Interest in entrepreneurship has never been higher, and startup activity in South Florida is obviously on the increase. That's the good news. The not-so-good news is that the cottage industry developing around startups can also attract some not-so-welcome attention as questionable advisors and investors arrive in town ready to serve the tech community. While I've met plenty of people I believe have entrepreneurs' best interests at heart, in the past few months I've also come across a few "advisors" and "investors" with questionable backgounds (do your due diligence, people!) and websites that ask for startups to submit their ideas but don't even properly identify who is behind the sites. That's why I am glad Susan Amat addresses this in her monthly column below. Before hiring an advisor you don't know or are tempted by a new investor, get enough data so your decisions are based on your gut ANDthe facts, she says. Good advice! What do you think? Here is Susan's column:
By Susan Amat
The term “vanity metrics” was coined by Eric Ries, founder of the Lean Startup movement. It refers to impressive numbers that don’t correlate to the soundness of your business model and may be easy to manipulate — like registered users or unique page views. Ries argues that companies must track and be focused on the numbers that are true measures of their success, such as customer acquisition costs, active users, revenues and profits. The same concerns may be raised about the interesting statistics that are often tied to South Florida and what they actually may mean in understanding our entrepreneurial climate.
What are South Florida’s vanity metrics?
International City. South Florida’s population of foreign-born residents is the largest per capita in the world at a regional level, and Miami is the highest at the city level. Truly an international city, we welcome newcomers with open arms. People come from all over the world to see if they can call Miami home. The problem is that we are also the most transient region in the U.S., with West Palm Beach — Boca Raton ranked third. So they check us out and don’t find what they are looking for — opportunities, a sense of community, whatever it may be. Even worse, they may have bad experiences here, which are then recounted to others. The Miami brand is constantly tarnished because everyone “knows a guy” but may not be able to vouch for his ethics.
Takeaway: Let’s work on brain gain! When great people come here, help them make Miami their home. Check their references with care so you can wholeheartedly open your connections to them. Your endorsement should be based on trust. Even background checks are appropriate if your new friend may potentially be working with your personal or business finances. If someone is representing you for raising an investment, any questionable activities they have done may affect you. No matter how cool and connected someone seems, spend the time to complete a proper due diligence to avoid disaster later.
Access to Capital. Want to make entrepreneurs drool? Read this aloud: “South Florida ranks highest in individual purchasing power in the United States, fifth in the world.” If you are seeking investments to buy real estate, there is no better place. If you are raising funds for your tech startup, you may have a challenge. The educated tech investor understands there will be multiple rounds, that connections and experience are more valuable than money in some situations, and that employee stock options create the next wave of angel investors. Even investment funds targeting tech entrepreneurs here have predatory term sheets; one asked an entrepreneur to give up voting rights for a $7K investment. The majority of our residents are focused on the returns of deals or yearly income and not the long-term ROI of building a foundation and creating a community with transparency and sustainability as core values.
Takeaway: Win-win is a best practice for everything. As an investor, if you want to maximize returns, give entrepreneurs the room to do follow-on rounds while keeping their incentivizing stake. As an entrepreneur, understand you are marrying your investors. It is sometimes impossible to get rid of them if things go sour. Know who they are and what they are like to work with/for. While certain investors attract other investors because of their track record, others can repel. Know that their backgrounds may play a role in how you are seen. Are they considered reputable locally? What about in other communities? If you can’t find anything that doesn’t mean they are clean. Get enough data so your decisions are based on your gut ANDthe facts.
Entrepreneurial City. Nearly 90 percent of South Florida employers are small business owners. The high percentage of micro-businesses (1 to 10 employees) across our region and the state suggests a lack of infrastructure to support business growth. Our residents may be entrepreneurial but our challenge is in offering the support services needed to allow those companies to scale and create more jobs. Because of that need, many entrepreneurs are starting businesses to help other entrepreneurs — consulting companies, incubators, accelerators, etc. Great news because that means there are lots of options. It is still up to you to research and understand the pros and cons of each offering.
Takeaway: Speak to several past clients, those who have had good experiences and those who have had bad experiences — and not just the references they may offer. Negative feedback from one could give you a positive insight: “He was micromanaging our development” may turn off some, but you may want that level of involvement and structure so probe deeper. If you are investigating whether a company is right to represent or help your startup, vet their credentials by sending a few emails to investors or business people you trust outside your normal circle. Looking at LinkedIn contacts is not the same as getting validation from multiple sources that your potential investor is legit.
If we want to overcome the reputation South Florida has earned as a haven for unethical and corrupt business dealings, we have to be diligent in our efforts to find the good and reward excellence. The shady characters will eventually move on to another city if we confront questionable behavior and demand transparency. Avoiding conflicts of interest is a choice each of us make daily. Isn’t your personal brand worth protecting? If not, I hear LA has a great startup scene.
Susan Amat is co-founder and executive director of The Launch Pad at the University of Miami, which has helped hundreds of entrepreneurs develop skills, make connections and launch businesses. She also leads Startup Florida.