Florida’s Startup Surge: Insights From UF Innovate Ventures With Dr. Jackson Streeter, Part 2

 

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Welcome to another episode of The 7 in 7 Show with Zack Ellison, which features full-length interviews with the world’s leading investors in innovation.

Episode #12B of Season 2 features Dr. Jackson Streeter, Director of UF Innovate Ventures at the University of Florida, where he manages a venture fund for the Research Foundation.

After assuming this role in late 2019, he recruited a luminary Investment Advisory Committee and began investing in 2020. In addition, he manages life science investments for the Florida Opportunity Fund and DeepWork Capital, where he is a limited partner. Dr. Streeter is the inventor of over twenty patents, the author of multiple scientific publications, and has served on over a dozen boards and executive committees.

Previously, he served as an Officer in the U.S. Navy, completing a general surgery internship at Naval Regional Medical Center Portsmouth, Virginia and then primary Flight School at Naval Air Station Pensacola, Florida. During his military service, he was the first Naval Flight Surgeon selected as a TOPGUN staff instructor. He served on several overseas deployments, including Operation Desert Storm. Dr. Streeter initiated the Basic Combat Medicine Course to train Naval Aircrew on the essential life-saving skills necessary to stabilize combat-related injuries in the field.

As the Senior Flight Surgeon at Naval Air Station Fallon, NV he was part of the helicopter aircrew with the Search and Rescue (SAR) team and pilot rescue program where he participated in over 40 real-world SAR missions and was awarded the Navy Commendation Medal for that service, as well as, two Naval Achievement Medals and other awards. After eight years of active duty, Dr. Streeter left active Naval service at the rank of Lieutenant Commander.

In this episode, Zack Ellison and Jackson Streeter discuss:

1. Florida’s Potential as an Innovation Hub: Exploring the state’s growing talent pool, favorable business environment, and increasing investment, positioning it as an emerging leader in innovation.
2. Early-Stage Funding for Startups: The importance of securing early-stage funding, particularly for underserved communities like veterans, and how it can significantly impact a startup’s trajectory.
3. Strategies for Founders: Key strategies for startup success including starting with a solid product-market fit, choosing the right investors, and prioritizing intellectual property protection.
4. Gainesville’s Startup Ecosystem: A look into Gainesville’s vibrant startup community, its internationally recognized incubator system, and how it attracts talent and companies from around the globe.
5. Valuation and Cap Table Management: The consequences of raising money at high valuations and the importance of managing the cap table to avoid pitfalls like down rounds and talent loss.
6. Venture Debt and Dilution: How venture debt can help startups save on dilution, and the strategic benefits of this financing option for growth-stage companies.
7. Innovation in Healthcare AI: Discussions on the potential of AI in healthcare, including predictive analytics, medical imaging, and smart ICU technology, and their implications for the industry.

Florida’s Startup Surge: Insights From UF Innovate Ventures With Dr. Jackson Streeter, Part 2

Protecting IP

Welcome to episode 12B, the second half of the show with Dr. Jackson Streeter, director of UF Innovate Ventures.

 

 

All the points you made, I think, are relevant around optimizing one’s capital table. One is this idea of really protecting your IP. A lot of lenders that lend to startups and what’s called venture debt often will look at IP as the main form of collateral. I run into this a lot with institutional investors who are interested in investing in ARI and our fund so that they can get exposure to loans to startups. A lot of folks don’t really understand it because they’ll often have this misconception that these companies don’t have assets of value, they’ll say, “These companies are binary, they’re going to be a zero, or they’re going to do really well.”

I think they conflate early-stage equity risk with later-stage, growth-stage debt risk because a lot of lenders are actually looking very closely at the IP and lending against that as a form of last-resort recovery value. That’s one thing, I think, that has changed a lot as technology has really advanced is that IP now is actually a better form of collateral than physical assets.

