Quotes of the Week

Aug 01, 08 in Quotes

"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."

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

This is a matter of semantics but you can't raise money if you don't have connections. And I said you could get funded in Atlanta, not from Atlanta. With that said, here goes.

ClearLeap, Global Crypto Systems, Damballa, Flux Media, Neurotic Media, SoloHealth, and WorthPoint. With the exception of WorthPoint all have been funded by angels/VCs in Atlanta. All first time CEOs. I know of two others that have raised money but have not disclosed yet.

Here's a question for you and anyone else. How many brilliant ideas have you seen brought forward by the people that have ability to create them and the passion to pursue them? I left out business sense. That is the easy part.

Lance | Aug 02, 08 at 11:08 AM

"How many brilliant ideas have you seen brought forward by the people that have ability to create them and the passion to pursue them?"

Lance, I think this goes back to Sanjay's original rant and the general definition of "brilliant" for Atlanta angels and VC's. Does brilliant require a purpose and financial sheet - or can it simply be something that will be useful to a lot of people and eventually find its way to generate revenue? (e.g. SocialThing or Skribit)

In safe environments where basic necessities (food, roof and an internet connection) are met and networking between the successful and the motivated are encouraged, creativity is limitless and I'm sure "brilliant" ideas flow like water.

Based on the incubators seen in the Valley, Boulder, and other cities, I think most people would agree that while we're trying, we're behind.

I know most people here are ranting about money but I think what it really comes down to are fulfilling basic needs for entrepreneurs so we can move forward with our ideas.

For me personally, I would LOVE to have a co-working space where I get to work alongside other like-minded individuals for the simple fact that working with smart people, even on different projects, charges my batteries and makes me want to excel at what I do. Now, if this space provides some beds and free internet (to the point where some people can cancel their at home internet to save some $$ or move into a smaller place because they'll be spending 20 hours a day at the co-working place; now suddenly personal cash for bills is less of an issue.

If the example above seems extreme... well, from what I can tell it seems to be the norm elsewhere and in some areas, even expected.

With regards to Skribit trying to get funding in the area, I have heard Paul talk about it here and there. I think an interesting test would be to see how much faster he could get it if he applied elsewhere.

Wei Yang | Aug 02, 08 at 12:42 PM

Oh I also wanted to respond with regards to:

"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. :)"

I can't speak for everyone but I certainly am not looking for charity work or handouts. While talking to founders of other early stage startups, I don't get the impression they want handouts either.

Ultimately what we're looking for is a lifestyle change and a helping hand from the ones who've been there and understands. If all I wanted to do was to con small amounts of money so we can "get by" I think I would have chosen real estate instead. Banging my head doing the web-service route is obviously not the way to go in this town.

Wei Yang | Aug 02, 08 at 01:16 PM

Wei: I certainly did not mean to offend you or anyone. If you want a helping hand, sell a vision, not a cost of vacation comparison.

Lance | Aug 02, 08 at 01:36 PM

Thanks for the examples Lance. Lets look at these in more detail.

The entire Clearleap team came from N2 Broadband, so Clearleap is hardly their first startup.

Damballa was co-founded by Merrick Furst - he was the CEO and founded an internet software company in California as well as being a dean at Ga Tech. Not his first startup, and very well connected.

Global Crypto is a great positive example though. I think this is Todd Merrill's first startup and we need more like this one for sure.

Neurotic Media has been around for years - they were in ATDC when I started there in 2001. I didn't realize they had raised money, good for Sachar.

I don't know anything about FluxMedia, they don't have their founders bios anywhere. If they are true first-timers, then great work by ATDC and Mike Eckert.

Solo Health raised money locally and they are first-timers, but even their website admits: "SoloHealth is a spin-out venture originating from CIBA Vision, the eye care unit of Novartis AG." They could be a terrific example of merging Atlanta's corporate base with entrepreneurism.

Let's trumpet these successes. Just not enough of them.

Paul Freet | Aug 02, 08 at 02:20 PM

Wow, what a great conversation! I just wanted to make a few observations:

1) Two years ago this thread wouldn't have happened. I have met almost all of the people on this thread in the last two years (and largely I think that's true for the others as well). This is in large part due to the great efforts of local entrepreneurs trying to build community. ATDC, ATL-WEB, TAG, YLC, etc etc. So I think that as a community we are taking concrete steps that are making a difference in building a better-connected, less fragmented entrepreneurial community.

