Last night I sat at the monthly Atlanta Technology Angels I sat on a panel with Mike Dowdle of Generation Station, Merrick Furst of Profounder, Wayt King of Shotput Ventures, Glenn McGonnigle of TechOperators. Fine group of men. Our topic for the evening was “where are the fundable deals in Atlanta?” I had two points that I wanted to share last night and today.
One was that there are a lot of angel type deals getting done. ATDC recently surveyed its member base. The results were astonishing to me. While the numbers are raw and need some massaging, over the course of the past year approximately 60 startups took in a seed or angel round raising over $18 million in the process. That is not counting those companies, and there are quite a few, that took in venture capital. ATDC's great social experiment of 2009 was a success.
Two was that mentoring by angels is very important. Not sure how this went over with the group but I believe it to be true. Atlanta needs more angels out tinkering with startups. The example that I gave was the one of SkyBlox pivoting to ScoutMob. From my understanding an angel played a big role in that move. I also find it interesting that at the same time the Atlanta event was transpiring that there was an old and new school angel investing clash in Chicago that mentioned the importance of mentorship at least twice.
Those other guys had good points too. Mike on how long it takes to raise money, Merrick on how we need to be more honest with entrepreneurs so that they can create a fundable deal, Wayt on the lack of entrepreneur scrappiness (which by the way was generally agreed to by those in the room), and Glenn on how this is a separation between the types of deals angels in Atlanta want to fund and the types of startups being created.
Sometime toward the end of the first quarter the deal dam broke. Lots of activity. Lots of term sheets. It seemed like these deals had something in common. There seemed to be a trend. So I did a little math. While I am by no means the MoneyTree I counted up 15 deals that had been funded in the past six months that I some knowledge of closing in Atlanta. All of them in the infotech space. Total of $24 million raised. Average deal size $1.6 million.
It is interesting to break out the angel and venture deals. Seven angel deals closed at an average round size off $508k. The smallest deal was $300, the largest $750. The VC deals averaged out to $2.6 million.
The $2.5 venture round has made its way to the South.
Well the folks over at TechDrawl are sure stirring things up these days. An article about the golden age of consumer focused startups morphing into a conversation about a constitutional amendment on the ballot in the fall concerning non-competes. Oh my!
But somewhere buried in those comments is this little gem by Wayt King:
"I wrote checks totaling almost $1M to fund ATL startups. But the
quality of startup deals that I ran across was disappointing. So I
basically "gave up" at the end of 2009. Where are (were) the fundable
ATL-based web services startups, and why couldn't they figure out that I
was writing checks? IMHO, there is angel money available in Atlanta for
consumer web deals (though not via ATA); it's the scrappy entrepreneurs
who are in short supply. Stop complaining, quit your day job, burn the
ships, and "make something people want." Fail quickly, and do it again.
And again. Just Do It."
Wayt is making two points here that deserve more than just a passing comment.
The first, which I have been advocating, is that there are not many fundable seed stage deals in Atlanta at the moment. This is also supported by the recent change, and the stated reason for the change, in Shotput Ventures model.
The second, which is a little more disturbing, is that it is not just the overall quality of the startups but the scrappiness of the entrepreneurs. Here is a guy that dropped a $1 million over the course of two years on seed stage startups, many of them in a very public manner, and he is not seeing deal flow. I am sure there will be some thoughts that he should be more public or easier to find or have a web page. I ain't buying it. An entrepreneur has to be smart enough and aggressive enough to find the person with the check. Some points that back Wayt's assertion.
I have written many times about Profounder, a seed-stage investment company where I am a special partner. You know how many entrepreneurs have asked me about the firm this year? Zero.
There are two conclusions I draw from this. The first, which I hope is true, is that entrepreneurs are becoming better educated about what a fundable company needs to look and feel like. The second, is that entrepreneurs need to get more creative and aggressive in uncovering the funding they need to grow their business.
Venture Atlanta is Georgia's largest technology investor conference. It connects emerging Georgia technology companies with top-tier angels, bankers, and venture capitalists. This year the conference is taking place at the Georgia Aquarium on October 12th and 13th.
Venture Atlanta is currently seeking technology businesses in all stages of growth that are currently raising or looking to raise capital within the next year. There is no cost to apply or present. Simply go complete the brief application and submit a two page executive summary. Applications close on Friday, August 20.
