After talking a bit about the Atlanta startup community on Friday, it got me thinking more about the potential impact of a $10 million seed stage fund in the community. A few weeks ago I heard a rumor that some local big money real estate guys were thinking of doing a tech fund in their effort to find alpha in this investing climate (sign of the next bubble?). With all the publicity about Facebook, Twitter, and Groupon valuations, investors that haven’t participated in seed and early stage tech investing are thinking about getting in the game (little do they know how difficult it is to be successful).
Here’s what a $10 million seed fund might look like:
- Seven year fund with 3% annual management fee providing $300k/year for salaries and expenses (normal management fee is 2% for larger funds)
- $7.9 million available to invest after management fees
- 40 $100k investments representing $4 million
- 13 of the original investments receiving follow-on rounds averaging $300k each representing $3.9 million (the idea is to reserve 3x the initial investment for roughly 1/3 of the original investments)
- Between three and six of the 40 investments would be successful getting a nice return and one or two of those would have a great return returning most of the fund
- Outcome would be upwards of a half dozen success stories for Atlanta combined with numerous net-new jobs and more startups in the community
A few weeks ago I was at a Georgia Tech dinner and John Imlay sat directly behind me. When introducing himself to the group he said Imlay Investments has invested in 125 startups to date (not all in Atlanta but most). A $10 million seed fund would have no where near that kind of impact but it would be a great start.
What else? What are some other thoughts on a $10 million seed fund for Atlanta?
David Cummings on Startups 