In Case You Missed It

By: Cynthia Corzo | May 2018

More than 82,000 small businesses employ 53.3 percent of Miami-Dade County’s workforce, according to a new study commissioned by the Florida SBDC at FIU. This stands in sharp contrast to the rest of the U.S., where large companies employ the majority of workers.

Produced by the FIU Metropolitan Center, Small Business. Big Impact: Report on Small Businesses in Miami-Dade County 2018 also reveals a high concentration of microbusinesses, those with fewer than 10 employees, in the region. Of six comparison counties studied, Miami-Dade had the highest percentage of microbusinesses, representing 81.3 percent of all businesses in the county.

The study, which provides an in-depth look at Miami- Dade County’s small-business establishments, also looks at the wages paid to employees. The average annual wage is $44,803 at a one-employee firm in Miami-Dade and $43,437 in a firm with two to nine employees.

However, the average wages were not typical. When looking at the aggregate median wages – a listing of the average wages paid by firms based on company size – half the one-employee companies paid an average wage of $24,000 or less. For businesses with two to nine employees, half the companies had average wages of $30,667 or less.

While South Florida is adding new businesses at a rapid rate, those companies are not necessarily producing jobs. The report shows that between 2005 and 2015, the number of non-employer establishments in the Miami-Dade area rose 55.9 percent, almost three times the national rate.

“Not all entrepreneurship and not all small businesses contribute to the economy equally,” says Jacqueline Bueno Sousa, regional director of the Florida SBDC at FIU. “This study helps us understand which small businesses and entrepreneurial ventures are having the biggest positive impact.”

Florida SBDC at FIU is the small business development center at the FIU College of Business. The center works with more than 900 entrepreneurs and business owners each year, offering no-cost consulting and guidance on topics including growth acceleration, access to capital and market analysis.

2018 Small Business Profile


• In the third quarter of 2017, Florida grew at an annual rate of 3.0%, which was slower than the overall US growth rate of 3.4%. Florida’s 2016 growth rate of 2.4% was down from the 2015 rate of 3.9%. (Source: BEA)

• In January 2018, the unemployment rate was 3.9%, down from 4.6% in January 2017. This was below the January 2018 national unemployment rate of 4.1%. (Source: CPS)


Figure 1: Florida Employment by Business Size (Employees)

  • Florida small businesses employed 3.3 million people, or 42.2% of the private workforce, in 2015. (Source: SUSB)
  • Firms with fewer than 100 employees have the largest share of small business employment. Figure 1 provides further details on firms with employees. (Source: SUSB)
  • Private-sector employment increased 2.1% during the 12­ month period ending in January 2018. This was below the increase of 3.3% during the prior 12-month period. (Source: CPS)
  • The number of proprietors increased in 2016 by 2.6% rela­tive to the previous year. (Source: BEA)
  • Small businesses created 152,330 net jobs in 2015. Firms employing fewer than 20 employees experienced the largest gains, adding 92,180 net jobs. The smallest gains were in firms employing 100 to 499 employees, which added 22,733 net jobs. (Source: SUSB)

TheSmall Business Profiles are produced by the US Small Business Administration’s Office of Advocacy. Each report incorporates the most up-to-date government data to present a unique snapshot of small businesses. Small businesses are defined for this profile as firms employing fewer than 500 employees. Net small business job change, minority small business ownership, and exporter share statistics are based on the 2015 Statistics of US Businesses (SUSB), 2012 Survey of Business Owners (SBO), and 2015 International Trade Administration (ITA) data, respectively.


• The number of banks decreased by 14 between June 2016 and June 2017 to 138 banks. (Source: FDIC)

• In 2016, 449,537 loans under $100,000 (valued at $5.6 billion) were issued by Florida lending institutions reporting under the Community Reinvestment Act. (Source: FFIEC)

• The median income for individuals self-employed at their own incorporated businesses was $41,226 in 2016. For individuals self-employed at their own unincorporated firms, this figure was $18,986. (Source: ACS)

Median income represents earnings from all sources. Unincorporated self-employment income includes unpaid family workers, a very small percent of the unincorporated self-employed.