I’ll often ask people just to put things in tangible terms. If you were a lender as collateral, would you rather have an office building that nobody’s utilizing that will probably be empty and maybe demolished because nobody wants it, because nobody’s going to work there anymore, or would you rather have IP that countries and companies all over the world are interested in obtaining that has a global market that’s liquid in a sense because it’s easy to transfer? That’s what a lot of folks don’t get.

It bothers me a little bit because I’ve had this conversation literally over 1,000 times, whereby people cannot get comfortable with venture debt because they’re like, “There are no hard assets.” There’s actually better asset coverage and more liquid assets with a lot of startups because not only do you have IP, but you have oftentimes a lot of cash too that has been raised on the equity side that also collateralized is the loan. My point is, what would you rather have, a building or cash? What would you rather have a building or IP that many companies want to bid for? I wanted to make that point.

The supermarkets are included in that IP. It’s not just patents, it’s copyrights and trademarks can be super valuable. Get your UF gear on there and the Gatorade returns my UF based on the trademark at the end of the day. Those can be super valuable. As much as you can protect copyrights, trademarks, and patents, they can build a lot of value. You mentioned venture debt, and that’s a good option if you’re at a growth stage in particular. Why give up more equity if you can come to ARI or a lender and get the growth capital you need without giving up equity? Often, that’s a pretty good way to finance growth in particular.

I appreciate you saying that. I think that venture debt has become much more relevant over the last several years. The industry in general, it’s mature. As more founders are looking at all their available options, they’re realizing, “I actually don’t need to sell as much equity, and venture debt is a nice compliment.” Just for those that don’t know, the way it typically works is once a startup has reached the point where they have revenue and they’ve got some cashflow where they can service the debt and pay the interest, it becomes a viable option.

Every venture lender is different, but generally, companies that are doing over what’s called $5 million a year in revenue become a nice candidate to utilize some debt. The way it probably works in most cases is that it’ll be 20% to 25% of a given round of financing. Let’s say that you’re a startup and you want to raise $20 million. Instead of raising all $20 million in equity and diluting yourself by selling all $20 million equity, you might sell $15 million of equity and then borrow $5 million. You still get your $20 million, but you’re saving yourself a good chunk of dilution. I think it’s just something that founders continue to research and learn more about.

Most founders get pretty excited about it because, at the end of the day, their goal is not to make VCs rich. Their goal is to make themselves rich and to be successful, however, they might define that. Usually, that means maintaining control and maintaining as much of the economic gains as possible. Those are the two things that really incentivize them. Venture debt allows them to maintain more control by selling less equity and also maintain a greater economic interest by selling less equity than they think that’s pretty attractive.

Talk to the CEOs of portfolio companies or companies that they’ve had exits with, and you can gain a lot of valuable information. Share on X

It’s a good option for those growth-stage companies for sure, I think. We’re talking a lot about VCs and they do have a bad reputation often. To the entrepreneurs out there, I would say, a good way to learn about the fund that may be investing in you or funds you’re looking at, is to talk to the CEOs of some of the portfolio companies or companies that they’ve had exits with. Often, you can get a lot of really valuable information about what that dynamic was like, having that fund and that partner on the board, and what their experience was.

If you can find good funds, don’t get too hung up on valuation often. The shark tank situation is where people are not doing deals because they’re not going to give up another 5%. If you’ve got good investors around the table that have sterling reputations, that have had a lot of exits, you have done your diligence on them with portfolio companies and it’s positive, they can bring a ton of value. Yes, there will be dilution, but those kinds of investors want to make sure management’s taken care of and incented, and they want everybody waters in the water in the same direction. There are funds out there that can be predatory. You want to try and figure them out before you take the money too.

I think that’s a really great point, Jackson, about seeing how investors act in negative situations when things aren’t going well because everybody’s going to tout the big winners and the unicorns that they helped. They’re going to talk about that at every conference they go to and every conference call they have. In fact, it gets old hearing about people’s like, 1 or 2 successes and like, “Great, you made a bet and you got it right once. What about the 100 that you got wrong? How did you act in those situations?”

