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Quotes of the Week

Aug 01, 08 in Quotes   50 Comments

"When you raise capital you are looking for more than just the dollars."

"If you’re just a guy coming out of college, you’ve got a dream, you’ve got a really good idea, it’s impossible to be able to raise money and create a community around what you’re doing.”

Jeff Haynie

"Atlanta (and most of the southeast it seems) is dominated by venture capitalists and investors that are spreadsheet jockeys."

Sanjay Parekh

"Atlanta has the ingredients to nurture local tech startups and early-stage companies.  If you've got a good idea and a good team you can get funded in Atlanta."

Me

There is no right or wrong here.  What do you think?

Discuss.

Comments

"If you've got a good idea and a good team you can get funded in Atlanta."

Well, yes - you can get funded. If your team used to be upper mgmt at ISS and you have completed development and you have lots of (enterprise) customers with long-term contracts, and you're revenue positive and you have prior investment from outside of Atlanta, and you're in M&A talks with a Fortune 100 company, and you're willing to give controlling interest to the local investor, and there's no risk left in investing in the company - then you'll have no problem.

Malcolm Xmas  |  Aug 01, 08 at 10:28 AM

I think that VC in Atlanta is based way too heavily on connections.

If you're, like Jeff said, a kid coming straight out of college with a dream and some smarts, it is impossible to get funded unless you have connections. Trust me, I was (and I still am) that kid. You can try to pitch to people, but they'll just smirk at you and say, essentially, "Aww, that's cute. Talk to me again when you have some connections."

An MBA with a few connections, a bad idea and no implementation ability gets much further in Atlanta than a C.S. grad with no connections, a great idea, and all the implementation ability in the world. This is exactly backwards to how it is in Silicon Valley these days. I wonder why they're more successful.

Erik Peterson  |  Aug 01, 08 at 10:29 AM

I think its opportunity costs associated with finding the money and dealing with its consequences. Some of us can't move out west for a variety of reasons (family, mostly) so, while the ingredients are here to make it work, it won't be as easy or as smart as moving to the Valley might. You have to a personal cost-benefit analysis to see if it works or not.

Masten Space used Greenberg Traurig in Palo Alto for a long time. We still use Square One Bank out of that same building on University Ave. Both are geared toward what Jeff is doing. We ran our business plan by them for comments early on and the #1 comment was that it was the most complete plan they had ever seen. Every deal they had done for the past three years was done on a two to three page business plan.

I think it also really depends on what technology you are in and why. If you are telecom related I think staying here is easier. If you can grow organically and not need much beyond angel investment then you can stay here. But if you need Valley-style VCs then, yea, you have to go there.

Yes, we have the ingredients, we just need to do a better job of identifying and pre-measuring them so the recipe goes together faster/easier.

Michael Mealling  |  Aug 01, 08 at 10:45 AM

Depends on what you mean by "funding". Angel or VC?

If you have a good product and a good team, you can get angel funded in Atlanta. Not every single company or every single entrepreneur, but you can get funded. If you just have an "idea", it's going to be harder to get angel funding--in Atlanta or anywhere else.

If you get angel money in Atlanta and need VC money, it's going to come from somewhere else--Boston, CA, NC or TX. That's just the reality right now. Noro can't fund every local deal--nor should they. However, there are a couple of new small local funds popping up, tho, which is encouraging. Also, entrepreneurs who built their companies in 1998--2002 are now exiting--and many are putting that money back into Atlanta companies.

It's understandable that entrepreneuers can get frustrated with the lack of funding depth in Atlanta. It might be helpful to channel that energy into forming long term relationships with investors--in the SE and elsewhere. Investors want to find good people and good opportuinties just as much as the entrepreneurs want funding to move their business forward.

Knox Massey  |  Aug 01, 08 at 11:33 AM

Knox,
"Investors want to find good people and good opportunities just as much as the entrepreneurs want funding to move their business forward." I wonder how much of this has to do with new investors (Angel or VC) in the southeast simply having no other models to go by other than being the "spreadsheet jockey" that Sanjay talks about. Investors may not be a "herd" but they do learn from their physically close peers. Maybe a little bit of proactive cross pollination might help?

