Category: Community

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?

After the successful Startup Riot 2011 on Wednesday much of the Atlanta startup community was pumped-up and excited about our growing eco-system. Dave Wright’s announcement last night that he was moving his pre-revenue company SolidFire, which had just raised $11 million, to Boulder, CO caught many people by surprise. At our Shotput Ventures partners’ meeting last month Dave told of his plans to move to Colorado due to the need for specialized engineers with storage system experience. The Atlanta startup community, much like a startup in and of itself, has highs and lows which are part of the process of building something great.

Monday of this week Mark Suster published a piece on TechCrunch titled Can You Really Build a Great Tech Firm Outside Silicon Valley? where he outlines some of the challenges, and benefits, of building a startup outside Silicon Valley. Everything he highlights about Los Angeles is applicable here in Atlanta. Let’s look at his categories in an Atlanta context:

• Funding is different outside of Silicon Valley – Funding in Atlanta doesn’t take place unless you have (a) a proven track record/pedigree, (b) product traction (generally $100,000 in revenue), or (c) wealthy friends, family, or fools (3 Fs of angel investing). Naturally, with funding restricted to these three items there isn’t much tech investing that takes place.
• “Necessity is the mother of all invention” and drives business outside the Valley – Do you have an idea for a business application that solves real, validated corporate issues? Atlanta works great for those kind of companies (B2B SaaS is especially hot right now). If you have an idea for a consumer application that requires significant scale and network effect before monetization you’re probably better off someplace else.
• Recruiting and retention will be different outside the Valley – Atlanta is especially beneficial in this regard due to great engineering talent from Georgia Tech and throughout the Southeast, combined with low turnover (assuming you have a strong corporate culture), and a limited number of other startups in the area. Salaries and cost of living are also commensurately lower making it a great place to bootstrap or build capital-light web businesses. Did you know you can buy a decent condo in Buckhead, one of the nicest and most affluent areas in the Southeast, for under $100,000?
• There are many strategic assets outside of Silicon Valley – Atlanta has an amazing Internet security cluster, the world’s busiest airport (makes flying more affordable and efficient than most places), and tons of young professionals perfect for building out sales and services teams.
• Communities outside the Valley have matured – The Atlanta startup community is 10x more vibrant and active compared to when I moved here in 2002. If you follow @mattstech (and who doesn’t?) you’ll see that there’s a startup event most days of the week. It really is that busy. The ATDC, truly a strategic asset as well, has become the heart of the Atlanta startup community and facilitates many great events. We have a startup community in Atlanta that’s growing every year. Are we a major player? No. Do we have the right ingredients? Yes.

In the end, the most important thing we can do as a community is build meaningful, enduring companies that employ as many local people as possible and let the results speak for themselves.

What else? What would you add about the startup community in Atlanta? Oh yeah, we’re hiring a bunch of people this year, so please send referrals my way.

Today’s Startup Riot 2011 in Atlanta was definitely the best one yet. Now in its fourth year, this year’s event had a better venue (The Tabernacle), better internet access, better swag, and, most importantly, great startups. Here are a few quick thoughts on the event:

• Several startups focused on social proof by showing slides with logos of existing customers or prospects in their pipeline
• Most startups were looking to raise angel rounds of $250k – $500k
• Most startups were pre-revenue and a fair number were pre-product launch
• The table areas to meet the startups were packed throughout the day — a great sign that attendees were spending time with the companies
• 90% of the startups were from Atlanta but at least one was from South Carolina, Boston, Germany, and Australia
• One presenter said, when trying to build up the credibility of his management, that someone said his team was too good to do a startup (which is ridiculous to me)

Overall it was a great event. Well done Sanjay!

What else? What other thoughts did you have about Startup Riot 2011?

Tomorrow Atlanta’s very own Startup Riot takes place at the Tabernacle downtown. Sanjay Parekh puts on a great show every year and I’m sure tomorrow’s event won’t disappoint. The idea is to have 50 startups give three minute pitches with two keynotes mixed in. Whenever I mention the event to people they are always impressed that 50 startups are pitching — I must say that I think it is impressive as well. Now, all 50 startups aren’t local, but the vast majority are local (I don’t have any insider info but I’d guess 45 will be local).

Here are a few questions I’ll be asking myself when I hear the pitches tomorrow:

• Will this entrepreneur be successful?
• Would I invest in this company?
• Is this a product or a feature?
• Is this an idea for a company or a business already operating?

I’m looking forward to tomorrow’s Startup Riot event.

What else? What other questions would you ask when you hear the startups pitch?

Earlier today I had the opportunity to visit with some of the team members at the fast-growing Atlanta startup Cloud Sherpas (Google Apps consultants). Cloud Sherpas did a custom build-out that took two months over at Piedmont Center in Buckhead. Here are some details of their new space:

• Orange paint throughout to emphasize their corporate branding
• Conference rooms named after famous mountains (playing off the “sherpa” part of their name)
• Concrete floors and exposed duct-work in the reception area to create a loft feel even though they are on the seventh floor of a mid-rise
• Huge breakroom with two full-size refrigerators, giant LCD TV, several sofas, and large whiteboards on the wall
• Great work areas with numerous workstations using half-height dividers to give some privacy while being primarily open
• And, most importantly, genuinely happy people walking the halls

The new Cloud Sherpas office is great and really sets the tone for a cool technology startup office.

Earlier this week I had a chance to meet with a seed stage startup here in Atlanta. The team is composed of two smart guys that have known each other since high school and went to the same ACC school. Here’s some more information on the team:

• Working on a B2C web startup
• Raised a mid-five figures friends and family round
• Both co-founders have a technical background
• Both co-founders worked for several years for big companies before starting this venture
• Have some traffic to their site but not much
• Thinking about doing an advertising and sponsorship driven model

My advice for them, being in Atlanta and doing a B2C startup, was to either figure out how to get to ramen profitability immediately or move to San Francisco and take part in the angel financing bubble. They could also pivot to a B2B model and have more fundraising options in Atlanta, but it is still tough without six figures of revenue.

Management Science America (MSA) was the largest software company in the world a few decades ago and headquartered right here in Atlanta. It’s legacy profoundly impacted the Atlanta technology community through alumni of the company that started some of the most successful startups, invested millions of dollars as angels and VCs, and helped in the management and executive ranks of numerous companies.

The impact of MSA on Atlanta has been well documented but there’s an area that is rarely talked about: the MSA legacy of a hyper sales-focused culture. In my experience, B2B software companies that are the most successful are ones with excellent engineering and amazing sales teams. If you look at some of the billion dollar Atlanta successes that had MSA-alumni involved, like Internet Security Systems and Witness Systems, as well as current success stories like Vocalocity that are well on their way to being a big company, they all had sales as a main strength.

My recommendation is to focus on building a sales-centered culture and the next time MSA is brought up in a conversation, acknowledge that their sales-focused culture was a major driver of success.