Florida Angel Nexus Michael J. O’Donnell
If there is a common denominator in the development of a vibrant entrepreneurial ecosystem, it is made up of two ingredients. One is access to capital, the other is a network of seasoned and passionate mentors to guide the growth of scalable new companies. Michael J. O’Donnell has set his sights on developing both in the region, having management oversight over all operational aspects of UCF’s Venture Accelerator. O’Donnell also formed the Florida Angel Nexus (FAN) in 2012 to provide funding and coaching for Florida-based emerging growth businesses. Formerly O’Donnell was Managing Director and Chief Technology Investment Officer for GATX Capital, where he led the financing of joint ventures in Great Britain, Germany and Australia and was the co-founder and CEO of ALS, LLC which grew to over 6,000 employees and was sold in 2007.
The Journey to Florida Angel Nexus
While I was building my business I was involved in quite a lot of angel investing. One success we helped launch was Newsmax Media; we raised $50,000 for Chris Ruddy. I think he is now moving towards a $40 million round. I learned a lot during that time. In fact I have a file called my “Wall of Shame,” which are companies I lost money on while learning how to do this right.
When I came to UCF and started working on angel investment, I realized the significance research plays in the angel process. With the current pace of change, research has become as significant as experience, if not more important.
Randy Field (an attorney with Gray-Robinson) and I tried to start a fund five years ago, but there was no deal flow. Good ideas took the first train out of here to Austin, Boston or Silicon Valley, looking for money at the seed and early stage level. Tom O’Neal (Associate VP for Research & Commercialization, UCF) approached me to come and work with him and asked me to develop a plan to fund one, maybe two companies a year out of their incubation system.
A New Investment Mindset
We studied all the successful angel groups in the country, interviewed the top ones and hired a consultant to advise us. Then we set out to build Florida Angel Nexus (FAN) like a German would build a car. The result is that it has been very effective so far.
The investment mentality in this area has been “make sure you don’t make a bad deal,” and “don’t worry about trying to hit a homerun, just don’t strike out.” That is the mantra of real estate and development, “protect the downside and the upside will take care of itself.”
Angel investment says, look for the upside and don’t worry about the downside, because the one that wins, wins so big it offsets other losses. All the research confirms this; properly managed angel investment is the most profitable asset class there is. Over a 20-year period, angels return 20-25 percent a year, venture and hedge funds between 18-19 percent and the S&P 500 around 15 percent. The problem here is people didn’t know how to do it.
Where Is the Potential?
What we discovered was you have to invest in numerous companies for a period of three to four years. You have to vet them properly with so many hours of due diligence. You need subject matter experts to evaluate the business plan and technology; you have to have systems to manage it and the right kinds of contracts with vendors. Then you get a better return.
Single company investment is an exponentially higher risk than a pool of investors, dealing with multiple investment opportunities. You need a larger pool of potential investors and potential investments.
We have five general partners; together we put in a total of $1 million, our target is a $20 million capital raise. To get a fund like this started in this area, you have to have people who have it in their heart and in their belly. Once we prove this is a good investment and there is substantial deal flow in Florida, people will come in for the same reasons they come into other areas. We are having to build all these evaluation and control systems ourselves.
What we look for are growth-oriented technology and life science technology companies, because we see these as having the greatest potential on the upside. The companies have to have traction, perhaps not at the stage where they have customers; but it has to have gone beyond concept, to proving there is a viable market. Then they need clear evidence that once they bring their product to market, it will have a favorable likelihood of success. We take a hands-on approach of collaborating with these companies and the experts that make up the Florida Angel Nexus.