamism overall and for start-ups specifically.  No one knows at the outset which high growth firms will explode and disrupt – so we need “more shots on goal.”

For every Facebook there are hundreds of other early-stage companies who receive financial backing and grow nicely. The economy is not built on a series of towering home runs that clear the fence no matter how strong the wind is blowing into the park. Winning takes singles, doubles, walks, anything that advances runners and scores runs. Over-regulating (or over-taxing) early-stage investment activity is like building a pitcher-friendly park and keeping the infield grass long: you better plan on low-scoring games.


Big Data in The Big D back in the Day

Before there was Moneyball, there was a little expansion football team in Dallas who invented Big Data (in sports) on their way to 20 consecutive winning seasons and 5 of the first XIII Super Bowls.  They managed to win just 2 of those 5, losing the others by 3, 4, and 4 points.

Yet even those losses serve as evidence in support of the idea of “Moneyball:”  Super Bowl V was so error-filled it’s an outlier known as “The Stupor Bowl,” while X & XIII were classics won by teams known for the type of big-game performances that can trump statistical strategies that need time for the math to work.

Big data in Big DAn immigrant statistician at IBM who knew nothing of football helped convert 260 scouting phrases (“he can run as fast as 2 cats“) into computer-friendly variables, input those into a giant box with less power than today’s laptops, and hired a psychologist to design a questionnaire sent to 10 scouts at 400 schools.  As a result, the Cowboys were able to uncover future Hall of Famers like Bob Hayes and Rayfield Wright at obscure colleges and fill roster spots with other athletes (e.g. basketball players & track stars) who’d never played one snap of college football..

Big data may help make accurate predictions or guide knotty optimization choices or help avoid common biases, but it doesn’t control events and can be undone by cluster luckModels are useful in predicting things we cannot control, but for players in the midst of a game the reality is different.  Players don’t predict performance; they have to achieve it.

For more on this subject, please see Untangling skill and luck in sports and business, The greatest comeback ever and the limits of decision models, and March Madness and the availability heuristic.

This short video from ESPN films tells the Cowboys’ story.  Inspired by what GM Tex Schramm saw at the 1960 Winter Olympics – IBM had placed chips inside skis to collect data – they created the blueprint for the modern NFL out of thin air.

In honor of the playoffs, and invoking The Rule of 3… here are two more recent examples of how data is changing the NFL:

PART IIThe Comeback of the Running Back argues that increased snap counts are favoring big-play running backs, especially as the game grinds on.

No running back was drafted in the first round of the last two NFL drafts. But general managers, coaches and scouts knew that the running game would return due to a mixture of economics and fitness. And now it has.

This season, running backs carved out a new role that looks like it will last: big-play specialists designed to exploit holes in today’s new-age defenses. Running backs may never be the focal point that they once were, but they are at least putting up a fight.

As the passing game gained prominence in recent years, two things happened: Linebackers and defensive backs shed weight to adjust to the new speed of the game, and up-tempo offenses resulted in more plays and more tired defenses. Those no-huddle offenses not only wore down defenses over the course of a game, but also the course of the season. This has led to exhausted defenses with lighter players who see hundreds more snaps than in the past

To be sure, winning teams tend to run the ball more, especially late in games as they protect leads, leading to some statistical inflation. But NFL strategy wonks say that this development is much more than that. Worn-out defenses, which are using more defensive backs to defend the pass, are having a tough time bringing down lumbering running backs

“People were focusing on the edges of the field, defenses were focusing on playing the pass and playing ‘basketball on grass,’ and what’s happening is the offenses are going back to oversize players, getting a power forward to go into the paint with those guys,” said former NFL general manager Phil Savage…

This is a classic phenomenon in sports: an undervalued commodity becoming valuable again because of a shift in how the game is played.

PART III - The Worst QBs Over 40 (Passes) points to data that suggests winning % drops off substantially when a QB – even an elite one – exceeds 30-39 pass attempts in a game.

Tasking any quarterback with videogame style pass attempts however, may be a losing strategy. The Count looked at the career records of the quarterbacks expected to start in this season’s NFL playoffs (except Arizona’s Ryan Lindley, who only has six career starts) and found that only New England’s Tom Brady (39-24, .619) and Indianapolis’ Andrew Luck (11-11, .500) have records of at least .500 when attempting 40 or more throws.





