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Seed Funders: Investing in Pre-Revenue Tech Startups in Florida

Published
Jan 23, 2024
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Dave Chitester, Founder of Seedfunders, talks with EisnerAmper's TechTalk host Fritz Spencer about why his investment firm is focused on pre-revenue startups—from medtech to fintech—and scalable technology in Florida. In this episode, Dave shares the expectation around the use of AI from an investor perspective and how he capitalized on a change to FINRA regulations. You’ll also learn what Yogi-isms have in common with startups!  


Transcript

Fritz Spencer:

Hello and welcome to TechTalk, where you'll hear the latest in technology and investment trends from the trendsetters. I'm your host, Fritz Spencer, member of EisnerAmper's Technology and Life Sciences Practice, and with me today is very special guests and investor, Dave Chittister, founder of Seed Funders. Dave has had many successful entrepreneurial and investing journeys, which I look forward to hearing about today. Dave, thanks so much for joining me today. A pleasure.

Dave Chittister:

My pleasure, Fritz. Good to see you and good to be here.

F.S:

Thanks. So in two to three sentences, can you explain seed funders their investing thesis or goal for our listeners?

D.C:

Sure. Our investment thesis is pretty simple. We're looking to invest in pre-revenue, scalable technology in Florida. So when I say pre-revenue, early revenue's fine, but if a company's already approaching a million dollars in revenue, that's too late for us. I've actually had entrepreneurs say, wait you minute, you see I'm making too much money. I have too much revenue. Yeah. We wanted to be the first professional investors on board and help that company put in the first a hundred, $200,000 and help them launch, help them get to that revenue and be really early on. So that's the pre-revenue part, the scalable technology part. We invest across the board in technology. We're agnostic as far as the industry, but we want to be investing in scalable technology, things that we can invest in that are going to grow exponentially, not products or B2C type industries. So we want a B2B, scalable technology. And in Florida, we have invested some outside of Florida, but really we want to be a Florida first company. So we want to be first investors on board in Florida for Florida companies.

F.S:

Clear, concise thesis. I love to hear it. So I'd love to hear also about some of your portfolio companies and what are some of the problems those portfolio companies are solving?

D.C:

Well, that's again, across the board. We invest in MedTech, FinTech, basically any kind of technology. But what we're seeing really some of our most successful companies really in the MedTech industry, medical technology is incredible. There's so much technology out there, it's hard to even decide what to invest in and how to make those investments. But we've had a lot of med tech investments that are solving real problems. And maybe I'll just give you one example. We invested in a company pre covid. This company had a platform to monitor handwashing in hospitals, and what happens in hospitals, government requires them to monitor the handwashing of all the employees when they go into a room. So what they were doing standing by with the clipboard? Yes, no, no, yes. Just counting people coming and going and recording it. Well, this platform works on the badge and monitor systems, sensors that basically can tell when somebody is washing their hands or not going to the wash station, going into a room, recording all that without somebody standing there with a clipboard. We invested pre Covid on that company and post Covid, obviously it took off because now handwashing became way, way more critical than it even was before. And so post technology or post covid, the valuation went way up. We invested in a $3 million valuation because we, again, were part of the first investors on board. That company recently closed a route at a $28 million post-money valuation. MedTech is huge medical technology. There's a lot of opportunities out there. We don't really concentrate on it, but it seems to be the area that kind of finds us.

F.S:

So medical tech is a big segment for you guys. And you also mentioned Florida first, and I want to get your insights on what the Florida markets are doing and kind of how you see them playing out in the nearest future.

