Miami is a major incubator of new businesses and has been called the most entrepreneurial city in the U.S. Miami’s position as a city with a highly unique culture, very diverse population, and connections to Latin America, make it both a highly appealing place to start a business. But these factors are also daunting from a business law perspective as businesses must navigate a complex web of local regulations as well as international rules.
According to a report from the University of Toronto’s Martin Prosperity Project, Miami has improved its ability to attract venture capital over recent years. In 2013, the South Florida area received $300 million in venture capital, making it the 16th largest metro area in terms of venture capital investment.
Miami has a wide variety of small businesses. But, it lags behind several high tech hubs, such as Silicon Valley, in attracting information technology startups. Miami’s new goal is to foster the creation of more IT companies. Some believe that IT startups have a disproportionately positive effect on the local economy. As such, these businessmen look to attract more IT firms to Southern Florida to benefit the local economy as a whole.
What is Venture Capital?
Venture capital is a common method for funding businesses, particularly small, new businesses. Venture capital is often a good source of investment for businesses that either cannot, or do not want to, obtain investment financing through bank loans or through public markets (like the stock market).
A venture capitalist (sometimes called an “angel investor”) provides money to a business in exchange for an ownership share and often a say in how the business is run. Venture capitalists invest in new companies that show potential for rapid growth. Rather than many loans, the venture capitalist does not take any collateral (such as retaining the right to take business property, like computers, to satisfy the loan if the business cannot pay). Venture capitalists understand that their investments are high risk in that they may lose their entire investment if the business fails. Alternatively, if the business is a success, the investor will likely see a large return on his investment.
Characteristics of Angel Investors
1. Seek companies with high growth potential with a strong business plan,
2. Invest in the industries that they are familiar with,
3. Invest in partnerships or groups, and
4. Share their business expertise by mentoring the managers of the business.
Angel investors (or venture capitalists) quite often follow a longer investment period than a bank might for a business loan. Many venture capital investors will invest for between four and six years in a business. However, these investment periods can be cut short depending on the specific circumstances of each business. Many of these investors will sell their stake in the company if the company merges with another company or has an initial public offering (IPO). These events allow the investor to leave at a convenient time and hopefully generate a profit on their investment.
Contact a Miami Business Attorney
For help in understanding how business investments and other parts of business law in Miami work, contact the business lawyers at the Campbell Law Group.