Michael Mealling  |  Aug 01, 08 at 11:46 AM

The difference between the differing points of view shared in this post is that both Sanjay and Jeff have had to personally raise money for their companies. So I tend to believe what they have to say.

Paul Freet  |  Aug 01, 08 at 01:15 PM

Paul: Ouch! Perhaps I will have a different story in a year. All I can say is that I have experience writing checks to people in such situations.

That and I was part of the team that raised $42 million at CipherTrust. And I was a 16B during numerous public financings at MindSpring.

Lance  |  Aug 01, 08 at 01:32 PM

For all of you to know about this specific situation, I think Appcelerator could have been funded locally. I have enormous respect for Jeff and he is well regarded here. He chose to focus on California which was his decision and I wish him the best and wish he stayed here. We never really got the opportunity to look at Appcelerator; I think the term "spreadsheet jockey" is an overstatement. Like virtually any venture firm, we will not fund a company until we see some kind of financials, historical and preliminary projections. That does not make us wildly conservative.

Alan Taetle  |  Aug 01, 08 at 01:52 PM

I have a lot of sympathy for what Alan says. The entrepreneurs in Atlanta's startup community are very "closed in". They go out of their way to make sure no one knows what they are up to. They attend capital focused events and spend the entire time speaking amongst themselves and on their cell phones instead of listening to what the investors have to say. They are dismissive of new ideas and anything they don't understand. They make crass comments about investors they've never even met with. They are generally difficult to get in touch with and would rather string an investor along, making them dance and withholding a straight answer, than succeed.

Wait - did I get that right?....

Malcolm Xmas  |  Aug 01, 08 at 03:34 PM

One big point of clarification from Alan Taetle's comment. Nowhere, in my quote or blog post, do I single out any individual or VC as spreadsheet jockeys. If you find the term offensive, then maybe the characterization cuts close to home. But I've never pointed fingers at who is or isn't a spreadsheet jockey.

Like I said in my blog post, I personally know spreadsheet jockeys and know how much they suck. And that's from personal experience (go look up who funded my company and perhaps you can figure out who I'm talking about).

As always, just my two cents.

Sanjay Parekh  |  Aug 01, 08 at 04:30 PM

Malcolm Xmas: And VCs only leave anon blog comments as well. Wait - did I get that right?... And just so everyone knows, VCs do not typically use capital events to source deals.

Sanjay: Fair enough. For the record when Alan T and I used to work together he always made me do the spreadsheet work.: ) More seriously, Alan is one of the people in the world of technology that I trust to provide me with solid advice when I need it.

Totally unrelated to this discussion, I had a conversation with Greg Foster of NMP this week. He is earnestly looking to engage with the entrepreneur community. I hope that when he does he is not met with sarcasm. It is not productive.

Lance  |  Aug 01, 08 at 04:55 PM

Well, I have to jump into this fray. As an entrepreneur who has raised a fair amount of capital (almost $20MM in debt/equity since 2000) I can tell you that all of that money (equity) came from the Northeast, Philadelphia and Boston and banks (debt) in Chicago and Atlanta. All of the local guys passed…why? You would have to ask them, but I don’t take it personally nor do I think that it was flawed per se. It is what it is and you move on…

I think that the problem here in Atlanta is actually much larger and more of an entire ecosystem issue that has yet to work itself out. Entrepreneurs and investors here do not work together in the same sort of Petri dishes that they do in the Valley or even Boston. The community here is very small to be as fragmented as it is, and inclusive/exclusive. There are not huge hits, and a social responsibility to go back and reinvest that money in other start-ups like PayPal’s $1.54B exit and the subsequent dozens of companies founded by the guys who deposited the two comma checks. Where are the dozens of companies funded by and founded by the ISS team? There are lots of decent hits, and most of those entrepreneurs seem to take their chips off the table and move on. Yes, I know that there are exceptions to that but it is not a CULTURE here like it is in Boston or the Valley - so you get different results. Money follows success and entrepreneurs follow money…the VCs and Angels have to have something to fund, and the entrepreneurs need to swing for the fences giving them the homeruns needed to repeat the cycle. It is an ecosystem that has only truly blossomed in the Valley, with minor successes elsewhere in pockets. For that to work here we must first accept who we are and what we have - and what we want to be – and realize we will never compete with the Valley. Period. There is no one right answer, other than our community needs to unite around making sure that the elected officials, angels, VC, PE, law firms, higher education, and entrepreneurs work together to continue feeding the pipeline and growing Atlanta’s entrepreneurial community. That is happening with Startup Riot, Startup Lounge, TAG, ATDC, etc. etc. etc.