2) I don't get the sense that connections are a limiting factor. Of course you need connections to make deals, but I have found that there are people that are gateways to connections that are quite willing and able to hear about a new idea from a new person and help people connect based solely on the merit of the idea. If all you have is an idea, though, and no team to deliver, connections won't help much... which leads me to my next point:

3) I think one of the biggest limiting factors to really early startups (particularly the "web 2.0" (sorry) businesses is access to developers. At most of these events I see a ratio of at least 5:1 of entrepreneurial business people to entrepreneurial developers. There are plenty of people that are willing to bootstrap the business side, but they are having trouble getting things built. I am not saying there aren't a lot of good devs, because they are, but they are vastly outnumbered. Also, a lot of the devs seem to be less willing to do sweat equity than the business guys. I almost *never* see a good dev looking to contribute lots of time or take a big chance by doing a startup full-time.

4) I do think that some micro-financing activity would do a lot for the community as well. It would take some pressure off of #3 by allowing outsourced development, although all things being equal I'd rather see more entrepreneurial devs involved in the community as I think that it is an important asset to have in the region and will ultimately drive more innovation and value-creation than outsourcing the dev. I think it's a much more common path for a developer to get good at business than vice-versa, and having more successful business+dev entrepreneurs in town would ultimately accelerate the local scene faster than anything else, IMHO.

Great thread!

Alan

Alan Pinstein | Aug 02, 08 at 04:36 PM

Lance: I think you mistook my point when you mentioned "comfort." Wei's follow up point regarding "safe environments where basic necessities are met" was spot on. Just like the physiological and safety levels in Maslow's Hierarchy of Needs, if an entrepreneur can't pay his or her most basic bills and service their existing debt they can't focus on making a successful company. This is not about ensuring they can take their wife on a vacation of that they can buy an iPhone 3G the second it is released, this is about make sure they have a roof over their head and that they can *eat*.

I know this completely from experience; I did not have any connections in 1994 when I started VBxtras and ultimately my biggest failure was lack of raising capital and lack of a CFO even though in the first five years we achieved >1700% growth on first year revenues of almost a million. But many times I was battling personal cash flow issues and it distracted greatly from my ability to run the business.

What's more, I did run up my credit cards (to the tune of over $250k) and I did go without any income for a year and that latter mistake haunted me for years and years. So I can talk to this issue unlike most, certainly I think unlike you (right?)

Yes, there is a big difference between a wanna-be who likes "the idea" of being an entrepreneur but is afraid to quit the day job and a *real* entrepreneur whose every waking moment is thinking about opportunities and their business and how to take it to the next level. There are many of the former (too many, IMO) who attend Atlanta Web Entrepreneurs (and I'm working on something to address that) but there are still a lot of the latter here in Atlanta.

A real entrepreneur is never comfortable with lack of success, and the fact that a real entrepreneur should have to spend time dodging creditor calls and juggling funds to make rent or mortgage payments or worse groceries is absurd. It is a misnomer and respectfully a bit of arrogance for financiers to believe that entrepreneurs need to be put into a positive of intense personal financial anxiety. Any angel or VC who believes this is merely compensating for their lack of ability to pick the right investment and the right people. And this statement is not directed at you Lance but in general and should only offend those for whom it hits too close to home.

The wiser angels and VCs know that they need to ensure their entrepreneurs have their basic needs met. If they do and they place bets on a good team, rather than putting their fear of god into their team will be their best chance for success.

Mike Schinkel | Aug 02, 08 at 04:54 PM

Alan: Your reply dropping in as I was composing mine but I want to echo everything you just said; spot on!

Mike Schinkel | Aug 02, 08 at 04:57 PM

Wow, there's a lot to say.

Alan: "Also, a lot of the devs seem to be less willing to do sweat equity than the business guys." Why should I do "sweat equity" for somebody else's idea? I'd put in more time than the person running the business side, but would probably get less equity. It is unfair, and I'm not surprised that there aren't any developers willing to play that game. But I don't think that's really the problem.

More generically, I have a business degree and know how to write a business plan, but yet I'm a developer and can actually implement these ideas myself. There are tons of people like me, and where do we go? The Valley. Atlanta ignores smart, business-savvy developers- treating them like minions of "real" business people. I myself almost moved to the Valley in February. Luke Olbrish, Vinny Fiano and Nate Clark have all left in the past year because of this. These guys are much farther ahead in their goals of running a startup than they would be if they stayed here. Nate's story, in particular, is interesting- if he were in the Valley when he started his company two years ago, I think it would have succeeded. It was exactly because of the lack of funding here that he failed (In my opinion. I can't speak for Nate.).

