Atlanta VCs At the Hot Dog Stand

solicit.pngA few days ago, I attended the TAG 2007 Technology Summit here in Atlanta. There were upwards of 800 people there – pretty nice crowd – the largest I’ve seen. Lance Weatherby and Jeff Haynie have already posted their thoughts on the actual show, and I’ll simply refer you to them for that.

Unfortunately, I had to leave the event early. I hated to leave, because I really wanted to see the rest of the early stage companies do their 2 minute fast pitch. As I walked out of the main ballroom, and back into the exhibit area, I saw something that I think is really illustrative of the early-stage venture deficiency here in Atlanta.

I counted three (3) prominent Atlanta-area VCs, standing out in the hallway, hanging out, eating bagels, chatting on their cell phones, etc. No, I’m not going to mention names – but you’d know them. At first, I gave them the benefit of the doubt. Perhaps they were trying to wrap up a hot deal. Nope. These three guys were not hanging out together, but just doing their own thing.

Some of these guys blame their lack of early-stage activity on a supposed “lack of quality deal flow,” and yet instead of taking advantage of a rather unique opportunity to hear a dozen or so companies do their fast pitch in one compact session, they chose instead to spend their time out in the hallway by the food spread.

While highly doubtful, perhaps they had already seen all of these companies pitch. If that was the case, I still think there is value to be had by gauging audience reaction to each one.

These young companies all worked very hard to earn the spot to present at the TAG summit. They all prepared to pitch with the understanding that many of Atlanta’s venture capital professionals would be in the audience.

This is the equivalent of a major league sports scout spending his/her entire time at the hot dog stand rather than actually watching the players work out or play.

Perception is reality.

I’m making a generalization here, but venture capital firms here in Atlanta are not really “venture” firms anymore. Venture capital doesn’t exist in Georgia on a meaningful scale. The current players aren’t taking risks, and to a large extent they have turned into investment banks for later stage plays. I know for a fact that several of them have tried to add “happy logos” to their portfolio page – these are slam dunk plays that have already become established and that are possibly looking for expansion capital. I also know that that they are getting rebuked in some cases. Why? They weren’t there participating in the earlier rounds.

In any event, this has left a very large gap in the early stage market here. There is an opportunity here in Atlanta that is not being served by the current venture capital players. That need is being met (at least to some extent) from the outside. No less than a dozen outside venture firms have been spotted in Atlanta, sniffing for deals. And they’re starting to get them.

I welcome those out of state investors – we all should. I think part of the solution to break this impasse is that we need more of those types of deals. In fact, I’d like to see some of those non-Georgia venture capital firms actually opening offices here (note: I’m not talking about large private equity buyout firms, I’m talking about early stage venture capital.) There is plenty of innovation going on here in Georgia – so let’s get some more boots on the ground here.

On another positive note, I hope to be able to post some information soon on at least two (2) new early-stage seed/angel funds here in Georgia.

Cheers.

4 Comments

  1. PacManFever · March 3, 2007 at 5:39 pm

    On the surface, that clearly doesn’t look good. We could be charitable and perhaps assume that these VCs simply had to take phone calls at the same time. Or that that particular deal wasn’t very interesting, although others were, so that was the opportunity the VCs took to check their voice mails.

    On the other hand, we can also conclude that it is exemplary of the widespread feeling that venture capital (as classically defined) is absent in Georgia. Private equity firms want to have lower risk-return profiles and that’s their perogative. An investment banker I spoke to says he advises his clients to go out of state first to seek traditional venture capital. Maybe that’s the useful takeaway.

    I’m not inclined to just summarily kill the private equity firms’ seeming lack of appetite for true venture deals; who are we to tell them how to invest? That’s their limited partners’ job. The true negative element is the widespread belief that the private equity firms are true venture capital investors, which leads to lots of wasted time, energy and hope, all of which the typical entrepreneur can ill-afford to waste. Maybe that is the private equity firms’ collective fault, or maybe it’s the fault of a poorly-informed entrepreneurial community that doesn’t do enough homework on their audience before presenting their investment opportunities. I’m guessing it’s a little of Column A and a little of Column B.

    If out of state capital is coming in to fill the void, then that’s OK by me. Their money is as good as anyone else’s.

    The key, if you’re an entrepreneur, is to recognize that looking for money locally may be disproportionately difficult and the capital raising experience may yield a higher return on effort by starting outside the Peachtree State.

  2. Well said, and I agree!

  3. Knox Massey · March 26, 2007 at 1:45 pm

    Scott–

    Sure would like to hear more about the early stage seed/angel funds you know about!

    Knox Massey

  4. Scott, I could not agree more. The sad thing is that making all those trips to North Carolin and DC takes valuable time away from building and marketing an amazing product. Georgia startups already have two strikes against them in many cases – this doesn’t help.

    I remember Guy Kawasaki’s advice to entrepreneurs at a TAG event seven years ago – “move to California”.

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