From Bankrupcty to TAG/GRA Business Launch Winner – WTF?

If you haven’t heard by now (Lance Weatherby), ATM Direct won the 2008 TAG/GRA Business Launch Competition. On the one hand, I congratulate the ATM Direct team for their victory. They walked away with $100K in cash and $200K in services from various sponsors and partners. Not bad!

My other hand, however, is left wondering why a company that at one point was a significant going-concern, and was eventually bought out of bankruptcy court was even allowed to enter a competition aimed at fostering “new” companies. According to the rules of the competition:

The competition is aimed at “new” businesses, however the time and effort required to launch a successful business in the targeted areas may require that an entrepreneur form a company and begin certain limited functions before any meaningful business operations occur. These functions could include prototype or Intellectual Property development and for these or similar reasons up to $500K in external funding may be allowed. Market trials may also be required and for this or a similar reason some limited revenue may be allowed.


Some incredibly cursory research on the web revealed that back in 2005 or so, ATM Direct was bought by Pay to Touch for a little over $30M. One person told me that deal was a bankruptcy matter as well, although I can’t seem to find any reference to it. Just a few months ago (February, 2008), ATM Direct (or at least their patent portfolio) was sold under bankruptcy court supervision for a mere $600K to Accullink LLC (also located here in Atlanta).

No matter how you slice this, it bothers me. It bothers a lot of people that I’ve talked to over the past few days.

I volunteered this year as a pitch mentor for the other three companies that were in the competition (Skybloxx, Global Crypto Systems, and ProperNotice). Each of these embryonic teams worked extremely hard to make it to the finals of the competition. During our pitch mentoring sessions, ATM Direct was absent – no idea why. But I know the other 3 teams came in and walked away with newly gleaned insights into their stories, and a genuine hope that they had a shot to win and get their companies off the ground. Instead, they lost to a company that had been auctioned off on the bankruptcy circuit (at least once, possibly twice).

In any event, the TAG/GRA business launch competition should be aimed at promoting and fostering the launch of new companies here in Georgia. Unless I am missing something obvious here, I can’t help but feel a little shame in this year’s affair. It sort of reminds me of a 16 year old trying to play on a little league team – great for the team that recruited him, but not terribly fair for the other teams. I suppose one argument would be that since the assets of ATM Direct were sold to Accullink, it is a new incarnation, new company, etc. So that would qualify them for the competition. I still don’t like it, though. It just doesn’t give me that warm and fuzzy feeling that I expect from a winner of a competition like this.

In fact, one could counter-argue since the assets were purchased for $600K, that alone would disqualify Accullink/ATM Direct as that would constitute an investment that is greater than the $500K limit outlined in the rules of the competition. I’d have much rather seen a true green-field idea company in that slot (like the other three contestants).

Nevertheless, I sincerely hope that TAG/GRA addresses this matter at some point, if nothing else than to send a message to would-be entrepreneurs here in Georgia that your dreams and efforts still matter. Due diligence is a good thing. Hopefully, someone from TAG or GRA will come and post here and help make some sense of this.

Cheers.

29 Comments

  1. Scott, first and foremost, thanks for taking the time to help out with the competition.

    The situation that you describe above with ATM Direct was well known by GRA, TAG, and myself. It was discussed in great detail as the semifinalists, finalists, and winner were selected. The official rules states that “up to $500K in external funding may be allowed” and that is really all it says on the matter. In conversations that took place between GRA and TAG and ATM Direct there were multiple assurances that the $600k the company used to buy the assets was all provided by the management of the company. While there is a bit of a history here the company that won the competition was formed on January 10 of this year. I am not sure but I think it was the youngest company in the bunch.

  2. I think the question here is a bit less of how “old” or “young” the company is. I think the other competitors wouldn’t complain about a stretch on $100K investment. The real question is, what motivated the judges to choose ATM Direct? “A good team that presents well”. By all other accounts in the transaction industry, their patents have been misrepresented and their solution doesn’t hold water.

    I guess I’ll sell my failing cat waxing business to Arthur Blank and he can win next year.

  3. Paul Freet · June 9, 2008 at 4:35 pm

    First, I have no issue with the management team at ATM Direct and I sincerely wish them great success.