I think Wei is right. There should be more of a push in the Angel community to give smart, business-savvy developers some seed money. It isn't charity, and it isn't a handout. Taking the Y-Combinator "shotgun" approach to seed funding has been massively successful, and I think Atlanta angels are ignoring it at their own peril. The thing with $10-20k of seed funding is that it allows both a higher quantity while maintaining quality of the ideas that get funded. I do not see a downside.

The current set of protracted, effort-intensive methods of getting 100-250k of funding are simply not working. Look at the GRA/TAG fiasco. How come the ATA only funds a handful of companies a year? It is a complicated dance that is, frankly, bullshit. This kind of crap doesn't exist in the Valley. Out there, if a smart guy has an idea and wants to get funded, they can. It makes no difference if they have a team or if they have any connections. A smart, ambitious, completely unknown person should be able to get funding all by themselves. You can't do that in Atlanta. You can in Silicon Valley.

Silicon Valley's Funding Equation:
Smart Person + Good Idea + Seed Money = Success

Atlanta's Funding Equation:
Smart Person + Good Team + Connections + Huge Business Plan + Huge Excel Spreadsheet + 6 Months of Song and Dance + Seed Money = Success

This is the problem. Anything else is skirting the issue.

Take a look at the hugely successful companies of the past 10 years. Facebook: Mark Zuckerberg was a college student working with a couple of friends out of a leased house. Peter Thiel came in and invested in them, without a business plan, without protracted negotations, without revenue, and without connections. Thiel stands to make 100x what he invested. Google: Andy Bechtolsheim invested $100k in Google, when it was just a couple of college students with a great algorithm. Once again- no connections, no business plan, no revenues, no protracted negotiations. He probably earned >100x return. Almost all of the medium-sized ($10-50M) acquisitions of the past 5 years followed this pattern (MyBlogLog, Reddit, TextPayMe, Zenter, ParaKey, anywhere.fm, Omnisio, Auctomatic, Writely, Jaiku, GrandCentral, FeedBurner, etc, etc, etc)

This is the missing link in Atlanta. Angels who are willing to fund smart guys with good ideas- without connections and without business plans and without a protracted negotiation. I understand why the Angels in Atlanta don't act like this, but you can't pretend like it is not the problem. If you want an ecosystem like the Valley- if you want to keep your entrepreneurs in the state, then you HAVE to be more risky and you HAVE to lower the barriers. Any complaining past that is hypocritical.

(Sorry if this seemed blunt. But I, and a lot of other entrepreneurs around here, are very sensitive to this issue.)

Erik Peterson | Aug 02, 08 at 05:41 PM

Why would someone like Jeff, who has options, allow anyone in Atlanta to fund him? For that matter... why would anyone with lots of traction - and thus options, allow anyone in Atlanta to fund them? When VCs (and most Angels) only invest in low-risk companies with lots of traction, they generate a lot of resentment among Atlanta entrepreneurs. That being the case - why reward them with the right to invest in your company?

Lets face it, most venture money in Atlanta is in real estate and that isn't going to change any time soon.

Urban Refugee | Aug 02, 08 at 08:52 PM

Urban refugee, you have brought up an interesting point. Waht you say was true from 200-2007, but no longer valid.

One of the opportunities that us in the tech startup community can capitalize on is the recent death of the developer class. Real estate guys who develop raw land, would borrow 10% of the cost from investors and then leverage that to acquire the other 90% from a bank in debt. But, starting fairly recently, banks have pretty much dropped out of that game completely. Sun Trust, et al, don't do those deals anymore. That leaves both the (former) developers, and their investors, looking for new avenues. Hello tech! We need to reach out to those people (who aren't bankrupt yet) and show them the opportunities that exist. It's part of my motivation for atllogos.com.

Paul Freet | Aug 02, 08 at 10:24 PM

One other thing I would like to say regarding building the right atmosphere to foster the entrepreneurial community... there is a benefit in investing in the community for the sake of growing the community and attracting new talent.