Current Themes In The Venture Ecosystem

To your point, I think the best way for founders to figure out who they should work with is to talk to other founders and talk to the ones that weren’t successful. What happened when they didn’t meet expectations or when things got tough? How did their equity VCs and how did their lenders respond? Were they easy to work with? Were they supportive or did they disappear? Did they make things worse for them? To me, that’s the ultimate litmus test. It’s to determine what others experience in down situations. That’s great advice on your part. I want to take a step back and look at big themes in the venture ecosystem.

We got to talk about AI, Zack.

We’ve got to talk about AI. We won’t start with that, but that’ll come up in this question, which is what are the themes that you’re seeing in venture right now or in innovation in general? Which are important, and why are they important? What should other people be looking at?

As you said, capital is tight right now, particularly in biotech. It is starting to make a comeback, but not like it was a few years ago. That reflects the public markets, too. The IPO window shuts, the exits are slowing down then money starts to get tighter on the earlier stage because the funds then have to carry their portfolio companies for longer. They’re not putting as much capital into the new companies when they have to carry current portfolio companies anyway. That’s the dynamic that’s been going on.

It is starting to open up a bit though, which is encouraging in the biotech area. I like seeing that. That’s a trend that’s starting to move in the right direction. We mentioned AI, UF has hired 100 faculty before ChatGPT came out. Definitely ahead of the curve. A lot of this has to do with Nvidia where Chris Malachowsky is a co-founder of Nvidia, was a UF grad, and has been very generous to the university. We have what’s known as the HiPerGator, which is the largest computing center of any public university, all powered by Nvidia and large philanthropic donations that Chris, as well as Nvidia, made to the university.

There’s been a big push around AI. A hundred faculty hired across all the different colleges to work on AI. There’s been a lot of noise, I’ll put it that way, but we are now starting to see some. We’re about to see our first actual company form truly based on AI. It’s an MRI image analysis software. I won’t talk too much about it in detail because it hasn’t come out yet, but it’s using AI in analyzing medical imaging. I think that’s a great place for it.

 

There are a lot of areas. The practice of medicine will be profoundly improved and changed when AI really integrates within healthcare. I’m pretty excited about that. I see that trend. The disparities in care that can occur between an academic medical center and a community hospital, AI can really do a lot to improve the standard of care. I’m pretty excited about that. There are going to be a lot of good investment opportunities in healthcare and AI as well as all the other things that everybody talks about.

Let’s dig in a little bit around AI in terms of how it can be used. Are there any use cases in the health field?

There’s a lot. You look at all we’ve got some researchers at UF that are looking at the smart ICU. You look at the ICU patient that has all those monitors and all that data that’s coming in every second and all the different medications and all the different tests. There’s a ton of data flow there. That’s all being studied right now at the University of Florida to create what’s known as the Smart ICU. You really don’t know when the algorithms start to learn what they’re going to learn as well.

Being able to identify when a patient is going to deteriorate before they do and then a physician then do some interaction before you’re behind the power curve with that patient. Those things are common for sure. That’s just one example. I think in the ICU environment, it’s pretty exciting. Also image analysis. My son-in-law is a med student, and I told him, “Whatever you do, don’t go into radiology.” I just see AI is going to profoundly disrupt a lot of practice in medicine. I think image analysis is one of those areas.

I think predictive analytics will be really powerful because of the amount of data that can be crunched. I just think we’re going to be able to see correlations that were harder for us to uncover previously. There are going to be billions and billions of data points. At some point, we’re going to start to see that AI is going to be able to uncover things that would have taken us a lot longer to do.

We’re looking at using image analysis of looking at the patient in the bed, are they starting to get in pain? How are they moving? There are a lot of things the AI is going to show us that are going to allow us again to intervene before things really start to go downhill. We’re going to improve patient care with AI, for sure.

Investing In Innovation

This leads me to another key question, which is how should investors think about investing in innovation? There are a lot of options, a lot of opportunities, and a lot of ways to lose money as well as make money. Do you have any principles that you live by in terms of investing in innovation?