    While I agree that “technically” they qualified as a new company, and the $600k was “technically” not an outside investment, I have also talked to a number of people in the Atlanta startup scene who are “technically” quite torqued off about this.

  4. In all fairness TAG, ATDC and the GRA all have their own agendas and any entrepreneur in Atlanta that doesn’t understand that is doing themselves a disservice. These organizations are definitely not “one size fits all”. If your company is not a “fit” – and it’s likely you’re not – you have to learn what (if anything) you can glean from them and then go it on your own.

    I think the biggest problem we as entrepreneurs can make is looking at TAG and ATDC as the center of the startup universe in Atlanta. They are significant and they do benefit some companies, but regardless of what many think, they are not the arbiter of success and their judgment on the viability of your venture should not always be taken to heart (except maybe for the cat wax dude…).

    There is a vibrant startup community in Atlanta (and the surrounding area) and it’s just starting to get up on it’s wobbly legs. We’re busy people – this stuff isn’t easy you know – but we’re getting help with organizing and connecting, through the efforts of Scott (Startup Lounge, Capital Lounge, Pitchcamp), Sanjay Parekh (Startup Riot, Startup Drinks), David Ratajczak (YnR), Mike Schinkel (Atlanta Web Entrepreneurs), and a lot of others.

    Regarding the Business Launch: Get real – yes, this is a promotional opportunity for the company that wins (for about a month or so), but it’s a bigger chest thumping exercise for the sponsors than anyone else. Is this really where you should devote your precious startup’s time? (I was told by one of the organizers that the semifinalists this year were sooooo much better that last year’s – I’m hoping they just forgot that I was a semifinalist last year… How much mileage did we get off of it? Not much. YMMV.)

    Look, I’ve got nothing against ATM Direct – don’t know the guys, don’t understand what they do (they do seem to get good deals on blade servers…), but their backstory doesn’t paint a very pretty picture. The fact that their technology development is based in Dallas, TX and Bangalore as opposed to Atlanta seems to be squeaking by the rules a bit and I’m not sure how that plays into ATDC & TAG’s mission statements. Now I don’t know the founder’s financial situation (I assume after selling your company to American Express you’re probably not living off of ramen noodles any more), but nothing in the rules says you have to “need” the money to enter the competition. It’s a dog eat dog world guys and it’s rarely fair – suck it up and let’s beat them off the court.

  5. I had the *same reaction* today when I heard of this company. Wow, i thought. Skyblox is a kick-ass startup pinching pennies and doing some really useful and valuable stuff. Of course, i’m helping skyblox so i’m biased big time.

    Too bad, lots of other great companies out there in the competition that could have really used the money.

  6. Okay, so even though I’m currently on vacation I’ll chime in on this although I don’t have the bandwidth to do a blog post. I think the big issue here isn’t the $100k overage, but the fact that the technology has had WAY more than $500k spent on it in its various iterations – at least I assume so. Otherwise it would have never (I’d think) been bought once for $30m (regardless of if it was out of bankruptcy or not). Given that, even though it was later bought for $600k, the technology had much more *lifetime investment* in it than the $500k cap. That creates an uneven playing field for other companies that do adhere to this spending cap.

    Beyond this, the company (or at least the technology) has been around for a long time in various forms. Not a startup by any stretch of any rules.

    Finally, the management of the company already had a successful exit and have a large war chest to spend already. So is this money better invested in ATM Direct or elsewhere? I’d say elsewhere but then, I’m not GRA or TAG.

  7. Also, after reading David Jones’ comments above – I have to concur. It’s silly and we all know it’s silly. Go about your business and “win” a liquidity event since winning a launch competition isn’t (or shouldn’t be) your goal.

  8. So since Delta Airlines stock has plummeted in value could I buy them for $600K and relaunch it as a new airline and win next years startup award?

  9. Scott, thanks for giving this issue some airtime. I know of many entrepreneurs who have expressed similar concern, but have kept quiet for fear of upsetting “the wrong people” in doing so – who can blame them?