In the Valley and the cities where Y-Combinator, TechStars and alphalabs are, the shotgun approach not only fosters successful new companies, but it also brings great people closer together to potentially form new successes. One of the things I love about the Valley that I would love to see here is more interaction between early stage startups - not as a new face during an event, but as a neighbor as a product of co-working.

While there are many great ideas locally, the fact is many will fail due to lack of resources or lack of funding/support. If the angels or VC's were to only invest based on risk-less spreadsheets, then it would appear we (the community) would never get the chance to grow.

However, I'm sure there are failing startups on the west coast and other cities every week except the difference is those failed entrepreneurs stay in the area (because they are safe), form new teams and tackle new ideas. By attracting a huge number of talents in their communal pool, they are showing everyone that if you want to meet smart people, join dynamic, fast-paced startups, those are the cities you need to be.

For the city of Atlanta, it would behoove the community if someone or group is willing to step up and also give the starving entrepreneurs that same chance. In addition to money, time is also an asset I would like to keep. If various entrepreneurs can learn in 3 to 6 months that their ideas are doomed vs. learning the same lesson after 3.5 years, we would at least have gained more experience in less time and have the passion to form better teams and tackle bigger ideas from each new failure.

Entrepreneurs are all the same seed and you simply can't expect to grow the same sized crop if you're only willing to trickle the water in this city to the ones closest to the faucet.

The shotgun approach while more out of control, does have a positive effect for the ATL community. I would also think it's be a lot less risky to have angels micro-finance various (approved) startups than having multiple companies dropping $300k into one idea and banking all of it on one shot. Cause chances are if a few ideas took off from the communal approach, at least a few of them will reinvest in the community - I know I would.

Wei Yang | Aug 02, 08 at 11:25 PM

This is one heck of a comment stream. Many of the comments are worthy of posts themselves. My POV as stated in the post is obviously not shared by many entrepreneurs.

Erik, great comments. But I just gotta say if Peter or Andy invest in your startup you are connected to someone. That and if you have the kind of traction that FB and GOOG had when they took angel your physical locale will not prevent you from getting funding, I don't care where you are. The examples you gave were Small Team + Good Idea + Product + Users + Seed Money = Success = Angel Funding. Anyone have any stories that are Smart Person + Good Idea + Seed Money = Success?

Wei, there was an effort underway last fall to do what you propose that I was a part of. After lots of work by others and myself, seven angels committed.

Lance | Aug 03, 08 at 06:59 AM

Lance, I hear ya but I am inquiring because we obviously have not seen it materialize or advertised anywhere on blogs, twitter or in more official capacities.

Not to take a negative turn on this but the U.S. also committed a lot of money to hurricane victims and tsunami victims. While that's great and all, I think what the entrepreneurs are looking for is more action, accessible education and connections, and more lessons learned from the experiences.

Example: Startup Weekend came and went and the event itself has evolved rapidly through lessons learned over every one of their weekends. (They now even have corporate sponsors!) Outside of SW, it has built many great communities. That type of fast paced action is the momentum we need to push Atlanta forward.

If you guys don't think there's enough talent in the city, I can see that being a cause for concern. However, if you do see potential and want the talents to stay in the area, then I wouldn't sit on the sideline just to watch Atlanta companies flock to other cities with already successful programs.

Wei Yang | Aug 03, 08 at 11:41 AM

Erik: You say: "Why should I do "sweat equity" for somebody else's idea? I'd put in more time than the person running the business side, but would probably get less equity. It is unfair, and I'm not surprised that there aren't any developers willing to play that game."

There are several things wrong with this statement. First off, if a developer is unhappy with the amount of compensation he gets for work he's taken on, it's a failure of negotiation on his part. I don't disagree that there are lots of idea people unwilling to give up as much equity as they should to a developer to get an idea off the ground, but that's a different issue. For a small (ie $10-100k funding) startup to work, ALL the principals need to a) have their basic needs met and b) put in a lot of work as sweat equity. Secondly, I get the sense from your comment that you think the development side is intrinsically more valuable than the business side. I would have to disagree. For every 1 implementation that's successful, there are probably at least 9 you've never heard of that failed. The difference between the winners and losers is rarely the implementation. It's usually whether or not the business folks are able to find a way to get paid for the product. I don't discount the value of the development, trust me, as I developer+entrepreneur myself I realize the value of both. However, the implementation is necessary but not sufficient to create success. Lastly, if you get equity to work at a startup that was someone else's idea originally, once you have equity it's now YOUR (plural) idea. You have become a co-creator of the idea as it develops. Remember, as Edison said, Genius is 1% inspiration and 99% perspiration.