Figure 2: Florida Employees per Business by Owner’s Demographic, 2015

Figure 2 shows the average number of employees per employer business by owner’s demographic group according to the Annual Survey of Entrepreneurs (ASE). Unshaded bars display US values; data were withheld because they do not meet Census Bureau publication standards or could disclose information regarding individual businesses.


Figure 3: Florida Quarterly Startups and Exits

• In the third quarter of 2016, 20,880 establishments started up, generating 88,109 new jobs in Florida. Startups are counted when business establishments hire at least one employee for the first time. (Source: BDM)

• In the same period, 18,474 establishments exited resulting in 75,721 jobs lost. Exits occur when establishments go from having at least one employee to having none, and then remain closed for at least one year. (Source: BDM)

• Figure 3 displays quarterly startups and exits from 1992 to 2016. Each series is smoothed across multiple quarters to highlight long-run trends. (Source: BDM)

The BLS data covers only business establishments with employees. BLS refers to startups as births and exits as deaths. These terms are distinct from the BLS openings and closings categories. Openings include sea­sonal re-openings and closings include seasonal shutterings. Quarterly startup and exit values may not align with Figure 3 due to smoothing.


• A total of 59,617 companies exported goods from Florida in 2015. Of these, 56,664, or 95.0%, were small firms; they generated 58.9% of Florida’s $49.5 billion in total exports. (Source: ITA)


Table 1: Florida Employment by Industry, 2015


Figure 4: Florida Small Business Employment by County, 2015


Table 2: Florida Small Businesses by Industry and Firm Size, 2015

Figure 4 and Tables 1 and 2 display data from the 2015 SUSB. Table 2 includes additional data from the 2015 Nonemployer Statistics (NES).


How much runway should you target between financing rounds?

Entrepreneurs have limited access to hard data that could help them make sound decisions when trying to build a successful new company. This is generally due to a fundamental lack of information about the materialized events of previously successful companies.

Consider that there are a few hundred thousand companies founded each calendar year in the United States (Bureau of Labor Statistics, 2016), but only ~ four thousand venture capital deals are reported in any given year. Each year between five and six hundred VC-backed entities are acquired, and a few hundred become publicly traded companies (WilmerHale, 2017). That’s honestly not a lot of data, and unless an entrepreneur has access to any of this historical data — or has the time to do the research — they’re pretty much driving blind when making critical decisions.

There are numerous questions that entrepreneurs need to answer with incomplete, or worse, false information. One example is—

How many months of runway should I target between rounds when pursuing venture capital financing?

According to CBInsights, running out of cash is the second leading cause of startup failure. Needless to say—it’s an important question to get right. If an entrepreneur tries to answer this question by triangulating from Google results, they’ll find a few sources that tell them the conventional wisdom is anywhere between 12-to-18 months.

CBInsights estimates the median time lapse between funding rounds for Tech companies to be somewhere in the neighborhood of 12 months for Seed to Series A and 15 months for Series A to Series B. On Quora you’ll find peers, who with no doubt good intentions, also confirm the 12-to-18 month conventional wisdom. Some experienced VCs however, such as Fred Wilson, recommend planning for about 18 months of runway between rounds. Steve McDermid, Corporate Development Partner at A16Z, also suggests being prepared for the process to take longer than one might expect, and to give yourself “plenty of cushion when assessing your cash runway”. So what’s an entrepreneur to do?

Is it possible that the startup failure rate is so high partially because conventional wisdom tells founders to prepare for 12-to-18 months between financing events when in reality they should be preparing for longer like the experienced VCs suggest? We ingested all of Crunchbase to find out.


To answer this question, I looked at all startups that raised a k round and subsequently raised the following k+1 round in the traditional venture capital sequence. In layman’s terms, that means I segmented by all companies that successfully raised a Seed round, and subsequently raised a Series A. Then I took all companies that raised a Series A and subsequently raised a Series B— independent of whether or not they had previously raised a Seed stage round, or ever raised a Series C in the future—and so on—until the Series E stage.