    The technicalities may work just fine for ATM Direct in the competition, but it doesn’t play well to the community. It’s a “business LAUNCH” competition, and based on your account of the other 3 finalists, it seems that they were all canidates for a true launch rather than this apparent reclamation project. Vague assurances and technicalities don’t change the impression to Atlanta startups that this competition may not be worth their time.

    It’s good that this gets some discussion – when ATM Direct was announced as the winner, I thought the Atlanta startup community would weep a bit over this one. I guess this is our little cry. Agreed with Sanjay – the eventual winners will be judged by far different criteria. Enough “winning” liquidity events can render any individual annual competition just another small blip on the radar of a much more vibrant community.

  10. TerrenceT – apparently you couldn’t use Delta, but I seem to recall hearing that Kaneva would qualify. I don’t think that would play well either.

  11. This is an unfortunate black eye for the TAG/GRA Business Launch, but not surprising. The rules for the event this year were very subjective. Many companies were disqualified very early for little or no explanation. Many companies were not given mentors. All and all, it was not a very fair playing field this year.

  12. Trying to turn this whole discussion a bit more in a positive. Interested in any thoughts on how to improve the competition. You will find mine at http://tinyurl.com/6m46kq

  13. I was at the competition and was shocked when ATM Direct was announced as the winner. Being that they were established 2-3 years ago and sold under a different name no longer qualifies them as a startup. Any company that was sold for that amount of money is apparently not a new business. You can change the cover of a book, but inside it is still the same book. I can’t believe they even made it past the first round of judging! The other three companies are truly start ups as they just began their companies. It’s sad too because ATM Direct seems to be the company that will benefit from the prize money and services the least. Plus, the founder didn’t even look that happy to have won.

  14. They can improve the competition by never letting a company like this in to begin with. It seems to me that the process for screening the applications is flawed.

    The dude sells his last company to AMEX so why the hell is even entering this contest? So all the other companies lost out to a guy who spent more to buy the assets of ATM Direct than he won in the contest. Yeah that makes a lot of sense. Lets make him the grand prize winner lol.

  15. I was at the event. ATM Direct was the winner BY FAR. There proposition, viability, management team and presentation was hard to beat. Not many people would argue with that.

    Are we actually suggesting that another company should have won because they needed the $100K more than ATM Direct and not because they were the best!! We need more serial entrepreneurs that have a track record in the Atlanta community. Rather than encourage them we sit on the side lines and turn this competition into a joke.

    No wonder Atlanta gets such little seed capital compared to other cities of our size. The maturity of its self proclaimed entrepreneur community is laughable. I can see the VC and PE firms in the North East and West Coast mocking us.

    Lets celebrate the success of the competition, lets congratulate all the participants and above all lets support the winning company, as they deserved it from my stand point.

  16. I agree we need to focus on making sure that this does not happen again. I however disagree that we should move on. Someone needs to be accountable. A company that broke all the rules was able to make it through all the rounds to win. There is either a terrible flaw in the process or it is very corrupt. Someone needs to be accountable.

  17. John Reed – in the end, the TAG/GRA folks are only accountable to one group of folks – those who provided the prizes and sponsorships. If they have no problem with how the event was run and how the winner was chosen, then there is no issue and no one to be accountable to.

    Now, if you and other entrepreneurs have a problem with how the event was run and managed the best thing to do is to not participate in the future. That’ll send the best and clearest message. Like I said before, you don’t “win” by getting awards; you win by getting liquidity events.

  18. For those of you who keep talking about liquidity events being the ultimate “win”. Please stop. It makes no sense in this debate. Yes we all know that already. But that has nothing to do with this story. Obviously entrepreneurs have the ultimate win by having a liquidity event but that doesn’t mean people can’t be pissed at what has happened with this competition. I have no idea why you people are even talking about liquidity events.

    This competition wasn’t about “winning an award” it was about a bunch of startup companies allegedly competing against one another to win a nice bit of cash to get their thing going. People can be pissed if they sense the rules were violated or bent in some way. I did not enter the contest this year and I’m mad!

  19. TerrenceT – clearly you mean me and clearly you don’t get the point I’m trying to make; and yes, it does make sense in this debate. I also don’t see how you can be that mad when this didn’t affect you directly. But that’s your prerogative.