In any case, my point is that I see a lot more entrepreneurs willing to work with only enough money to survive in order to try to build a business, whereas I see many fewer developers willing to take on the same amount of risk. That's probably in part due to the fact that it's easy for a developer to get a high-paying job that they enjoy compared to a business person at an analogous level of experience. The net effect is that it stifles the entrepreneurial output of a community. I also think that part of the reason many developers might not be willing to take on the risk to work at a small startup is that they do realize that without adequate funding and time to "make it work", it is more likely that they build a working implementation but can't get to profitability. So why take the risk when you know you'll complete the development but aren't sure that the business side will have a chance to make it. I think the availability of micro-financing and more angel funding could do a lot to improve the availability of devs to the entrepreneurial community.

I do agree with your point about Atlanta not being a great place to take small chances on entrepreneurs, to get things off the ground. And that's what this thread is spending a lot of time on, and what I'm talking about. We as a community need to try to figure out how to grease the wheels for really early-stage startups. It's a new era now with development being an order of magnitude cheaper than 10 years ago, and $10-100k can truly build a company these days. If Atlanta can develop a culture that supports this, I do think that it would stem the flow of good business+developer people from leaving town. I have seen plenty of them leave since I've arrived in Atlanta, and it is a terrible thing.

Which leads me to my next point...

Paul: I really like your idea of going after other classes of investors and marketing the local tech entrepreneur community to them as a whole. I think this could pay great dividends in the future. I don't know how we would accomplish this, but I think it's a great idea.

Alan Pinstein | Aug 03, 08 at 12:06 PM

Wow, I just spent about a hour reading this thread - great conversation. What's really amazing is I don't think lot of these comments would have been made (at least with a real name behind them) a few months ago.

About Skribit, no one should have the notion that we're having a hard time getting funding. We're just getting to the point where we're starting to ask.

I'm probably going to get in trouble for asking this, but do we really have a vibrant startup community right now to warrant some 'in good faith' investments? Aside from a handful of companies out there, I'm just not seeing them, as far as websites are concerned. If it's only going to take 10-15k to seed some of these companies, I can't imagine why they can't build out a site already.

Maybe we just don't have a forum for them to tell people about them? Or maybe it's just me - I don't attend a lot of the social events.

Calvin Yu | Aug 03, 08 at 01:02 PM

Based on the applications at Startup Riot, and the participants at Startup Weekend I would say we at least have a great start for a vibrant community that could get the ball moving. If nothing else, the handful of us that are interested in seeing change is passionate about it.

Of course, if the seed/incubator lab idea is successful, there's no reason why entrepreneurs from surrounding cities like Charlotte, Raleigh, Nashville and others wouldn't eventually find their way here. ATL is after all, designed to be the hub for the south east.

With regards to seed money - yes, finding qualified senior level programmers to join startups is an issue. However, not all startups have the same hiccups and we're all in various stages. For some, $10-$15k is for development; for others, it could be the security blanket that's needed while the business development side go out for 4 months to get the ball rolling.

As for Skribit, I would love to catch up once you guys do get funding to see what challenges you guys faced and how you overcome it. At that time, if you guys get funded in Atlanta AND still feel like it wasn't a hard process then you guys will definitely have a lot to teach the rest of us.

Wei Yang | Aug 03, 08 at 05:53 PM

"Paul: I really like your idea of going after other classes of investors and marketing the local tech entrepreneur community to them as a whole. I think this could pay great dividends in the future. I don't know how we would accomplish this, but I think it's a great idea."

Alan - unless someone figures out how to make this happen, we're really just wanking, aren't we? Atlanta will remain a town where a tech startup can succeed - but only if it can bootstrap itself to major traction and profitability. That being the case - what advantage is there to being in Atlanta over any other city? If a good team + good product + good execution can get you funding to grow anywhere... what does Atlanta have to offer that any other city in America lacks?

You're not sure what can be done, but is anyone else? What can be done to attract those kinds of investors?

