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Bill designed to make it easier for startups to secure funding is a hot topic among state officials

A top Florida official has spent months pounding away at a crucial issue for entrepreneurs: fixing how the state oversees funding startups.

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  • | 12:00 p.m. December 16, 2021
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Courtesy. Bridge Executive Director Wendi Chapman says the biggest challenge small businesses face is a long process.
Courtesy. Bridge Executive Director Wendi Chapman says the biggest challenge small businesses face is a long process.
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A proposed bill meant to stimulate the state’s capital market is one step closer to becoming a reality. 

The Florida Office of Financial Regulation recently announced House Bill 779 was filed by State Rep. Joe Harding, R-Ocala. The bill reforms the current Florida Securities and Investor Protection Act, while promoting a capital market where small businesses can obtain capital much easier. It also creates a system that incentivizes entrepreneurs who spend time hiring the right teams and creating a solid mission for business, OFR Commissioner Russell Weigel III says. 

Weigel not only pushed for the bill, he's been barnstorming the state for the past year touting it, even before Harding filed it. Stops included the Manatee Chamber of Commerce and startup hub and incubator Embarc Collective Tampa.

“Statistically, Florida is phenomenal in creating new companies,” Weigel says. “We’re at the top of the charts in entrepreneurship. But we’re close to the bottom in being able to fund them. We don’t have a capital market in this state for small companies.”

Weigel also notes Florida’s economy supports large enterprises that look good to venture capitalists interested in providing funding. That’s only the top 1% of companies located here though. “Our initiative is focused on the bottom 99%,” he says.

Additionally, those companies that struggle to find investors also struggle to secure bank funding. Bank financing is usually not an option for most firms pre-revenue. So the initiative is focused on finding alternative sources of capital for those startups, especially since, Weigel says, if a company can get funded, it can also hire people locally. 

This is especially important with investors like Tamiami Angel Funds in Naples. While a company having outside funding isn’t the first thing the group looks for, it definitely helps. 

“If they have funding secured, that would mean that’s a positive vote,” says Timothy Cartwright, chairman of the member-led group that uses a democratic voting process. “It’s very positive when we see other outside investors that already have or will invest with us.”

Crowdfunding or bust

Harding's bill suggests using crowdfunding as a way to strike a balance between protecting the investors while also funding companies. The accredited investor provision of the federal Jobs Act from 2012 was a good start — but, says Weigel, it’s not the end all, be all.

As Weigel explains it, crowdfunding is meant to utilize the internet through means of businesses reaching out to investors in an inexpensive way. Traditionally, the process is all done on paper. But with one provision, businesses were allowed to solicit accredited investors only and do it online without going through the government first. 

“In concept, it was awesome,” Weigel says. “The idea that you could reach out and get a few bucks from 1,000 people and fund your business is an enticing idea to an entrepreneur who doesn’t have a rich family member to reach out to fund the business.”

Unfortunately, it took too long to implement. The rules to implement crowdfunding were up to the SEC to come up with, and Weigel says the organization wasn’t prepared for that task. Instead, many states came up with their own crowdfunding statutes. Florida was one of those states, but came up with a system that mirrored the SEC’s federal version. 

“The national version was meant to have a lot of protections in it,” says Weigel, due to cross-country offerings. This doesn’t work for individual states, he contends, because investors are doing so locally. “You don’t need to go through all of the expenses and protections.” 

Especially when the investors can physically visit the business and know if they are or aren’t there, Weigel adds. While this would support companies not having to use a portal to crowdfund, Weigel also wants to incentivize the use of portals because not every business is going to be capable of doing it on their own. 

“We want to incentivize businesses to become portals or incentivize portals that are already doing business on a federal level to come and do this in Florida,” he says. “We’re suggesting that they can do any kind of offering. If they have a license they should be able to do any kind of authorized offering.” 

On the flip side, not everyone who monitors startup funding agrees crowdfunding is the primary way to go about helping small businesses get off the ground. One person on that side is Frank Knapp, president and CEO of the South Carolina Small Business Chamber of Commerce, who says crowdfunding typically goes to more established businesses. “I don’t think that is the main vehicle for access to capital for aspiring entrepreneurs,” he says. 

Knapp is the coordinator for the Reform the Small Business Administration, based in Columbia, South Carolina. The group was formed to address what Knapp says is a 40-year low in new business startups nationwide. 

Knapp, who, like Weigel, recently visited multiple Florida communities to push for SBA reforms, says rural communities are where the focus should be instead. His group proposed the SBA make direct loans to help businesses and entrepreneurs in rural areas.“We need to have entrepreneurs in smaller communities,” he says. “That should be our sweet spot.”  

The right stuff

Harding's bill also tackles the current registered offering system for investors and startups alike — something Weigel says “does not work.” The current mandate, he points out, states OFR makes the decision whether a business is qualified to raise capital from investors. Weigel says that as far as he’s aware, no one in the OFR even has an MBA.

“The system we have is archaic and it’s called Merit Review,” he says. “Our current statute prohibits any business that doesn’t have revenue for at least three years. That just wipes out the startups. It’s just crickets out there.”

So the goal is to change it with an SEC approach. The SEC has a disclosure-based system. The companies disclose the full truth about the business, as well as the terms and risk of the offer. the company provides that info to investors and let them decide if they want to invest. 

Another provision would allow companies to begin discussions with investors. In the "test the waters" provision, companies don't have to fully disclose every bit of information with investors. But those entrepreneurs do have to be truthful with the information they do share. 

The provision provides the ability to determine the likelihood of an offering being made to an investor — before spending time and money for an unsuccessful offering. 

This provision would help in what Sarasota-based Bridge Executive Director Wendi Chapman says is one of the toughest challenges small businesses face: a long process. “It takes a lot of time,” she says, noting companies should practice due diligence to raise money. She compares it to betting on a jockey or horse, as a lot of investors don’t want to take such a big risk on an early stage company. Bridge Angel Investors is a group of private investors with a focus in the Sarasota-Manatee area, although the group also invests in companies outside the region. 

“It’s really important when you’re looking for funding that you do your research,” she says.

For example, when the Bridge team shifts through pitches, they’re looking for companies with a letter of intent, beta testing, etc. “There’s no set formula,” Chapman says. “It depends, deal by deal. We try to invest in Florida-based companies.” 

Cartwright echoes what Chapman says about doing your research. “I think access to capital can be a challenge to companies,” he says, “but what I would say on the contrary side is that not every company deserves to be funded.”

Cartwright also points out that while, funding startups, and what Weigel and Harding target with their reforms is crucial, it's not everything — and not always the most important aspect of building a winning company. “So in real estate, they say location, location, location,” he says. “On the investing side, we say management team, management team, management team.”

This aspect is so important that the Tamiami group refers to it as an execution team. “When you’re in a startup, a fast-growing company, you’re not really managing a business,” Cartwright says. “You’re executing on the business plan. Managing seems like you’re in control. With a startup, nothing is in control.” 



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