    As an entrepreneur, you’re going to have a lot of road blocks in your way. A lot are for good reasons. A lot (like this competition) are for not so good reasons. If you’re going to get upset every time you don’t win something or get some funding you think you deserved and someone else gets it that you don’t think deserves it, are you going to get mad about it or do something about it? How many good companies didn’t get funded while Webvan and Kozmo blew through hundreds of millions? Those that got mad, didn’t survive. Those that kept going, well – most of those didn’t survive either. But there are a few of those that kept going that did survive and a select few probably made it big (I have no hard data so I’m just trying to create a story not based in hard facts).

    Truly good (and eventually successful) entrepreneurs focus on the big picture and what it will take for their business to succeed – which then leads to a win in the form of a liquidity event. Also, good entrepreneurs view events like these as market failures and an opportunity to do better. So who is going to step up and launch a business competition that does things better? Read: not me, I’ve got my hands full already. :-)

  20. Colin, no one was suggesting that “another company should have won because they needed the $100K more than ATM Direct and not because they were the best”. Where did you get that? This was all about whether or not the company that won actually met the criteria for entering the thing in the first place.

    You also said that “We need more serial entrepreneurs that have a track record in the Atlanta community. Rather than encourage them we sit on the side lines and turn this competition into a joke.” I don’t think this competition has encouraged anyone this year. in my view this competition isn’t a joke but seems to be in jeapordy of being devalued.

    You also said “No wonder Atlanta gets such little seed capital compared to other cities of our size. The maturity of its self proclaimed entrepreneur community is laughable. I can see the VC and PE firms in the North East and West Coast mocking us.”

    They don’t mock us because they don’t have to. We are irrelevant in their markets. And your comment here about the startup community shows your lack of knowledge about what is happening here in Atlanta and what has happened over the past 18 months. The lack of seed capital in Altanta has nothing to do with anything in this debate. Do your homework on this topic before you come here and make a fool out of yourself.

  21. seamusr,
    Most of the companies that entered the competition did so because they were in the market for seed capital, but let’s not get too distracted on that tangent.

    Let me be clearer about my post:

    1. The winning company deserved it. Second place was very far behind the winner.
    2. From what I read (grated on the web) they purchased a patent and some servers from bankruptcy. They did not buy a company with customers or revenue from what I understand. I also remember from the presentation that they are building a new product from scratch leveraging these patents. This sounds like a start-up to me. If they were lucky enough to purchase the patent and servers at pennies on the dollar, more power to them.
    3. I read up on the holding company that owned some of the asset that ATM Direct purchased. Well this company raised over $250MM and lost all of it. Even if they were stupid enough to pay $30MM there is no indication that it gives ATM Direct any market advantage. On the contrary the looming question will be if this other company sunk millions into this with little traction what makes you think you can make a go of it! In many cases it is harder to buy assets from bankruptsy that have under performed, and than build a new venture around them.
    4. It seems to me that TAG/GRE acted with positive intentions. If there was a qualification problem there was ample opportunity for it to have surfaced, and the winner would have been disqualified much earlier. Four companies made it to the finals and the best company won.
    5. This type of competition can bring in outside money. Look at the list of judges a lot of them were VC’s from out of town. This is good for Atlanta. So even if this competition may not have been perfect these events make Atlanta more relevant.

    I understand that I hold the counter view point on this blog, but that does not justify the personal attack. I will not lower myself to counter the latst sentance.

    It’s healthy to have different opinions.