If there are lots of great ideas and entrepreneurs, there will be money. If there is money, there will lots of great entrepreneurs. Repeat. I hate to see Haynie leave but in the end, it is the reality of the Valley...it's allure will never be bested. I wish them the best of luck...

And, I am one hell of a spreadsheet jockey at times – and proud of it! Being one does not mean I also don't know how to operate a company...or grow it...but I get your point Sanjay... ;)

@jamiebardin

Jamie Bardin  |  Aug 01, 08 at 05:08 PM

Wow - ABC really lit a fire here. I do have a question about something you said, Lance.

You say VC's typically don't use "capital events" to source deals. I could be misunderstanding this, but by "capital events" are you referring to things like Capital Lounge and Startup Riot? If so (and please correct me if I misunderstood this), it seems like a lot of entrepreneurs are - I don't want to use the phrase "wasting a lot of time", because the "practice" is worthwhile - perhaps, putting a lot of effort into an event with less upside than they think?

If these events are not used to increase deal flow, then they seem more like glorified social networking mixers. Seems like we could dispense with the "front" and everyone would be more relaxed - might even get a few deals done?...

David Jones  |  Aug 01, 08 at 05:24 PM

Lance: I'm with you re: Alan who I've known for nearly 10 years now (he was one of the first people we pitched Digital Envoy to back in 1999). Of course, he posted here and not on my blog so maybe Alan doesn't think the same of me anymore.

Also, re: Greg, I'm going to post this soon (with the current brouhaha I thought I'd wait so it doesn't get lost in the noise). Greg is going to attend the next Open Coffee and said he is open to talking to anyone who is interested in raising money. Just as long as they realize that this isn't open pitch season. This will be about getting advice, not landing a deal.

Sanjay Parekh  |  Aug 01, 08 at 05:38 PM

David:

While I think it could be the greatest job in the world I am not or never have been a VC.

With that said, I think it is very important to distinguish between VC events and angel events.

I firmly believe that angel networking events are very effective in creating deals between angel investors and early stage startups.

VC events are a bit different. When a company is in the process of raising a venture round they have very often been seen by one or more VC firms in the room. It seems to be that there is a lot of discussion among VCs about the validity of a deal, perhaps building out a syndicate, and maybe a door or two gets opened.

My experience is that I personally pitched CipherTrust at ION several years ago. Generated some new VC interest, none that ended up in the deal. I believe the presentation validated among the VCs that were pursuing CipherTrust that it was a good deal in the eyes of the VC community.

Lance  |  Aug 01, 08 at 05:38 PM

Thanks, Lance. That makes a lot of sense. The "capital events" statement was kind of blurry and I guess I didn't catch the distinction between the angel and VC events.

David Jones  |  Aug 01, 08 at 05:49 PM

Jamie - I think it's not as much that successful entrepreneurs don't invest back as entrepreneurs and VCs who do successful exits in a sector have a strong preference for investing again in the same sector. This is my opinion based on just a few months of observation.

It is bound to be that way to some degree everywhere - people like to stay within their circle of competence. Just look at the number of investments in video sites post YouTube. What differentiates valley VCs in my opinion is that they have a tendency to take a *little* more risk from time to time. Combine that with their numbers in the valley, and you have the secret of the Valley's success. Maybe we need VCs and investors who will take a bit more risk on promising bets.

Totally agree that Startup Riot/Coffee/Dinner and Barcamp all portend good things for the startup community in Atlanta.

Aarjav  |  Aug 01, 08 at 06:11 PM

Good discussion and thanks for bringing this topic up, Lance, you instigator.

There's clearly a bifurcation in Atlanta between investors and some entrepreneurs. Supply and demand issue? Generational differences?