End-of-year twitter digest, 2014

Thank you to all our readers for joining the conversation here in 2014.  We wish you all a happy and prosperous 2015, and look forward to seeing many of you at the 24th Annual Florida Venture Capital Conference, January 29 – 30, 2015 at the Diplomat Resort & Spa in Hollywood, Florida.

Offered for your reading pleasure, in case you missed any:  a compendium of our twitter highlights from 2014.

BPV twitter header



Christmas 1964 vs. 2014

We hope our readers and their families are enjoying the holidays, some time together, and maybe even a few of the high-tech toys found at the bottom of the accompanying picture.

This  comparison of Christmas 1964 vs. 2014 (courtesy of AEI) shows there is no comparison thanks to “the magic and miracle of the marketplace.”

(An) American consumer or household spending $750 in 1964 would have been able to purchase the 21-inch color TV/entertainment center from the Sears Christmas catalog pictured above (includes phonograph and AM/FM radio). An American consumer spending that same amount of inflation-adjusted dollars today (about $5,600) would be able to furnish their entire kitchen with 5 brand-new appliances and buy 7 state-of-the-art electronic items for their home. And of course, even a billionaire in 1964 wouldn’t have been able to purchase many of the items that even a teenager can afford today, e.g. laptop computer, GPS, iPhone, digital camera.

As much as we might complain about a slow economic recovery, the decline of the middle class, stagnant median household income, rising income inequality and a dysfunctional Congress, we have a lot to be thankful for, and we’ve made a lot of economic progress in the last 50 years as the example above illustrates, thanks to the “magic and miracle of the marketplace.”

Xmas comparison

The “miracle” has a name – productivity – and it works its “magic” while swimming upstream against those that fight it.  It’s constantly improving products, reducing costs for everyone, and creating the new technologies and conditions that make other before-their-time ideas suddenly viable.

It’s a good thing to keep in mind the next time productivity is made the boogeyman for job losses.  As the old story goes, you can employ more workers if you give them spoons instead of shovels (or bulldozers).

Just as important:  as $5,000 computers become $500 tablets the resulting surplus capital becomes a source of both (a) demand for even more new products and (b) investment for new ideas and entrepreneurs.


Inventions That Didn’t Change the World

Inventions That Didn’t Change the World” sounds like a book-length version of our Vintage Future series.

inventions-that-didnt-change-the-world-2-638Author Julie Halls comes to the defense of such Victorian era oddities as “an improved pickle fork” and “an elastic dress and opera hat.”

Trifling or otherwise, these designs provide a fascinating insight into the social history and technology of the period.  Some seemingly inexplicable inventions make sense within their historical context.”

It’s not hard to imagine our great grand children chuckling at more than a few of the apps created in our present “historical context.”

But as this review points out, all that stupid experimentation and unexpected discovery may seem pointless, and, in hindsight, laughable; but one could say it had a pretty important side effect:  progress.

Though human ingenuity reaches back into the dimmest past, the intensive production of inventions only began in the past few centuries…

In a Darwinian mood, one might contemplate these trusty devices as living fossils of invention, the flotsam left behind during the evolution that finally brought us smartphones. As one realizes in reading Ms. Halls’s book, the 19th century really invented invention itself, not just the production of occasional new devices but the unremitting, self-reinforcing stream of novelties that generated our present expectation of innovation as the normal state of affairs. We have become so accustomed to this process that we may forget to wonder when and how it gathered steam (literally and figuratively). Whatever may be the fate of any particular innovation, for good or for ill, we may never leave the age of invention.


The innovator’s blind spot sock puppet spokesdog.  (PhotoTurns Out the Dot-Com Bust’s Worst Flops Were Actually Fantastic Ideas – or so argues Wired magazine.  There remain “many deliciously ideal symbols” of the epic failures during the bust, but “the irony is that nowadays, they’re all very good ideas.”

