Jim Barnish, Founder & Managing Partner, Dragonfly Operating Partners

Jim Barnish, founder & managing partner at Dragonfly Operating Partners, spoke with Invest: about assisting technology companies in the blooming Tampa tech sector. “Dragonfly partners with Venture Capital (VC) firms and their high-potential founders to increase portfolio value, accelerating growth and optimizing liquidity events,” he said.

What’s the mission behind Dragonfly Operating Partners (DOP)?

The firm started as a response from the venture capital community to create something for early-stage tech companies, leveraging a similar growth consulting model that I built at Orchid Black. The early months were spent figuring out what the business model should look like, what is tolerable for an early-stage startup to pay, and what is tolerable for the VC firm to pay. Between those inputs we designed a creative business model that is performance-driven and growth-driven. We chose Florida Funders as our pilot partner given their reputation in the market and my relationship as a Partner, and that grew quickly to working with over a dozen companies in a matter of months. We branched out into working with several other funds since, and the results have been incredible. Many companies struggle with sales and marketing and getting new customers in the door. It’s a constant struggle, especially in the current economic environment. We help companies set up a scalable and predictable way to get revenue in the door. In some cases, they aren’t ready for that because they haven’t reached product-market fit. They may have a product that the world wants, but there hasn’t been a clear connectivity in terms of the demand of the product. We focus entirely on tech companies and software businesses and help them identify and penetrate their ideal customer profile. In other cases, they may have been great at acquiring customers, but not retaining them due to customer service, not adding enough value, or operational issues. We help them retain and grow their existing customer base. 

How does DOP help companies navigate exits and maximize returns?

We work with funds to increase IRR. We work closely with companies to determine growth opportunity and exit readiness. I have done dozens of these transactions throughout my career. Our goal is to get a faster return for the company and for the fund if the exit timing is right. In other cases, we will build a longer-term roadmap to help the company determine when it should exit, what it should exit for, and all the things it needs to do to successfully sell the business. 

Is it advantageous to be positioned in the Tampa market? 

What’s happening in Tampa Bay is very exciting. There are many investors doing earlier-stage investing. There are companies emerging both by moving here and starting here. 

What trends are you seeing on the tech business side, and are there any specific softwares seeing a boom?

Many of the companies we invest in have a strong focus around AI and leveraging it to their advantage, whether it’s a core AI product or generative AI. Voice AI is something we are following closely, which processes the contextual relevance around conversational discussion and ambient listening. Connecting AI to company building makes it easier to start and grow a company. Rather than having to build a product over several years, that same product can be built in months. The potential downside of AI is the future effect on jobs. It has the opportunity to take a lot of jobs. I’m a believer that it means we need to level up as human beings and advance beyond what we’re doing today, to use AI to make us better rather than AI replacing us. There’s a lot of fear in every industry around how AI is going to change the world.

How do you perceive the talent pool in the Tampa Bay region’s tech sector?

Tampa Bay’s tech scene has grown significantly over the past ten years. The talent is here. The ideal persona we are hiring at Dragonfly is somebody who is a founder that has an eight or nine figure exit, or a startup executive that was there from the ground floor who has been operating a company from zero to eight or nine figures. Our Operating Partners on our team have led many high-growth startups. Our Operators-in-Residence are the next generation of tech company athletes. About 50% of our hires are based in Florida, and we’re continuing to recruit within the state. 

How are inflation and higher interest rates affecting your investment strategies and growth of your portfolio companies?

Florida’s economy is relatively protected, but there are still areas where we’re not as shielded. One challenge is that many companies are taking longer to return the capital that was originally expected when investments were made. The M&A market is a major factor in this, and it’s nowhere near as active as it was a few years ago. While the market is slowly recovering, the number of acquisitions in 2021 was much higher than it is now. As a result, demand is lower, which drives prices down. The revenue multiples companies were achieving a few years ago are no longer at the same level.

My goal is to ensure that companies sell for the highest possible value. When demand is lower, this becomes more challenging. To overcome this, we focus on making companies top-tier, optimizing growth, and ensuring they’re easy to acquire by following solid operational fundamentals. The strategic value of the right buyer remains critical, and by aligning all the factors, we can still achieve the same value as in the past. It just requires more effort.

What are your key priorities for Dragonfly over the next two to three years?

At Dragonfly, we bet on ourselves that our work adds value to companies and to funds. Given the current environment, we are taking on more risk. If a project is $100,000, we might put $50,000 to $90,000 back into the company as an investment. We are focused on aligning our compensation with both the fund and the company. A large percentage of our fees are taken as equity or a portion of the growth we create because that will lead to a lot of exits and faster growth. 

We are at an interesting time in venture capital where funds are taking longer to return the investments. When that happens, it could be due to factors such as macrotrends around the environment, but also companies that might be stuck. If founders, CEOs, and investors are taking longer to see a return than expected, they don’t have to solve it on your own. Dragonfly serves to bridge the gap to accelerate growth, optimize strategy, and create liquidity events.