Yeah, I think learn the hard way, always. We all want to get into the specific investments. We got a little frothy with some of our investments in the area of cell and gene therapy that got really frothy for a while. In retrospect, maybe we were caught up in that a little bit. I think AI now is like that. Back to what we were talking about in the beginning, what is the actual product? Is it really going to make it to market? Who’s going to pay for it? What are they going to pay? What’s the real use case for it? Just because everybody is using AI now, but what does that really mean? How is that product going to get paid for and developed and all that?

Investing is a lot like baseball. If you can bat 300, you're doing great. Share on X

I think you always learn a lot by your mistakes. Just because a bunch of money’s going into an area, that doesn’t mean it’s going to be a good return. You’ve got to be a little careful when things get frothy. Better to get frothy before things get frothy. If you can have the insight to say, “The puck is heading here. I’m Wayne Gretzky, I’m going to get there.” You can think about things like that, that’s what you try and do, I think. You don’t get it right as an investor most of the time. It’s like baseball, if you can bat 300, you’re doing great.

Good innovation investors are going to be right only a fraction of the time. To your point, if they have disciplined principles and processes that they live by, I think it makes it a lot easier. To me, one of the keys to investing is just not getting caught up in the hype. It’s funny because 100% of the companies I see claim they’re doing AI virtually. It was funny, I had a guest on the show earlier in season two, Adrian Mendoza, who’s the general partner of Mendoza Ventures in Boston.

He was joking about how he got pitched an AI company that basically counts the number of pepperonis on a pizza. He’s like, “I don’t really think that this should trade a giant multiple because you can count the number of pepperonis on a pizza. You don’t need AI to do that.” There are a lot of people who are now coming up with solutions for which there’s actually no problem. I think we figured out how to get the pepperoni pizza right. We don’t need AI to teach us how to do that.

Try and identify things that look like they’re going to move in the future before they get frothy. Maybe because I have a Navy background, but I think energy and nuclear power, and material science related to that, I think there are some interesting things that may happen there. We’re starting to look at that in some early stage forward thinking funds that we’re interacting with, or starting to look in that area. That’s just one example.

I think there are going to be a lot of opportunities in dual-use technologies that are useful for government and civilian applications. There are some fairly obvious ones like cyber security. It’s mission-critical for our country, but it’s also mission-critical for each of us as individuals. There are a lot of applications that are originally being built for government, whether it’s military or other branches of the government, that I think will have huge potential for civilians. One of the things I like too is in terms of founders looking for founders that have characteristics that make them more likely to be successful.

To me, being a veteran actually elevates the chances for success because there are a lot of attributes that veterans have that I think others don’t that make them more likely to be successful. Integrity, work ethic, discipline. Also, I think the power of the network is very important. One of the things a lot of people overlook is that when you’re seeking capital as a startup, investors are looking at your company thinking about, “Who’s going to come after me to invest in this company in various rounds of financing, acquire the company or take it public.”

I think veterans have a network that’s much stronger than most other groups because of the common bond that they share serving our country. That’s actually really powerful because if you’re a veteran-led startup and you get to the point where you’ve raised a round or two of capital, the likelihood that you can raise more rounds is actually probably much higher versus a non-veteran, in my view. I’m curious what you think about that.

Sadly, there are just not a lot of veterans around anymore. There’s like less than 2% of the population has any experience in the military now. You mentioned something, Zack, that resonates with me. Within the veteran community, I think there is an expectation of integrity and you certainly have to live that while you’re on active duty or they throw you out.

I think that just another quality that you look for inside entrepreneurs is that, “Is this person straightforward?” The VC is looking at the 100 deals to do 1. If they think they’re being misled, they’re out. That’s just a really quick way to move on. I’m not 100% here, but I think veterans tend to be people who have a good work ethic and tend to have good integrity, which is important. It’s critical.

 

There are a lot of underserved communities, veterans being one of them that have huge potential. One of my goals at ARI is to create more access that’s equally available to great founders. I do think historically, where you lived really mattered, and where you went to school. Also, to a large degree, if you were a man or a woman or what race you were, that all really played into how easy it was to get funded.