So TechDrawl is saying let's somehow build a new investor orientation that does not exist in Atlanta. It is my point of view that doing this is going to take a bit of time to correct and entrepreneurs should focus on building their businesses. At some point this is essentially the local investors don't get it or the startups are not fundable.
They have a nice little application form. The things it asks for are interesting. A product demo, team, social proof, traction, and differentiation. That is what angels investors in San Francisco are asking. Sounds familiar to me and I have not been to the valley in a while.
Anyhow, you think you got what it takes? Reach out to me and let's work your deal. It's what I do for a living. And on Saturday morning for fun.
So over on TechDrawl Dave Walters has a post that is stirring up the restless yet once again. Toward the end Dave poses a series of questions.
So the real question is: when the revolution happens, will you help push
it forward or will you defend the old school? What side of history will
you be on? I ask the question equally of investors and entrepreneurs
because it will be ours to live day-in and day-out. Will you mentor
younger entrepreneurs? Will you make investments based on passion for an
idea not an actuarial view of the world? Will you lead the community?
Will you become an angel following a successful exit? Will you finally
welcome the consumer Internet with open arms? Will you give away 10%
more of your company to make it 70% larger? And most importantly, are
you willing to celebrate failure enough times to have a real crack at
creating the next Facebook or Google?
While passion is important, investors do not invest on passion alone, they want potential. And I thought this part of the world sometime ago that goading investors is not a really good strategy. They are not going to invest in the consumer Internet unless that is where they came from and they see a deal that they like. There are people that do this, though not a lot. The only way that is going to be solved is a big success in the space.
Sure Sig exiting the game is going to be leaving a big hole. But he is certainly going out with a bang if what I am hearing about term sheets is true. Not only is the money is laying down going to be missed but the organization that he brings to the deals is paramount. While I certainly don't know, I would say that in a typical deal that Imay leads they throw down $250k with the terms and grab another $500k from seven independent angels. Imlay herds all these cats and get the deal closed. It's a lot of work.
And it's a lot of money. Again, I don't know, but let's say that Imlay has $25 million outstanding right now across more then 30 deals. In order to step into this role and maintain the proper asset class balance a person would need to have a net worth of $500 million. I don't know anyway outside of John Imlay that has that type of coin. And I am telling you eight people getting together to do a deal where the big cat can write a $100k check is not going to happen five or ten times a year in this town.
The real questions you need to be asking yourself are how do I make this thing go without taking rather expensive angel financing when the value of my company is so low, how do I get a product, how do I get users.
There are people in Atlanta that are doing this with consumer focused Internet companies. But they are not reading FoG or TechDrawl. They are building a business.
CapVenture is a training program that is put on by ATDC and TAG that is in its third year. The purpose of the program is to prepare companies seeking their first round of institutional funding to go out and get it. The programming takes place for six Tuesday evenings beginning on August 17. The final night, September 21, is pitch night. The top company that emerges from CapVenture, as voted on by the audience (a crowd of about 100 investors and tech leaders) during the final presentations, will be offered a slot to present at Venture Atlanta.
Back in March I wrote about the Angel Investor Tax Credit Bill. Well Georgia HB 1001 has morphed into Georgia HB 1069. The bill has passed both the State House of Representatives and the State Senate. It now sits on the Governor’s desk. It has been sitting there for a bit. Governor Perdue has until June 8th to sign, veto, or pocket veto the bill. It is time for the technology community to weigh in directly to the Governor. It's time for you to ask to him to sign the bill HB 1069. Now. Immediately. Here's why.
If all the tax credits are used it would mean roughly $100,000,000 potential investment into Georgia companies.
Technology startups that receive financial support related to the passage of the bill will have a direct and positive impact on job creation in Georgia.
Passing the bill will be conducive to providing an environment that will enable startup businesses in Georgia to remain in the state and succeed.
Georgia is competing with 23 other states which have such incentives for early
stage investors, those who directly invest in startup businesses.
People have been working diligently on the Angel Investor Tax Credit Bill for some time. Passing this bill is in the best interest of entrepreneurs and small
businesses in our state. It's time to make it law.