Michael,
I think what you are saying is that new investors learn from what is in the market? That is, the implication is that SE investors are "spreadsheet jockeys", deal makers, etc? I have not seen much of that. Very few of the early stage investors I work with are pure financial types and most of the ATA group I work with are former entrepreneurs. We tend to concentrate on early stage companies where there is not always a lot of "spreadsheeting" to do! Also, we tend to look at the individuals involved in the company, the product, the market, etc. rather than pure financials

Paul--could you elaborate on what you meant?

For the record, Noro HAS funded local companies that have received local angel financing. Jacket Micro Devices, Damballa and others. My point is that they cannot fund EVERY local deal the community thinks highly of.

I did not know that this post was a shadow discussion on Appcelerator. However, I urged Jeff to look local to raise an early round. I told him that I would personally invest (I invested in eHatchery and Vocalocity) and I know many others individuals that would have done the same. Jeff wanted a larger VC round and needed resources that Atlanta possibly could not provide. So, he chose to go to CA. C'est la vie. Let's wish Jeff good luck. My guess is that he will stil root for Atlanta longterm and will be a great Atlanta resource who just happens to live in CA.

Knox Massey  |  Aug 01, 08 at 06:17 PM

Aarjav - all good points. What I was trying to say was more that it is an ecosystem that needs to develop and not any one thing you can single out. VCs will invest in the comfort zone they know, on either coast. They will invest conservatively and not so conservatively. What we need here in my opinion is more start-ups getting more early stage investment with more upside than the current venture community can support. Thus it will grow...and the more companies funded, the more exits there will be, continuing the cycle. One key item about the Valley however is that you are EXPECTED to reinvest in the community that gave you yours. I personally have not felt that to the same extent here...quite possibly my own perception...

Jamie Bardin  |  Aug 01, 08 at 06:21 PM

While it certainly is interesting to see local angels, VC's and entrepreneurs discuss these issues, I can't help but wonder if these debates will actually amount to any change for this area.

I met four entrepreneurs today for our weekly early-stage startup meeting and honestly, if any of us received a support of $8,000 to $20,000, it could potentially change some of our lives. True, $10-$20k is a lot LESS than what most of us actually need but similar to the Y-Combinator labs, it would be enough to give us a couple of months to really jump-start our ideas and possibly hit a home run as we refine them.

On the flip side, what does $8,000 or $15,000 mean to an angel? A vacation in Vegas? A used car for their teen? A few shares of Apple stock? A week long cruise with the family? Is it really that excruciating for 10 angels to all pitch in $10k and invest in 10 separate ideas hoping for at least 1 in 10 to make it big? If time really is money, I would think throwing out some play money into the field would be a lot more fruitful than talking about this for years and years.

Spraying graffiti on this wall between entrepreneurs and angels/VC's won't knock it down. Someone needs to throw some money out there and pay the entrepreneurs to bulldoze it down. We're willing to work hard... but without the resources, many of us just can't afford the tools to do the job.

I know the ABC article really was talking about a much larger deal; and it's a shame that in its shadows, no one really pays attention to the true early stage startups in Atlanta. However, I am glad that someone out there (mostly outside of ATL) is paying attention and thankfully for events like Startup Weekend and Startup Riot we (the entrepreneurs) can at least meet and form a support group, even if no with financial resources is willing to look.

Wei Yang  |  Aug 01, 08 at 07:43 PM

Lance, I think your quote is a bit optimistic. If good ideas and good teams get funded in Atlanta, then you're suggesting that we lack good ideas and teams. This contradicts what I see every week.

Atlanta has a number of interesting symptoms that create a chicken/egg problem.

Paul Graham's essay about the message a city sends drew out several comments that Atlanta sends the message of building a comfortable life. I do buy this assessment, and think it leads to a culture of moonlight entrepreneurs who are willing to start a company as long as they can make a good living at the same time (guilty as charged).

HOWEVER, I believe this is partly the case because we see many entrepreneurs quit their day job with a couple of co-founders and have to grind it out for a couple of years with no funding before they either a) go back to a "normal" job or b) have built something so obviously compelling and growing that a trained squirrel would fund it. The exception is companies founded by people so successful they can self-fund the F&F and seed rounds themselves and don't need to draw a salary.