Less so now, but it still matters. I think there’s a big opportunity for anyone who’s funding innovation to look at some of these underserved segments. What I mean by that is it could be sectors that are underserved, that are out of favor at the moment. Right now, everybody will be looking at AI investments, but there might be some really great companies that are in an out-of-favor sector, but that could be game changers and could be very lucrative investments.

I think about underserved sectors and regions like we talked about. I think Florida in the Southeast US is a huge opportunity, but it’s not limited to just Florida and the Southeast. It could also be the Midwest. There’s a lot of very interesting stuff going on there. I mean, all over the country, essentially. You don’t need to live in the Bay Area to create a great startup.

They don’t have a patent on good ideas in Massachusetts and California. There’s an interesting thing about Florida. There was a study done where they looked at the return on invested capital in Florida as compared to the coasts. It was actually a better return on invested capital in Florida, believe it or not, even though there aren’t these enormous unicorns, there are many of them anyway, that you see in Silicon Valley and East Coast, but there are these enormous inflated valuations either. The actual return on invested capital in Florida is actually really good when you look at it from an IRR point of view.

I think a lot of the attention is obviously on the big successes or the big failures. That tends to be focused on the coasts because that’s where most of the larger companies have been formed and also where more of the bigger blowups have happened. To your point, I think there’s a higher probability of getting on base in other regions because you’re getting in at a lower valuation. The founders might be hungrier. They might be less entitled. They might be willing to go the extra mile to make their company successful.

I’m not saying folks on the coast don’t have those qualities, but I also think there are a lot of really gritty people, gritty founders all over the country. Sometimes, those who have the least access are the ones who are going to have the most longevity because they’re just so hungry, they’re never going to quit. They’ve already survived so much to get to where they are. They’ve never been handed anything. Ultimately, that’s what I look for in founders.

If I were going to pick one attribute out of every single factor, I would pick the relentlessness of the founder. Actually, let me amend that. Number one is integrity. Number two is relentlessness. If you have integrity and you’re relentless, I will be much more inclined to want to partner with you because I think that no matter what happens, you’re going to figure out a way to do it and do it in a way that’s fair, aligned, and transparent. That’s what I look for, more than anything.

I 100% agree. It’s the grit factor that is so key to persistence during difficult times. That’s going to happen with any new company. I completely agree. There are a lot of great teams. I’m just thinking of several on top of my head. You spend more time with the teams when things are going poorly than you do when they’re going well. It is so awesome when it turns around. When you’ve been in the trench and you get out of the trench, it’s really great. Teams can really come together. It’s really cool. It’s a beautiful thing to see when you see it. Doesn’t always work out like that, but when it does, it’s pretty awesome.

Going back to our thoughts about the right types of investors, the investors that want to be there to help when things aren’t going well and that really revel in the success of the rebound, those are the folks you want to partner with.

The grit factor is so key to persistence during difficult times. Share on X

I 100% agree. In my company in California, I had an extremely successful and wealthy venture capital investor, and I didn’t really see much of them until there were problems. I saw him all the time and he was amazing when he really needed to be helpful in how he stepped up. I had four venture capitalists on the board actually, and they weren’t all alike. Some were just complaining and they weren’t helping. They were just beating up the CEO, which was me. There was one guy, though. I don’t think it’s by coincidence. Actually, if you look at the funds that he’d been involved with, he was the most successful guy too.

Future Goals

There are two things I wanted to ask you. One is in terms of what you’re doing at UF, what’s next? What are your goals for UF Innovate Ventures?

We can always use more money. We’ve got plenty of deal flow. I don’t know if Ben Sasse reads this. I want to double the size of our fund, but we’d certainly put it to good use. One of the things that we want to do that UF has not done is create an alumni fund, which a lot of the major universities have. I’d like to see that happen. There’s a 400,000-plus Gator nation out there. Many of them want to be engaged. I think it would be it would be cool to do that. I think they would love it.