Russell Jurney | Aug 03, 08 at 07:39 PM

Reading this blog brings back memories of my efforts trying to get something off the ground in Atlanta. There are a variety of reasons I think Atlanta is less than optimal. Ultimately, I decided to move out West (I'd rather be with long time friends in Atlanta) to get something rolling. I'm just a few months away from starting to raise money and happy to share my experiences with the members of this community that are interested. Frankly, I don't think it will be *that* much easier, but I do feel there are a lot more folks out here with cash to invest (Seattle area).

One thing I would say Atlanta brings is a much lower cost of living than the West coast. Good software developers should by virtue of lower cost of living, be cheaper - assuming you can find them in the ATL. I've always thought you could "outsource to Atlanta".

Does anyone have a list of Atlanta-area companies that have been funded to the tune of $200-500K in the last year or two? It would be interesting to see who's funded and how they are progressing.

Lou Fasulo | Aug 04, 08 at 12:48 AM

Lou: I believe wwwa.atllogos.com has a pretty good, though not yet comprehensive list of startups that have been angel funded.

Lance | Aug 04, 08 at 07:02 AM

I am a bit late to the comment stream here but I wanted to weigh in as I have straddled the boundaries between entrepreneur and early-stage investor over the last 10 years here in Atlanta. I have started a few Internet related companies and I have invested funds that I made from the sale of a startup into other startups.

I personally think that the problem that we have in Atlanta is not a lack of a venture capital but rather a shortage of true seed/early-stage capital. To truly move Atlanta into the big leagues, we need to grow the amount of early stage capital that flows into pre-revenue companies.

I don’t have any statistics to back up my claim but I tend to think that the amount of early-stage/seed capital that was invested in 1999, 2000, and 2001 would be roughly equivalent to what it has been in 2006, 2007, and 2008. There is still a shortage of early-stage capital available to companies that want/need to get from idea stage to prototype stage and then to the first $100,000 in revenue. Why is this the case and how can we encourage more early-stage investment in Atlanta?

We have not seen an expansion in angel investor dollars partly because of the lack of ecosystem development as Jamie Bardin and others have talked about. We need technology entrepreneurs to have big wins and invest some of their wins back into other startup ventures.

But additionally, and admittedly inter-related, I believe the growth is not occurring because when measured on the aggregate, Atlanta-based angel investors have not seen above average returns that they have hoped for. Simply put, investing in early stage companies in Atlanta from 1998 to present has not yielded a financial return that is consistent with the level of risk that is being taken. In fact, for many that were involved in the last 10 years, it has been a losing proposition.

This post encouraged me to go back and examine my own personal track record. Since 1998, I invested my own money in over 15 companies, the majority of them Atlanta based. To date, I have received a positive exit in only 2—SPI Dynamics and SearchIgnite. Out of the other 15, I still am holding out hope for a positive return in 2 or 3. With the other 10, I have either lost my entire investment or have received an amount less than my initial investment. So, on the whole, I estimate that I am at about break even over the last 10 years. Put another way, my average annual return over the preceding 10-year period is about 0%!

This lack of performance could be due to the economic performance during this time period or for my inability to pick quality companies, great business models, or superior founding teams. Or, a handful of other possible reasons. Regardless of the reason, I can say with certainty that while I am still interested in early-stage investing and want to see the Atlanta tech community flourish, I am definitely more hesitant to pull out my purse.

I wanted to share this not to discourage further angel investing but to lend some perspective on why there may be a shortage of early-stage money available here in town.

So, what will get the Atlanta angel investor excited to stroke more checks and how can we solve this issue—we need more BIG success stories. We need to hear about how angel investors here in Atlanta invested $100,000 and it translated into $2,500,000. You hear those stories in the Valley. We need the state of Georgia to provide qualified and transferable tax credits for investing in startup companies. We need more people to consider early stage investing their dedicated profession--we can’t expect Sig and Melanie to carry Atlanta. We need more early stage funds to be established. And we need to ensure that the venture capitalists respect the risk and capital that early stage investors have taken (I recently had the unpleasant experience of a company selling and the angel investors received approx 65% of their initial investment back while the VC’s received approx 2.5x’s their investment.)

Thanks to all that have prompted this discussion and for all of you that have been working hard over the last couple of years to make Atlanta a more vibrant and progressive technology community.

Allen Graber | Aug 04, 08 at 05:15 PM

Allen: Your point is well taken with me, if I understood it correctly. We are not all islands, each of our successes or failures colors the climate for everyone else. Success breeds more success. God knows we've got the talent here, we should be able to see real successes here.