It is difficult to figure why Atlanta's major wins have not spawned new generations of startups. The cultural influence of building a "comfortable" life may be a factor - once you have a nice exit, life is comfortable.

You see companies like Skribit, which, if not for the considerable fanfare around its genesis, would likely be largely ignored in Atlanta to this day, in spite of good traction.

On the other hand, at Atlanta Startup Weekend, it also took a great deal of coercion to agree to the Skribit idea, amidst a sea of less visionary ideas. Even in a group of startup-focused individuals, we gravitated towards more pragmatic, concrete ideas. (But was this, in turn, because we thought that Skribit would never get enough funding in this town to reach profitability?)

Empirically, the amount of money that flows into Atlanta startups from elsewhere indicates that the funding here a) isn't plentiful enough, b) is getting beat by better valuations from elsewhere, c) isn't interested, or d) isn't the right money to move that company forward.

Given that investors (generally) tend to prefer local deals, a preponderance of outside investment suggests that our local investors are a) missing out on these funded opportunities and other companies that are good but not worth funding out-of-region, or b) remarkably smarter than investors in other regions.

It's a complex issue that isn't simply solved by a new generation of fundable companies or a blind infusion of capital into Atlanta.

It's going to require incremental steps on both sides, and as many have mentioned, acting more in partnership than as adversaries. I think that the current generation of entrepreneurs who are using modern tools to begin demonstrating value without need for seed funding are doing their part. We need investors who will meet these companies at that point, where value is proven but success is not guaranteed.

Rob Kischuk  |  Aug 02, 08 at 01:51 AM

Wow. While I won't state on this issue I will say that this is definitely a conversation that Atlanta needs to be having, and kudos to the catalysts (Jeff, Sanjay, and Lance) who got this started, and everyone else for participating in the conversations!

As for Wei's point, spot on Wei! I think we could really use some micro-funding options here in Atlanta. We've got so much talent that is going to waste because most simply don't have the ability to go 6 months or a year without income while they ramp up. Our talent base is incredible (I should know from Atlanta Web Entrepreneurs for the past 1.5 years) but as a region we don't have enough attention focused on finding and grooming these diamonds in the rough.

Mike Schinkel  |  Aug 02, 08 at 03:26 AM

"f you've got a good idea and a good team you can get funded in Atlanta."

Lance, some people see 'good team' and think that is code word for 'connected'. Atlanta needs to be more of a meritocracy. If you have the ability, a brilliant idea, passion, and some good business sense, you can get funded in the Valley. Why can't the same be true here? Requiring a 'good team' is telling the young entrepreneurs to go get a corporate gig for 10 years first, or maybe go get lucky in someone else's startup.

Paul Freet  |  Aug 02, 08 at 07:24 AM

Wei: $15k is a lot of money to an angel. They don't look at what they are doing as charity work. My personal plan is to give back 10% of my gains to the community via reinvestment and that is pretty much what I have done to date. I just need more gains. :)

Rob: I suppose I am optimistic. Aren't all entrepreneurial types. If you want to get funded by someone beyond F&F you have to be dedicated full-time to your business. And Skribit will be interesting to watch. Paul is looking to raise a very early stage seed round so he can stay in Atlanta and work on the project full-time building traction and hashing out the business when he graduates. YC type terms with a little higher valuation.

Mike: Rob's comfort POV is creeping into your statement. I think he is on to something. Remember, one of Chris Klaus' jobs at ISS early on was filling out credit card apps in Tom's name (or so the story goes).

Paul: I meant what I said about a good team and connected was not part of it. If you are smart connected in Atlanta takes less than a month. A good team is a group of complimentary individuals with successful startup experience. That experience can be replaced with product and traction. I agree 100% with your statement, "If you have the ability, a brilliant idea, passion, and some good business sense, you can get funded in the Valley." I just feel that you can replace the word Valley with Atlanta.

Lance  |  Aug 02, 08 at 08:15 AM

Lance, I think the best way to answer your question is with examples. Let's point to some cases where unconnected entrepreneurs recently raised money locally for their first startup. I just don't know of any off the top of my head.

Paul Freet  |  Aug 02, 08 at 09:23 AM

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