Over the years I’ve been asked no less than 100 times about startup capital in our region. Up until two years ago, the answer was generally that you had to go outside the region for seed, early, and growth stage capital. There were a few pockets here and there locally for seed and early stage but it wasn’t robust and competitive. Now, Atlanta’s startup community is brimming with seed and early stage capital.
Loosely defined, seed stage capital is for startups that are just getting started up to $500,000 in recurring revenue. Early stage capital is for startups that have product/market fit and the basis of a repeatable customer acquisition process with $500,000 to $5M in recurring revenue. Finally, growth stage capital is broadly for startups with $5M or more in recurring revenue.
If seed and early stage capital is now plentiful, what will it take for growth stage capital to be plentiful as well?
Time. And success.
With 15+ local funds doing seed and early stage, the foundation is in place to eventually have thriving capital providers at all stages. New firms coming into the market and providing growth stage capital ($10M+ rounds) from their initial fund is unlikely. What is likely is a small portion of the local funds doing well and raising larger funds. As almost all the current funds are under $100M, and most are under $40M, it’s going to take at least two 3-5 year investing cycles for the funds to achieve a scale of $250M or more to supply growth rounds. And that’s only if that have a high level of success (return 2x capital after fees, at least).
So, the pieces are in place but it’s going to take upwards of 10 more years for the growth stage segment of the capital stack to be available locally in our region.
The good news is that there’s an oversupply of growth stage capital outside of our region, and local startups are raising more capital than ever.
Our startup community is humming along nicely and we’ll eventually have growth stage capital locally.