The methodology described above gives us five distinct samples of materialized financing events from the traditional venture capital sequence, which allows us to estimate the average time it takes from one financing round to the next. In statistical terms, that means we’re approximating the population parameter (length of time) which characterizes venture capital financing sequences, by relying on the Law of Large Numbers and sample statistics. In total, we evaluated 13,916 materialized financing sequence events. Given the nature of the venture capital funnel and the number of companies that are actually able to raise their next round, this is a more than sufficient sample size for parameter estimation.

(Top) Kernel density estimates for 5 distinct funding sequences, with vertical lines indicating the average value for each sequence. (Bottom) Kernel density estimates for 5 distinct funding sequences, with vertical lines indicating the median value for each sequence. Sample sizes — Seed to Series A (n=2623), Series A to Series B (n=5558), Series B to Series C (n=3422), Series C to Series D (n=1644), Series D to Series E (n=669).

The general shape of the distributions suggests that the bulk of k+1 financing events take between 5 and 35 months from the prior event (plus/minus one standard deviation from the mean), and the long tails suggest that outliers exist which have taken considerably longer to go from one round to another (as long as 115 months, or 9.6 years!). The presence of outliers also tells us that the average values on the left plot (dashed vertical lines) are misleading, since averages are highly susceptible to outliers. The median is a much more robust measure of central tendency in the presence of outliers, so we should put more emphasis on the medians on the right plot.

As perhaps expected, the median time lapse between Seed to Series A is less than the median time lapse between A to B, B to C, C to D, and D to E. Interestingly, the average and median time lapse seems to reach a maximum at the B to C stage, and decreases thereafter. The Series D to Series E distribution is also notably more spread out, which to us suggests that later funding stages are likely more dependent on individual company characteristics.

Depending on the financing sequence, the medians indicate an expected value range of 15 to 19 months, while the averages suggest a range from 18 to 22 months. Blending the samples together creates the average density distribution in the plot below, with overall mean and median sample statistics.

n = 13,916, mean = 20.6, median = 18, s.d = 14.6

So, is it possible that the conventional wisdom of 12 to 18 months between financing events is an influential factor leading to high startup failure rates? Yes, because the hard data says entrepreneurs should plan for at least 18–21 months of runway, and as much as ~35 months if they want to play it safe and stay within one standard deviation from the mean.

Building a product takes time. Finding the right talent takes time. And it turns out that fundraising takes time, too. If it takes you less than 18 months to raise another round then great—keep going—but don’t reduce your probability of success by planning for less than 18–21 months of runway between your financing events.

Now that we have a good grasp on the time it takes for one round to the next, the question remains: What’s the probability of successfully raising the next round in the sequence? We answer this question in Dissecting startup failure rates by financing stage.

What to Look for When Investing in Startups


If you want a safe bet with little risk, investing your money is easy. Just buy Treasury bonds. They carry practically no risk and are guaranteed by the full faith of the United States Government. However, in exchange for that safety, Treasury bonds return a small percentage of the investment that varies based on the Federal Reserve policy.

However, to have much higher returns, sometimes a multiple of the money you invested in the first place, there’s only one possible way to achieve those returns. That path is investing in more speculative vehicles, such as privately-held companies, also known as private equity.

The problem is this: unless you have a disciplined portfolio strategy, your one or two private equity bets may not work. The companies you invested in may fail. Statistically, this is likely to happen. Investing in private business is very risky, but you are rewarded when a company succeeds.

I am going to try to identify the key principles in deciding how to invest your money when it comes to private companies. In my career, I have done probably over 80 investments, and these principles have worked for me.

I wished I would have taken more risk and invested in more companies, but I was a little too conservative and thus passed on some very interesting companies who later grew into very successful businesses. Without further ado, here are my five things to look for when investing in startups:

#1: The Founders

When it comes to building a successful business, people come first. This means you want to evaluate how focused and passionate a founder or a group of founders are.

It is true that having a strong educational degree from a competitive school is important, but it is not as valuable when it comes to building a business from scratch. What you need to build a business is grit, the intersection of passion and resilience.

When the founders of a company quit, the business has little chance of success. Founders that demonstrate the right amount of passion for the mission are a huge advantage. They are not working for money. The right founders are on a campaign to change the world, to improve people’s lives or make an industry more efficient.