D.C:

Well, the big thing, of course, is ai. Everything you hear is ai. This AI that we see, every submittal we see now mentions ai, and it's hard to distinguish. It's not hard, but we want to distinguish obviously, between whether something really is AI or whether it's they're just using the initials because they know how to spell it. And really every single company that's going to get funded, every single startup that's going to get funded from here on has got to include ai, real ai. And we can evaluate that and determine, but that is the big, it was a buzzword a year ago when chat GBT got launched, and it's less of a buzzword now. It's more of an actual thing that people have to have. AI founders have to have AI in their submittal or they're not going to get funded. So there's a lot of talk about ai and really it is essential. It's absolutely essential to have AI incorporated into their business plan. And when I say incorporated, I don't just mean using ai. I mean solving a real business case with ai. There's a lot of technology out there using AI for this, and we're really going to use ai, but is it solving a problem? Are they using AI to actually solve a business case? That's the key. That's what's going to get the funding as we move forward.

F.S:

It's turned from a buzzword to an action item, and I think that's a big evaluator for you guys. And you mentioned you have experts evaluating that for you. Could you talk a little bit about your team and your group and a bit more on the background?

D.C:

Sure. I started SEAT Funders over five years ago in St. Petersburg, and we have now 40, 45 partners, active partners in St. Petersburg, I believe. So launched from that. Then I moved to, I didn't move physically, but we moved into launching Seed Funders, Orlando a couple later. We have about 15 or 20 partners in Orlando now. And then I moved to Miami last year, early last year to start Seed Funders Miami. And we now have 12 partners in Miami. So across the state we have 72 partners in seed funders with expertise in absolutely anything you could think of. We have two doctors. I talk about MedTech. We have two doctors in St. Petersburg who are very active. And when I say doctors, they're not practicing MDSs. They are technology experts. These two individuals have more MedTech experience than anybody I've ever met in my life. It's incredible what they can tell us.

So obviously if we have a presentation on MedTech and they like it or don't like it, that's huge as far as influencing all of our members as to whether we're going to invest in that company or not. So we have two in Miami. We have two AI experts in Orlando. We mostly geared toward a more high tech things space and things like that. The partner who runs Seed funders, Orlando has a PhD in physics. So we have extensive experience across the state in pretty much everything. And I'd even mention financial side. We have a number of individuals, wall Street individuals came out of Wall Street that are experiencing investing and that side of things. So our team is very strong across the state.

F.S:

Sounds very well rounded. I love to hear it. So let me ask you, from my experience, it seems to be that most investors and almost all entrepreneurs go through some sort of pivot point. So I'd like to know, was there any pivotable moments in seed funders or even your career that you'd like to share with the audience?

D.C:

Well, lemme say I sold my first two companies in 2008, 2009, being an entrepreneur, starting from scratch, sold those companies. And I was looking for a new gig. What do I do next? And I started a toy with investing and being a partner in startups. And I had about three clients who I was helping launch their companies and getting involved in the weeds and helping them get to that point where we could launch. But it was one company at a time. And then I went to a conference in San Francisco, was actually on a panel in San Francisco, and one of the members of the panel was telling the crowd, crowdfund just got passed by Congress last week. The Jobs act got passed. So this was 2012. Last week, the Congress passed the Jobs Act tsunami of money coming for startups, tsunami of, he kept saying tsunami of money coming for startups.

And I was sitting there and said, where was this tsunami of money when I was starting my companies? So I looked at it, I analyzed what was going on with the Jobs Act and what was Congress said, we want people who are not licensed by FINRA to be able to raise capital for startups. And the SEC said, say what? SEC did not like it took Congress said, nine months, you shall implement this in nine months. Well, a year later, the SEC basically had done nothing. And I kept looking at it and said, this is incredible. Why can't this get launched? Why can't we do this? And then two companies in California Funders Club and Angel List wrote letters to the SEC said, here's our plan. Here's what we want to do, and we want to be assured if we do this without being licensed, you won't come after us and take any legal action after us.

So they both got no action letters from the SEC and the SEC said, okay, if you do exactly that, we're going to kind of just not come after you. No guarantee. But basically, so I took those letters to my attorney in Tampa and I said, Nelson, why can't we do this in Florida? And he researched it. He could not get an answer from the SEC from the state, from finra, from, nobody would tell him why we couldn't or could. So finally, he said, well, if they're doing this in California, if you do the exact same thing in Florida, I can't believe anybody would come after you for doing what they've already said was okay. So that year 2013, it was, I launched Florida Funders and basically said, we're going to use crowdfunding to raise capital for startups. And people said, you are crazy. It'll never work.