Both Sanjay Parekh and David cited an underlying cause for the change that did not surprise me. There is a small supply of investable seed stages companies and little demand for a capital light web accelerator program in the southeast. When Shotput, and its never funded predecessor BoostPhase, where in their formative stages I estimated the supply of investable companies in the southeast to be four. Shotput invested in eight in 2009, three from the southeast (and intend to do three to five deals annually going forward).
The five from the 2009 class not from Atlanta left when the summer program was over. The saddening fact is they saw no follow on funding. Not enough VCs and angel investors interested in the deals. To the best of my knowledge, twofour Shotput companies (Eventhive, Khush, Looxii, and OpenHatch) received follow on funding. Solve that problem, like the TechStars results show, by getting investors from around the country at investor day, and the class structure could work.
Now that the landmark national health care legislation is heading to the desk of President Obama let's turn our attention to a less controversial topic to the readers of FoG. Encouraging angels investors to invest in early stage, innovative, wealth-creating businesses.
Georgia House Bill 1001 is the Angel Investor Tax Credit Bill. It essentially grants up to a $50,000 tax credit to those that invest in businesses that are located in the state of Georgia, less than three years old, employ fewer than 20 employees, has less than $500k in revenue, and less than $1 million in funding. Industries that it targets include software development and information technology services. This bill aims to help entrepreneurs in Georgia to have a better chance of obtaining early stage capital. Twenty two other states have such incentives in
place. It is time for Georgia to step up.
A number of technology leaders have been working hard to gain passage of the bill in the current Session of this year’s Georgia General Assembly. This bill was introduced by the Technology Association of Georgia and
has the support of the Georgia Chamber of Commerce, The National
Federation of Independent Business, and The Georgia Public Policy
Foundation.
The bill has been successfully progressing through various committees of the House of Representatives following which the bill will go to the Senate. This week is a very important week for the bill. There are two very important committees which will review the bill and then the bill will go to the floor of the House for a full vote, all this week.
Gaining support of the leadership of the House will go a long way in helping the bill successfully emerge this process in a timely fashion. We can gain that support by reaching out to the leadership and our elected officials and encourage them to support HB1001. The contact info of the house leadership is noted below. In addition TAG has put together a nice site that will identify your district's representative and send them an email.
Below are also some bullet points that you might want to hit in a personalized call/message to your representatives.
I support for House Bull 1001, The Angel Investor Tax Credit Bill
Georgia needs this economic development tool today
Many promising start-up companies in Georgia, most of which have been created by graduates of Georgia colleges and universities, are at risk in today’s challenging economic environment
The primary source of capital for these businesses are angel investors: private individuals who take personal financial risk to enhance business and job creation in the state
HB 1001 will incentivize angel investors to further engage to help promising young companies get started and create jobs in our state and to stay in Georgia
Twenty two other states have utilizing these investment incentives for years and those states have benefited from new business creation, new jobs and new revenue
Competing states also benefit from Georgia innovation as we’ve seen entrepreneur-graduates of our schools leave our state in pursuit of capital in other states, HB 1001 will help to address this issue
Thank You
If you are one of the folks that has lamented about how tight angel investment is in Georgia you owe it to yourself and to the technology community to take a few moments to voice your support of HB1001. In the words of Frank Bartles, "and thank you for your support."
Speaker of the House; David Ralston:-Blue Ridge dralston1@etcmail.com 404.656.5020 (Office at Capitol) 706.632.2221 (District Office) Chief of Staff: Spiro Amburn spiro.amburn@house.ga.gov Assistant: Gina McKinney, ginny.mckinney@house.ga.gov
Majority Caucus Chair: Donna Sheldon-Dacula Gwinnett donna.sheldon@house.ga.gov 404.656.5025 (Capitol) 770.963.5472 (Home) Assistant: Linda Nations lynda.nations@house.ga.gov
Majority Caucus Vice Chair: Jeff May-Monroe jeff.may@house.ga.gov 404.656.5025 (Capitol) 770.318.1491 (Cell) Assistant: Linda Nations Lynda.nations@house.ga.gov
House Rules Chairman: Bill Hembree-Winston-Douglas bill.hembree@house.ga.gov 404.656.5141 (Capitol) 770.942.1656 (Cell) Assistant: Donna Woodham dona.woodham@house.ga.gov
The opinions expressed here are mine and mine alone (with the exception of comments by others of course). They do not represent the opinion or position of any other person on entity. All postings adhere to my personal values.
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