Now that the internet has become a much bigger part of our lives, now that we have mobile phones that make using the net so much easier, now that the Googles and the Amazons have built the digital infrastructure needed to support online services on a massive scale, now that a new breed of coding tools has made it easier for people to turn their business plans into reality, now that Amazon and others have streamlined the shipping infrastructure needed to inexpensively get stuff to your door, now that we’ve shed at least some of that irrational exuberance, the world is ready to cash in on the worst ideas of the ’90s…  (Emphasis added – ed)

The lesson here is that innovation is built on the shoulders of failure, and sometimes, the line between the world’s biggest success and the world’s biggest flop is a matter of timing or logistics or tools or infrastructure or luck, or—and here’s the lesson that today’s high flying startups should take to heart—scope of ambition.

Maybe if had kept its head down and worked harder on getting the dog food to our doors than assaulting U.S. airwaves with ads like the one below, they would have made it.

In Pitfalls of entrepreneurship, ecosystems of innovation, we discussed the book The Wide Lens and what author Ron Adner termed “the innovator’s blind spot: failing to see how success also depends on partners who themselves need to innovate and agree to adapt.”  Here’s Adner:

Companies understood how their success depends on meeting the needs of their end customers, delivering great innovation, and beating the competition…  To be sure, great customer insight and execution remain vital, [but] two distinct risks now take center stage:

  • Co-Innovation Risk: The extent to which the success of your innovation depends on the successful commercialization of other innovations.
  • Adoption Chain Risk: The extent to which partners will need to adopt your innovation before end consumers have a chance to assess the full value proposition.

…When you try to break out of the mold of incremental innovation, ecosystem challenges are likely to arise… a strategy that does not properly account for the external dependencies on which its success hinges does not make those dependencies disappear.  It just means that you will not see them until it is too late. … Dependence is not becoming more visible, but it is becoming more pervasive. What you don’t see can kill you.

Adner serves up an easy-to-grasp example, a 1998 precusor to iPods called “MPMan:”

It sold 50,000 players globally in its first year. But [it was very different than the Walkman] 20 years earlier.  You couldn’t purchase them in traditional retail settings.  Downloading an album – legally or not – could be a multi-hour affair. It didn’t matter that MPMan was first – it wouldn’t have mattered if they were 6th, 23rd, or 42nd. Without the widespread availability of mp3s and broadband, the value proposition could not come together.

For more examples, check out our Vintage Future series – a tongue-in-cheek-yet-barbed reminder that predicting technology trends is not for the weak at heart.  (And that’s before one tries to protect the IP and find a way to profit from it.  There are reasons we affectionately call the really early stage of investing adventure capital.)

It’s a long and difficult journey from idea to successful business, involving many inter-related factors.  The best products don’t always win.  Compelling innovations can and do fail after launch – as did this 1997 precursor to Facebook.


“We challenged that dogma, and it was incorrect.”

ED-AT003_winter_M_20141205170433The Weekend Interview in Saturday’s WSJ – “The Oilman to Thank at Your Next Fill-Up” – provides an absorbing look at the “shale revolution” and touches on several of our favorite themes:  iterative collaboration, how to fail the right way, the incremental, adaptive ways by which success is achieved, and even the role of luck – although we’d describe it a bit more favorably as “serendipity.”

The pioneering company featured prominently in the article is EOG Resources, a former division of Enron discarded in 1999 when that company “decided to jettison tangible assets as they evolved into a trading company.”  By 2007 – one year after the last remaining piece of pre-bankruptcy Enron had been sold off – the former red-headed stepchild had become an industry leader.

(That particular charming detail brings to mind one of our very first posts, Built to Flip or Built to Last, in which we mused about an alternate history in which Hewlett and Packard sat in their garage, sipping lattes, saying to each other, “If we do this right, we can sell this thing off and cash out in 12 months.”)

Flush with success, EOG looked at their innovation and thought: we’re doomed.

“About 2007,” (CEO) Mr. Papa recalls, “I looked around and said, EOG has found so much shale gas, but there are a whole lot of other companies that have found vast amounts of shale gas. All the other companies were ecstatic, and their whole business strategy was, ‘We’re going to find more shale gas.’ I stood back and said this probably doesn’t bode well for natural-gas prices in North America.”

