Startups Fuel Miami’s Tech Boom
Posted on October 3, 2013 by nina
Published by Ocean Drive Magazine
By Marc Goodman
Andrés Moreno landed in San Francisco from Caracas in 2007 with $700. His mission: to raise money for his new online English instruction service, Open English. After three years of sleeping on friends’ couches in Silicon Valley, he finally raised $2 million. But then a strange thing happened: He moved the company to Coconut Grove. His students jumped from 5,000 in 2010 to 70,000 today. This spring, Open English raised $65 million, for a total of $120 million—the largest funding for educational technology ever, valuing the company at $350 million. Moreno and his wife and partner, who star in the company’s TV ads, often need security to fend off their fans in Latin American airports.
It’s just one example of the growing tech boom in Miami. Or take the chic, minimalist offices of Pipeline Brickell, a shared workspace where companies like Ferrari designer Pininfarina co-mingle with local tech dreamers. Here, from a tiny office, Michael McCord and Michael Laas’s LearnerNation creates software with which clients like Hulu, LG, and Cartier design their own employee-training content. In 18 months, they’ve gone from zero to 35,000 users, become the official training system for child welfare programs in 24 states, contracting with more than 2,200 organizations, and creating more than $850,000 in sales.
At writing, Mapyourstartup.co (a company from, yes, Miami) showed 114 startups, eight “accelerators,” 14 shared working spaces, and 12 declared investors in town. Maybe this tech surge was in the making all along. The IBM PC was invented in South Florida. Amazon’s Jeff Bezos was his class valedictorian at Miami Palmetto Senior High School; Facebook COO Sheryl Sandberg went to North Miami Beach Senior High School.
If there’s a pied piper for this new entrepreneurial community, it’s the Knight Foundation’s Matt Haggman, who just a year ago told the foundation (which supports transformational ideas and fosters the arts, among other things) that he wanted to facilitate the growth of technology and entrepreneurship in Miami. Since then, Knight has funded dozens of events, workspaces, mentorships, and collaborations. One example is LAB Miami, a hip, art-filled shared workspace with almost-daily educational programming for entrepreneurs in Wynwood. Another was February’s Start-Up City: Miami, the Entrepreneurial Economy conference, organized in conjunction with The Atlantic magazine, which had 1,100 RSVPs and speakers such as Tony Hsieh, the CEO of Zappos, and AOL founder Steve Case. The investor Juan Pablo Cappello calls Knight’s work “transformational.”
Haggman has been the driving force behind a potential game-changer: bringing to Miami the first US office of global entrepreneur advisory Endeavor (the organization has a Midas touch, as companies grow almost 60 percent annually in the first two years after being selected to work with the foundation). Haggman heard that New Yorker Peter Kellner, the organization’s cofounder and a venture capitalist, had just moved to Miami, and convinced Kellner to propose to his board that they open an office here, which Knight would fund with $2 million. Haggman is betting Endeavor will inject rocket fuel into the best companies in the form of mentorship and networks funneled to it by Miami investors, colleges, and incubators. Moreover, Endeavor has its own venture capital fund, Catalyst, that invests in its companies.
Far down the line, it seems reasonable that Kellner’s venture capital company, Richmond Global, might seek out opportunities here, given its principal’s enthusiasm for his new home. “Miami’s in a renaissance right now,” Kellner says. “It’s the city of the future, demographically. There are opportunities here from logistics to healthcare to food distribution to real estate to hospitality to serving the Latin American market, and on and on.”
To foster a fledgling business community, you need space as well as exchange of brainpower. Alongside the LAB, Incubate Miami, a tech startup support project, is on its fourth class of entrepreneurs. Juan Diego Calle’s new headquarters for .CO Internet, which has 1.5 million registered domains, will contain a shared workspace, Building.co, exclusively for tech startups; the 35,000-square-foot Venture Hive, another incubator, sits blocks from where the Heat plays.
The community’s ringleader may be Endeavor senior advisor Juan Pablo Cappello. An entrepreneur, investor, and lawyer, Cappello cofounded Accelerated Growth Partners, the most widely known angel investor group in Miami. It was mostly his doing to create last December’s Innovate Miami event by shifting eight high-powered competitions, expert panels, and conferences spaced out over several months into one week immediately after Art Basel, making it easier for financial investors to stay a few extra days. “Cappello’s at the epicenter in Miami,” confirms Peter Kellner.
But is Miami really the right kind of town for cerebral groundbreakers? In an influential 2006 essay, Paul Graham of famed tech-firm incubator Y Combinator noted that “few startups happen in Miami, because although it’s full of rich people… it’s not the kind of place nerds like.”
That was seven years ago. There are nerds here now, often drawn by the quality of life and a growing like-minded community. Brian Brackeen, whose Kairos startup makes facial-recognition software, left the hallowed halls of Apple to settle in Miami. “Miami is alive, people live life to the fullest and think big. It was the best decision I ever made,” he says. At the time of this writing, Kairos is one of the top 20 finalists vying for The Wall Street Journal’s Startup of the Year.