When the right founder talks about their company, it feels very personal, and listening to them speak will inspire anyone they get into contact with. I have heard many times that founders “John Smith and Jane Doe” are crazy because they are not willing to listen or take any advice from experienced professionals. I have also heard founders whose company was bankrupt every 6 months, and yet they never gave up. All of these traits are what you should expect from a very risky investment that becomes a success.

#2: The Team

Besides the founders, you want to see a team of people who complement the skills of the founder. Some founders are visionaries but terrible at managing people. Others are excellent managers but lack technical expertise to build the product they’re overseeing.

You should look for a team with expertise in the areas that the founders lack. Look into key areas of a business, such as product development, marketing and sales. Make sure that the team is well-balanced and has the right tool sets for growth and for building out the product they sold in their pitch.

Founders steer the ship, but the team provides the manpower. Without a dedicated, a startup won’t succeed.

#3: The Idea

When reading business plans, it’s common to see a great idea or innovation, but is it going to be commercially viable? Is the technology or solution going to work once it’s actually deployed? Is the business scalable? A successful business is far more than just an idea; it’s about execution and market-fit.

I like to see patents or proprietary technology which demonstrate the depth of knowledge and creativity from the founders or their technical team. For non-technical companies, I look for a strong sense of the customers and their needs. Sometimes the founders are themselves are the market they are trying to target.

#4: The Competition

It is important to understand the landscape of the competition. Is this idea being pursued by a number of companies? Is there a large business like Amazon poised to enter, or pivot to, the same space and destroy every startup innovator in sight?

Competition is actually important and should not be taken as an outright negative when considering a startup investment. In a way, competition serves as a proof of concept and demonstrates a marketplace and its viability.

No competition is actually very rare when you consider that every startup is disrupting something: Amazon disrupted book stores and then all of retail, Uber taxis, Airbnb hotels. When I was the founder of Acclaim, we built online video games to disrupt the existing video game industry from the 1990s. If a company doesn’t have direct competition in the form of another company trying to do the same thing, there is still the competition of whatever company has the attention of the consumers the startup wants to target.

However, while competition can be a healthy sign, in some circumstances it is negative. If the competition is against a large company that is also disrupting the same market, I become wary of the investment — though it’s not enough for me to discount the investment altogether.

Large companies simply have more resources to put into solving the problem, building the product and marketing it to consumers. These resources reduce the time it takes for a large company to get control over a segment of the market, which means the startup has less time to launch. In this scenario, companies who are not careful can be easily “Amazoned,” swallowed, and taken out of the market.

#5: The Money

I also look for founders who invest some of their own savings into their company, even if it is a small amount (though it is often a big financial commitment from them). Sometimes, the founders are not paying themselves until the business reaches some scale. This is a great sign of personal sacrifice and proof of “skin in the game.”

Good founders are also resourceful when it comes to securing capital. Some will go the traditional routes of VCs and banks. However, this route is hard for most founders because Venture Capitalists are only interested in a narrow segment of founders and ideas. They follow recent trends and require founders to have a high level education or strong expertise in the field they are pursuing as they are looking for the next unicorn valuation in order to deliver promised returns to their limited partners. However, only 5% of VCs provide returns to their investors, so whatever formula they use to predict the winners isn’t necessarily right.

Other founders will target angel investor networks or leverage their friends and family. Others will go to Kickstarter to test out their idea, and after they complete a successful campaign, the business has some capital as well as lots of eager customers. Still others will try equity crowdfunding, which in the 3 years of its existence in the US has helped over 1,500 companies raise capital.

Founders who are ready to explore new avenues for capital demonstrate a strong will to do whatever it takes to win.


Investing money is not easy and requires research and vetting, and there is no way to guarantee success. However, only those who risk can benefit from the next explosive company.

Our country has hundreds of examples of entrepreneurs who were bold enough to believe they could change the world, and they did. Your role as an investor is to back those dreamers, be part of the journey to success, and fund the future.

If I had to do it all over again, I would double down and pursued more entrepreneurs even after their first venture failed. It is never too late. This may be the best time to become an active investor when equity crowdfunding has opened up the gates for everyone to be a Venture Capitalist.