I think the alumni network is amazing at UF. It’s funny, I used to live in Los Angeles before I moved to St. Petersburg and I would wear this to Gold’s Gym in Venice occasionally. I kid you not, every time I wore something related to the Gators, I’d have a half dozen people stopping me to talk. There are so many engaged alumni all over the world and not even just alumni, but also just fans of the universe.

All over the world. I was in Peru and some guy gave me a chomp. I was wearing a Gator gear walking down the street and some guy leaned out of a public bus and gave me the chomp. That’s pretty awesome.

Key Themes For The Future

I’ll tell you, in LA, a few times homeless people have chomped at me and caught me off guard. That’s the only negative, I kid you not. It was like out of the blue, I got some guy chasing me. I love Gator Nation. I just feel like it’s such a great group of people and also very powerful from a business perspective. That’s why it’s great to partner with UF because inherently, you get to tap into Gators worldwide. Our last question of the day to leave everybody with, what do you think are the key themes over the next 3 to 5 years within the startup and innovation economy that investors should be thinking about, and also founders, two different groups? How would you frame that?

We touched on a lot of it already. A lot of these real common fundamentals, I’ll call them, from investors and how entrepreneurs should look at. I don’t think those rules are going to change really over the next 3 to 5 years. Find the problem and go out and find the solution to it. The other thing I would say is it doesn’t have to be your idea. You can join an early-stage team. You identified a problem and somebody else seems like they have a good solution.

If you want to be an entrepreneur, you don’t have to be necessarily the one who’s come up with the solution to whatever the problem is. There are lots of ways to get involved. From the investor side, I think it’s the same things. We’ve already talked about. You’re looking for the right teams, the right markets, the right products. Those are fundamentals that really won’t change. There’ll be different things like AI is going to come forward.

There’ll be good opportunities there. You have to be careful. Things are starting to get frothy there. You have to be mindful of that. Those opportunities are going to come. There’ll be cycles and you got to be ready for them. That’s part of it. The other thing, the reason the United States succeeds where other countries do not is we accept a culture of trying and failing. That’s okay. I was on a panel at Stanford University once and somebody said, “There’s no failure in Silicon Valley. There are just lessons learned to success.”

 

That’s a great attitude to have because you just keep at it and eventually you will succeed. I think we’ve got that kind of innovation, that mindset where we’re at down in Florida and it’s growing and we’re in a good spot. I’m excited about what we’re going to be doing over the next three, not just 3 to 5 years, but probably the next 25 years. Florida, there are a lot of good opportunities here. We’re ahead of the curve, Zack. We’re down here now and I think the landscape from the investor side in Florida is going to grow a lot over the next several years, but it’ll be good to be down here early before they all show up.

We’re relatively early movers, but I think 5, 10 years from now, people are going to be flocking. I think Florida is just going to be booming. How should folks get in touch with you if they want to either learn more about UF Innovative Ventures or better yet, and actually invest in the fund? What’s the best way?

We don’t take limited partners. All our money just comes from the university. They can’t invest in us necessarily. You can reach out to me. I’m on the website, UF Innovate. I can be reached on LinkedIn.

It was awesome having you on, Jackson. Really appreciate you coming on and look forward to seeing you in Gainesville sooner than later.

Go Gators.

Thanks, everybody, for reading. See you next time.

 

Important Links

• Zack Ellison on LinkedIn
• Applied Real Intelligence (A.R.I.)
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• 7 in 7 Show with Zack Ellison on YouTube
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• Jackson Streeter on LinkedIn
• UF Innovate Ventures
• The Hype Cycle and Realities of Artificial Intelligence – Past Episode with Adrian Mendoza
• 7 in 7 Show Disclaimer

 

About Dr. Jackson Streeter

Experienced Senior Executive with a demonstrated history of working in the biotechnology industry. Skilled in Medical Devices, Biotechnology, Healthcare, U.S. Food and Drug Administration (FDA), and Research and Development (R&D).

Strong business development professional and extensive experience working with Department of Defense, former Naval Officer and graduated from University of Nevada School of Medicine.