Everybody's going to lose all their money. There's going to be lawsuits. Of course, it was hard. It was tough. In fact, we did presentations and I remember one in Sarasota where a gentleman, the audience came up to my wife afterwards, says, you're illegal. If FINRA's going to shut you down, you better cease and desist. Because he was a licensed finra. People had licenses. We wanted to do it without being licensed to bring this whole crowd of investors together. When I was joining it individually, it was tough. And I said, wait a minute. You mean I can pull my money with a bunch of other people, hundreds of other people, and put it all into one pot and make one investment in a company in a startup? This would be great. So we launched, I launched Seed Funders. I launched Florida Funders in 2013 and grew that, that has now been named as the most active investment firm in the Southeast. So we proved it could be done, it was done. But that was a real pivotal moment to know that we could take something like the Jobs Act that nobody believed in and launch it in Florida and be so successful.

F.S:

And it's become a really common form of investing now. You see it everywhere, these crowdfunding and groups and angel funders and all of the like,

D.C:

Yeah, yeah. There were three parts actually to the Jobs Act. One was, and not to get real technical, but RegEd D 5 0 6 C allowed people to go out and solicit that they're going to take investment, which would never allow before. You always had to have a previous business relationship. That's what we launched under 5 0 6 C. But there are two other parts of the jobs Act One, it was actually called crowdfunding that allows non-accredited investors to invest. That's when things really, and that took another two or three years for the SEC to approve that. That's when things really started to take off. That said, anybody could invest in these startups, not just accredited investors. So that's what you see nowadays where you see all these crowdfunding sites where anybody can invest a hundred dollars in a startup. But 2013, that was just unheard of.

F.S:

Wow. A journey. And then definitely a pivotal moment. And I'd also maybe like to touch on a pivotal conversation that you may have had here on TikTok. We say conversations can make things happen. And is there any conversation that you've had either recently or in the past that's kind of stuck with you and influenced you day to day?

D.C:

Well, I would say the short answer to that is no, nothing in particular this far. But I'm a big baseball fan, and I dunno if you've probably heard of the Yogi berms. Yogi had some real, real wisdom, and I do a whole lecture on Yogi Burs and how they pertain to startups and investing. And it's amazing because when you really look at the yogis, they pertain to life, but they really, really also pertain to startups. So when you think of some of them things like nobody ever goes there anymore because it's too crowded. That pertains to investors not wanting to invest in a deal where everybody's investing everybody, then it's too crowded. You're not going to get a good deal because the investment, it's too crowded,

F.S:

Saturated.

D.C:

It's too saturated, so it makes sense. Or there are things like when you come to a fork in the road, take it. That's a pivot. That's a pivot. When you come to a fork in the road, take it. He's talking about a pivot in startup language. So there are a lot of Yogi Bism who I often think about how they pertain to startups. So there's no real one thing, but another one just comes to mind. We couldn't have a conversation. Everybody was talking too much. Again, if you're investing or you're a startup and you, you're having a conversation. If you're doing all the talking, you don't have a conversation. And I tell startups, founders all the time, don't talk all the time because you want to have a conversation with the investor. And if the startup is talking, talking, talking, there's no conversation going on. So you couldn't have a conversation. They were talking too much. I mean, the yoki, bism are just so pertinent.

F.S:

Half a conversation has to be listening. Right, right. Well, Dave, I want to thank you so much for taking the time to have this conversation with me today. It's been absolute pleasure. And a special thanks to our listeners for tuning into Tech Talk. The entrepreneurs and innovators who turn to EisnerAmper for accounting, tax, and Advisory solutions to help propel their success. Subscribe to EisnerAmper podcast to listen to more tech talk episodes, or visit eisneramper.com for more tech news that you can use.

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Fritz Spencer

Fritz Spencer is a Audit Senior with audit and accounting experience serving both public and private entities.


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