Perchance Atlanta's best shot is to pool our energies and work as a community to ensure that we see regional successes as much as possible by creating a support network for the serious entrepreneurs in the area? I feel that today one's team in Atlanta must have a real "go-it-alone" ethos to achieve success here; I know I did when I was running my prior company. Maybe we should be more like (what I've heard) Harvard (is like) by analogy and once someone is "accepted" then the greater Harvard community works to make each and everyone of them a success?

Some of the thoughts I shared with you today at Jelly, and plan to share with Lance, are along those lines albeit they are only the tip of the iceberg of what we could collectively do if we really put our minds to it and made a commitment to execute.

Mike Schinkel | Aug 04, 08 at 07:07 PM

Allen, thanks for providing an investor's perspective. You outlined a few things that we can all do to make Atlanta a better place. I'll try to identify concrete next steps each of us can take to make this happen. It would be great if others could pitch in and we can come up with and execute a plan to get this done.

1) we need more BIG success stories.

- BIG success stories come out of IPOs, which are extra-ordinarily hard to do especially today, or acquisitions by bigger companies (which are fewer here than in the valley). One of the things we can do to increase acquisitions is for each of us who has the opportunity of talking to the corporate development people there or at events outside Atlanta (especially in the valley) to be ambassadors not just of our respective investees/startups but of all Atlanta startups. Often getting in the door is hardest step for startups that larger companies have never heard of (from sources they trust).

2) We need the state of Georgia to provide qualified and transferable tax credits for investing in startup companies.

This is an area where I am a novice but I am sure some sort of lobbying/marketing effort to push this can be put together. We already have a few organizations (ATDC, GTF) that could serve as a rallying point / front for entrepreneurs and investors alike to hold events via or issue press releases from. If there isn't an organization that can perform this role we can put one together.

3) We need more people to consider early stage investing their dedicated profession--we can’t expect Sig and Melanie to carry Atlanta. We need more early stage funds to be established.

This may again boil down to marketing and making sure the successes we do see in Atlanta (big or small), are publicized. This is also the way to attract new kinds of investors or new investors. Again, there may be an organization that can take up this role with the support (in effort or money) of startups and investors in Atlanta, and if not, we should form one.

4) And we need to ensure that the venture capitalists respect the risk and capital that early stage investors have taken

Making sure investors and startup founders treat each other right essentially boils down to trust which depends on feedback. If we provide the community with feedback on counter parties, eventually statups, VCs and angel investors will be incentivized to play fairly with each other. Feedback comes with personal biases but if there's enough of it, those biases can be eliminated. Having new forums to meet and discuss such things such as startup riot/coffee/dinner, barcamp etc help us here.

Aarjav | Aug 04, 08 at 07:47 PM

One perspective I surprised that I don’t think that I see represented is that deals like Appcelerator may be exactly what the Atlanta tech community needs, even if Atlanta may some loose companies in the process.

Seems that most of the posts are dwelling on the negative of loosing Jeff and his team and the difficulty of raising cash. But let’s not lose site of the fact that another Atlanta company got funded. That’s a good thing, right? This reflects well on the entire Atlanta tech scene and, to the extent Appcelerator succeeds, outside VCs will be more likely to look at Atlanta deals in the future. More competition for deals means more options for entrepreneurs and higher valuations. It also means Atlanta VCs may be inspired to move more aggressively the next time around.

Recently, ClearLeap raised a substantial round with Trinity, a strong West Coast VC. And Jeff/Nolan have cracked the door to Valley funding open a little wider for the rest of us. Like many of the folks on this blog, I’m trying to raise seed funding and when (and if) this is accomplished, it will soon be time to look for VC funding. If I get to this point, there are two things I’ll be sure to do. 1. Approach Trinity. The best predictor of whether a VC will invest in an Atlanta company is whether they have already invested in a Atlanta company. 2. Call up Nolan and ask him for a lay of the Valley VC landscape and intros to the VCs he and Jeff have talked to.

Rob Shields | Aug 07, 08 at 08:35 PM

If anyone cares, I have posted a post which gives a little more color to the situation and detail around the move:

http://blog.jeffhaynie.us/whats-wrong-with-the-atlanta-startup-ecosystem-and-how-to-fix-it.html#

Jeff Haynie | Aug 08, 08 at 04:39 AM

Thanks for the useful info. It's so interesting

BobMarche | Jun 11, 09 at 12:56 AM