Recently I was talking to an entrepreneur about the Atlanta startup community and I was arguing that it’s a hidden gem for reasons I’ve mentioned before (here, here, and here). He brought up a different opinion that I hadn’t heard: Atlanta is great for early stage startups but not idea stage. One way to think about the stage of startups is that idea stage startups are pre-revenue to a few hundred thousand in revenues while early stage startups are a few hundred thousand to a few million in revenues.
Here are a few reasons why idea stage startups struggle in Atlanta:
- There aren’t anchor technology companies like Google and eBay that acquire startups and recruit talent to the region
- The lore of local college drop outs building billion dollar companies doesn’t permeate the regional universities
- Regional universities focus on job placement at Fortune 500 companies and continue the culture of big company = safe employment
- The number of technical and business co-founders that can keep their lifestyle and not take a salary due to a previously successful exit is tiny
- The access to extremely risky capital for idea stage startups is minimal
So, the theory goes that even though Atlanta has the largest engineering school in the country with great technical graduates, a low cost of living, direct flights at an affordable cost to almost anywhere in the world, and a huge population of ambitious young professionals, if your startup can’t afford to pay market-rate salaries, you’re going to have a hard time taking the idea stage startup to early stage startup.
What else? Do you think Atlanta is great for early stage startups but not idea stage ones?
David Cummings on Startups 
I covertly followed a campus tour a couple months back at Ga Tech. As the group settled in front of the Klaus advanced computing building, the young female tour guide enthralled her audience with the story of Chris Klaus and his billion dollar startup launched as a Ga Tech undergraduate.
Paul, I remember my campus tour in 1997, in which I became enthralled with the challenge of stealing the “T” from Tech Tower. Four years later, along with a select few individuals, I made what I consider to be a decent attempt at removing the letter, but ended up failing, and then took a little time off from school : ). Unfortunately, I don’t know if anyone has tried since my group made a go of it in 2001.
In similar fashion, I don’t know if the culture of Georgia Tech has changed from Chris’s incredible grand slam victory enough that others are taking those big swings. If we were to compare GT with Stanford, Harvard, or MIT, the number of startups produced would pale in comparison.
I guess the question is: Who is our (GT’s) competition? The bulldogs in football? Duke in basketball? Or the premier undergraduate and graduate learning institutions in the nation, (Duke included), at production of innovation and job growth for the United States?
First of all, I think it’s important to separate pure “idea” stage companies, which are not really companies yet, from companies with early product and prototypes. Ideas are mostly unfundable anywhere, without a track record.
Using the ATA’s recent funding guidelines as a temperature-check on the funding environment, my take is that Atlanta’s funding levels are a stage behind hotter markets. A company here has to hit what are effectively $5M Series A metrics some places to justify a $500k “Series A” investment here.
In fast-emerging, competitive product spaces, this means that an Atlanta company will typically be under-capitalized relative to its competition. There is ample room for companies to stake out opportunities in smaller markets, and they can still become sizable companies. These companies can grow slower, but the funding and exit opportunities are going to be smaller, and it’s far less likely that employees will clear enough on an exit to pursue their own endeavor. Here, I’m preaching to the choir.
The competition for talent is no different than anywhere else. Top talent expects to be paid at market rates to work on interesting problems in non-caustic work environments. In a market with little true seed stage capital, this means that the talent jumps into later stage companies (startup or otherwise) where success means a nice bonus every year, and little more.
If I didn’t think it was possible and worthwhile to build a successful startup here, I wouldn’t still be here. But I do think we need more fuel and consistency in the cycle of capital reinvestment to pave over some of the present dysfunction that may make Atlanta less competitive.
This applies to practically any city in the world. As a B2B startup, we’ve found Atlanta to be a great-place that provides lots of access to potential customers and partners. Idea-stage capital is available, it just takes effort to get it.
Great supplemental piece from Chris Dixon explaining what NYC does and doesn’t need. http://cdixon.org/2011/08/02/what-the-nyc-startup-world-needs-and-doesnt-need/
Great post David. What you write about here summarizes why I became disillusioned after 3+ years of running Atlanta Web Entrepreneurs meetup group. And one of my main realizations was that the 11 local Fortune 500 companies “suck the air out of the room” with respect to mindshare and talent, and they do (almost) nothing to foster a culture of entrepreneurism as companies like Google do. And “entrepreneurship” is a fringe concept for Georgia Tech too, only the really driven students get motivated to not chase the safe path.
So rather than continue to beat the drum for idea companies I decided to go build a B2B company that can bootstrap itself with revenue. I am definitely seeing a lot more success with that approach, albeit spending a lot less time around interesting people like you lately. 🙂
Interesting, my co-founders fled to Boulder. I’m still here though. I think one of the many things that discouraged them about Atlanta was when they went to the ATDC to inquire about joining and office space, and as they entered the office, the person who was handling these things at the time said, “I’m going to fix my computer while I talk to you. What do you think about that?”
There were other things of course, but this was probably the thing that stuck in their minds the most–people who have nothing to brag about seeing themselves as a prize to be won.
Justin – want to name names?
http://www.bizjournals.com/seattle/news/2011/08/03/slideshow-top-10-states-for-venture.html?s=image_gallery
North Carolina is a surprising #8.