Sig Cares

Last night I was invited out to Villa Christina for The Technology Executives Roundtable to attend the John Imlay Leadership Award Ceremony in honor of Sig Mosley, president of Imlay Investments. Sig has been involved with over 125 deals over the years. This summer, before he shut down actively investing in new deals, he did five in a closing frenzy.

The arrival of the crowd literally overwhelmed the valets. The place was packed with true tech luminaries. 

After being presented the first ever John Imlay Leadership Award to a rousing ovation Sig sat down for a chat with the award namesake, John Imlay. It was the highlight of the evening.  John is quite the character and a fun fellow. But at one point he got pretty serious and said "Sig cares". And Sig does. Sig cares about every entrepreneur he meets, every company he invests in, and making the Atlanta tech scene a little bit of a better place than when he started.

While famous for "Sig said no" he is not saying that much these days. But he still cares. Sig cares. A fitting epitaph for a living legend bestowed by none other than the man that got out his big checkbook to make a difference.

Paul Graham On Startup Funding

Paul Graham discusses the turmoil in the world of startup funding and the battle between super angels and venture capitalists at Startup School. Insightful analysis and a must view if you have any interest at all in the funding of technology startups.

Money quote: "The next couple of years is going to be a great time to raise money." That does not quite apply yet in this neck of the woods.

Southern Seed Venture Capital

So I was talking to an Atlanta based venture capitalist type. Told me that they were putting together the paperwork to raise their next fund. Going to be twice the size. Good news. The even better news?  It is going to include provisions for seed investments in the $250k - $500k range.  Another Atlanta VC has been poking around for deals in this range as well. With IDEA, Novak Biddle, and Vahalla dipping down to fund the likes of SolidFire and StatSheet the VC seed funding trend is making it's way to the South. 

Everyone knows Atlanta has a bit of a void in seed stage funding. It seems that venture capitalists are starting to move to fill that void. Everybody needs to know that as well.

The Real Lesson of AngelGate

So Michael Arrington walks in uninvited to a dinner party of a bunch of powerful angel investors and they all shut up and tell him to go away. He starts screaming collusion in a quite successful attempt to draw page views. Good for him.

Well a bunch of angel investors got together over dinner at a place that has an entry wine price of $60 a bottle. What do you expect them to talk about? Lindsay Lohan? Financers get together and they talk deals. They talk deal terms. They talk valuations. If you don't think they are talking about these things you are naive. There is even a quite popular app that enables angels to collaborate with other investors. No BFD. Get over it.

The more interesting thing is this. Right about the time Arrington was dropping his link bomb about walking into a bar local VC Alan Taetle was preparing for a panel at CapVenture. I literally sent him a text "panel fodder" with the link as he was walking to the stage. The conversation did not go that way. Instead in his closing remarks Alan stated something to the effect of  "I have never seen a as big a difference between Atlanta and Silicon Valley as I see right now."

The aftermath in the blogosphere of AngelGate is quite telling and supportive of Alan's statement. Comments like "the angel/seed market is really competitive these days, particularly in silicon valley", "the root problem (I think) is the excess of seed capital", "too many sources of money and too high valuations for early stage companies", and "angels and traditional VCs alike are fighting for deal flow" which pretty much sums up the sentiment. Somewhere in the flood of info I read about $4 million pre-money valuations on $500k seed investments. And I swear to Jobs, I have heard both a VC and angel that I respect a great deal to use the term "frothy" to describe the current environment on the West Coast.

Frothy? Only in a Guinness east of the Mississippi. So what gives?

Well this whole super angel VC debate that has been going on for about 90 days is much more than just theoretical. These dudes are going at it. Big name brand funds are swooping down and writing $500k seed round checks. They are doing this for structural reasons that need no explanation to readers of FoG. But they are doing it for another reason as well. Fear. Fear that their way of life with exotic imports, expensive wine, and hot assistants will go away along with that big fat carry if their funds do not perform. Fear is a very powerful motivator.

Here in the South the seed stage investment environment is parched. There is almost zero competition for seed stage deals (I know of one such situation in the past two years). Deals get done. But only the better ones (not a bad thing) and it takes about six months to get something closed. I do not see anything changing that in the near term. These West Coast early stage investors may decide they need to go where the deal terms are better. They may decide they need to travel. I would not bet on that behavior.

As one astute observer said the other night, "if you are portable, go." At the moment, it's hard to argue with that advice. My advice remains unchanged.  Focusing on building product and getting customers.  You do those two things and everything will turn out just fine.

With that said the real lesson of AngelGate is that there has never been as large a disparity in seed stage investing than what currently exists on the West Coast and in the South. Deal with it.

Angels in Atlanta

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.  

Great conversation. It was a good night.

Think Small

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. 

Scrappiness

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.

FoG is pretty well read by the Atlanta entrepreneurial community. You know how many people took me up on my open offer to help them work a deal to get funding? Zero.

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.

Stop complaining.  Just do it.

Venture Here

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.

Well Let's Find Out

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.

Let's find out.

It just so happens that Fred Wilson wrote an article today about AngelList.  The name says it all. A big long list of angel investors and the deals they have done. While I am sure that is ideal to have someone already committed before you do so and a warm intro to one of the folks on AngelList, it is not necessary.

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.

Asking The Wrong 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.