Creativity is coming from all over Latin America. About a year ago, Osniel Gonzalez arrived here from Cuba with just $1,000, a hard drive, and his beloved coin collection. In February, his partner Jose Pimienta walked onstage at SuperConf, a Knight-sponsored startup competition now in its third year, to pitch their online vinyl-record social hub Vinylfy, which they created with less than $200. And they won $22,000 in cash and services. The pair didn’t even have business cards. They are now looking for investors.
Argentine Alejandro Muther also competed at SuperConf alongside Vinylfy. His baby is Kimetric, which hopes to adapt Microsoft Kinect motion-sensing game consoles for shops, sensing patrons’ gender and age, then recording which display they paused at, for how long, and where they touched the items, giving retailers instant data on what the public is intrigued by. This means instant rejiggering of merchandise to suit customers’ wants. Kimetric’s team is from Argentina, but they’ve moved their operations to Miami; the company was selected as mentors for Venture Hive’s inaugural class of mentees. “Miami is only eight hours from Buenos Aires, so that’s, like, nothing,” Muther says. “If you go to the Valley, there’s going to be millions of startups, and it’s harder to get noticed. The sense of family and community you find among startups here is really extraordinary. And the culture shock is less than anywhere else in the US.”
But what about the rich people Paul Graham mentioned? Cappello says there are plenty of angel investors in Miami who will put $25,000 to $250,000 into a startup, but there’s a gap in the $1 to $3 million range. (He notes that for more than $3 million, “There are plenty of Brazilians and Mexicans and Argentines and Venezuelans in Miami who write bigger checks. But they’re not going to go on the record.”)
One hurdle, Cappello says, is that “most old families here want to invest in more stable industries. The typical Latin invests in real estate first.” This is changing, but in any case, entrepreneurs often prefer institutional tech investors, whose advice and network can be as valuable as their money. And an elite VC firm serves to signal to yet more funders that you’re the real thing. What’s promising about Endeavor coming to Miami is that it has become a blue-chip signaling mechanism for investors—if the organization has taken on a company (only 2 percent earn its final approval, of tens of thousands of applicants), it must be top-notch.
“If the South American entrepreneurs come, the money will come, too,” predicts Ivan Rapin-Smith, the Belgian program director at Venture Hive. Juan Pablo Martinez-Blat, who evaluates investments for wealthy Latin Americans living in Miami, says he’s seeing a large move to Miami of Latin American family offices, those small firms that invest on behalf of a single wealthy family or several. Open English ended up raising its Series A funding from two Salvadoran family offices.
But there’s more money afoot. Manuel D. Medina, who sold Internet backbone company Terremark to Verizon two years ago for almost $2 billion, has founded Medina Capital to invest millions of dollars in other IT infrastructure companies. (He is also organizing a huge tech conference, eMerge Americas, for Miami next year, for 5,000 attendees, 1,000 of them entrepreneurs and investors.) His bets will aim not to discover the next trendy Zynga free gaming site, but to accelerate the next Citrix Systems, the $2.6 billion Fort Lauderdale cloud-based business-applications firm.
Another stumbling block is that investors still worry that Miami’s talent pool isn’t big enough. Medina brought this up in a mid-2012 Miami Herald interview. Billionaire entrepreneur Martín Varsavsky investigated basing the US office of his worldwide Wi-Fi hotspot network Fon in his part-time home of Miami, but ultimately felt that pricey, scarce talent made New York a smarter choice. He wrote, “What Miami needs is to change a perception from [being] a place where people party to a place where people work.” Ouch.
It’s a catch-22. More funding draws more startups, and thus more talent. Those workers would be more inclined to move to Miami if other job options existed in the event of their company going bust, as over 70 percent of startups do. Miami has already grown that talent, insists .CO Internet’s Juan Diego Calle; they’re just “temporarily working somewhere else.” The more tech companies there are, by the same token, says Calle, the more investors will venture here. “The Valley works because VCs can be successful with one of 10 and be okay. There aren’t those 10 companies here yet.”
From Haggman to Kellner to Calle, players in the scene agree: What Miami needs now, for its catalytic effect, are two or three huge, publicized successes. Calle says that, as with pro sports, a fresh-from-the-IPO entrepreneur driving around Miami in an Aston Martin would serve to greatly inspire kids.
Kellner warns, “We have to manage expectations—creating startup communities takes time. Silicon Valley took decades. There’s a general absence of true venture capital, fragmented initiatives, and we need coordination between the colleges. We need to put up some wins from large, 100 percent native companies that employ dozens or hundreds of people, and not necessarily just tech ones. It’s tough. But I wouldn’t live here if I didn’t believe in it.”
In the meantime, maybe the more things change, the more tried-and-true Miami remains the same—on the side, Juan Diego Calle still invests in an earlier asset class he was involved with: real estate. “It’s fun, it’s a great investment, it’s safer. You can sort of replicate success. It keeps me sane.” And if the tech boom gains momentum, he’ll have plenty of buyers.