So rather than cling to their initial intuition they tried something impossible:

If gas prices would remain depressed due to a glut, as in fact they would, Mr. Papa’s insight was that perhaps oil, as well as gas, could also be coaxed from shales. Oil molecules are several times as large as gas molecules, and “because the flow paths through these shales are very small, very narrow and restrictive, the general feeling was that you could not produce oil from shales commercially.”

Mr. Papa and his team suspected this was “an apocryphal old wives’ tale,” and no one had “really done the work to prove that conclusively. So we challenged that dogma, and it was incorrect.”

EOG maintains no central research-and-development department. “Our R&D was just applied R&D,” Mr. Papa notes. “We went out there, drilled some wells, and the first eight or nine were unsuccessful. We got improvements, improvements, improvements, until we finally ended up hitting the right recipe for success.” EOG’s decentralized technical operations and “minimum bureaucracy” encouraged engineers to experiment well by well.

Late in 2006, EOG showed that shale oil was feasible in the Bakken. This discovery meant that EOG could switch to oil, with production flipping to 89% liquids (mostly crude) this year from 79% gas in 2007. More to the point, by proving everyone else wrong—again—Mr. Papa changed the domestic industry as other companies chased his achievement. To the extent that U.S. shale oil is transforming world-wide markets, he deserves a lot of the credit.

EOG is a great example of a contrarian definition of entrepreneurship:   see economic value where others see heaps of nothing, combine the self-confidence to defy conventional wisdom with the determination to overcome obstacles, and distinguish yourself more by the ability to achieve the impossible than the originality of your thinking.  They’re also a great example of stupid experimentation:

(A)t the creative frontier of the economy, and at the moment of innovation, insight is inseparable from action.  Only later do analysts look back, observe what happened, and seek to collate this into categories, abstractions and patterns.

More generally, innovation appears to be built upon the kind of trial-and-error learning mediated by markets.  It requires that we allow people to do things that seem stupid to most informed observers — even though we know that most of these would-be innovators will in fact fail.  This is premised on epistemic humility.  We should not unduly restrain experimentation, because we are not sure we are right about very much.

Mr. Papa adds that, in retrospect, they “misjudged the upward slope of technological progress” and undershot by a factor or two or three times what the effect would be on total U.S. production:

Where we sit today with shale is the same place a petroleum engineer sat in the 1940s with a conventional sandstone reservoir,” Mr. Papa says. The best recovery rate then was 10% to 15%, leaving the rest underground, much like shale now—but since has climbed to 40% or 50%. The technology doesn’t yet exist for shale to yield similar shares, but Mr. Papa is confident that over the next 10 years it will emerge, “which basically means we’re going to double or more the amount of oil we’re going to recover. . . . Technology is always going to find a way to unlock each increment of resources.”

Mr. Papa discounts what could be considerable political risks to the energy boom, like some carbon tax or a federal takeover of fracking oversight. On the latter, he thinks the business is well regulated by the states and “there’s been a million frack jobs performed in the U.S. with zero documented cases of damage to the drinking-water table. For my set of statistics, those are pretty good odds.”

As for everything else that might come out of Washington, Mr. Papa says: “It’s my belief that for likely the next 40 or 50 years, we’ll continue to be in a hydrocarbon-powered economy, the main drivers of which are natural gas and crude oil. . . . You have to rely on the logic of the American people and our legislators to say, look at the economic benefits. The benefits are so obvious that an objective person would question whether we want to impose punitive regulations that will diminish what’s accrued.”

Mr. Papa reels off a few examples: A new burst in employment, business investment and GDP. Self-sufficiency in natural gas “for probably the next 50 years” and a two- or threefold competitive price advantage over Europe and Asia, leading to a revival of in-sourced manufacturing. A state and federal tax-revenue bonanza. Diminishing the importance of Persian Gulf and Russian energy dispensations in foreign policy.

Mr. Papa observes that these disruptive gains confounded the zodiac readings of the experts. The gains were driven by smaller, independent, nimbler companies, risking their own capital on potential breakthroughs across mainly state and private lands without federal subsidies.

“If you want to point to a success of private enterprise, and how the capitalist system works for the benefit of the total U.S. economy,” he says, “I can’t come up with a more glowing example.”


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