    Colin

  22. Scott (& all):
    We appreciate your points of view and everything that you collectively do for the Atlanta technology startup community.. With that said, I do want to highlight a few points that will shed additional light on the matter…
    The vetting process to review all 75 competitors was extensive. As has been the case each year, some companies were informed that they did not meet the criteria, throughout the process. There were 4 distinct steps in the competition and ATM Direct was reviewed at every stage and was determined to be eligible at the conclusion of each. In a nutshell, ATM Direct met all of this year’s criteria and was deemed by the final judges to be the best company, based on the judging criteria. Here is some key information:
    (1) The company was purchased for $600k; most of the funding came from the President and Founder (Nandan Sheth). Very little external funding was utilized.
    (2) The Atlanta team basically purchased a patent, and changed the way the patent was utilized … and hence the innovation.
    (3) During the legacy history of the asset, while owned by Paybytouch, the company had no revenue, no customers and seemed to not have a viable business model.
    (4) The Atlanta team has rewritten the software, changed the distribution model, established very novel economics, and created a compliance framework.
    Again, ATM Direct met the GRA/TAG criterion. We appreciate the efforts of our 50+ prominent tech-stakeholders who played a role in the selection process. I want to remind everyone that those who stepped up to be a part of this process are some of Georgia’s most respected leaders (many who have built and/or funded multiple companies that generated jobs and boosted our economy).
    We all hope ATM Direct (and our other competitors) will end up creating a plethora of jobs in Georgia and that they will bring national recognition to leverage badly needed in-state and out-of-state money to our young companies.
    The TAG Board of Directors and GRA, as it does each year, will continue to evaluate the program and its criteria, and will make adjustments if necessary. Feel free to send any thoughts on how our competition could be improved.
    Tino

  23. Tino, thanks for the clarification. While I still disagree with the selection, I appreciate your willingness to come on and shed some light on things from the TAG perspective.

    A lot of ideas for improvement have been thrown out there as a result of this, and I’m sure others will follow. I have some thoughts on this which I’ll share later as well …

    Cheers.
    Scott

  24. Tino, I believe a lot of this could have been avoided if the rules and the selections were better explained. When the rules and the selection process are hidden or not disseminated, it is easy for people to get the wrong idea. Something that should be addressed for next years event. Thank you for the explanation and your leadership.

  25. Did anyone notice that a member of TAG’s Board of Director’s is the CEO from Harbor Payments? Wasn’t the “founder” (sic) of ATMDirect, the “founder” of Harbor Payments?

  26. From what I understand, Ashish Bahl, a TAG board member, is referred to in at least one article as the Corporate Secretary for ATM Direct/Accullink. According to TAG, the $600K in capital used to purchase the assets of ATM Direct in the bankcruptcy auction came from Nandan Sheth, not Ashish.

    I was unaware that Ashish was on the board of TAG, but according to the TAG web site, he is.

    I haven’t seen Accullink’s corporate charter, so I’ve no idea if Ashish is actually a corporate director.

    I will say this, though: if Ashish is indeed a Director on the board of ATM Direct/Accullink, this whole affair just got much worse. I desperately want to believe that this was a horrible oversight on the part of the screening committee/judges/et al. I would think that this would be a pretty obvious conflict of interest.

    I worked with Ashish years ago in the old iXL days. He’s a good guy. This is puzzling and/or unfortunate.

    Cheers.
    Scott

  27. Ashish Bahl was the founder & CEO of Harbor Payments. Nandan Sheth was COO of Harbor Payments. Company was bought by AMEX in 2006 for approx $150MM in stock. In 2005 Harbor Payments secured $40MM in funding from Oak Investment Partners (primary partner was Ann Lamont). Oak controlled 75% of Harbor Payments. Last month Ashish was terminated with cause by AMEX. Ashish is also an investor in ATM Direct.

  28. Not surprised Bahl was terminated from AMEX. In 2001 his lawyer found him embezzling funds out of the company. Bahl fired the lawyer before he could tell anyone. He misrepresented facts and constantly lied to employees and investors. At Accenture he had a very bad reputation and exited under suspicious circumstances. They tried to sue him for something. Many in Atlanta will not do business with this guy. I feel sorry for this company if he is an investor. I am not sure why TAG would have such a guy on their board?

  29. Konstantyn · July 12, 2008 at 2:41 am

    I appreciate the comments pointing out that a core entrepreneur should concentrate on the business. An early-stager low-starter should follow exclusively the described above logic of a low curb, goal oriented practice to succeed.

    I disagree the community of more established entrepreneurs should keep a bind eye. This is their moral obligation to pass the knowledge and watch out for the growing kids. It is essential to provide a nurturing ground for a significant and scalable success of entrepreneurship in the region. Doing this one has to keep constantly in mind that the rules in kindergarten are different than those on the boxing arena. To preserve the differences is the community job and the higher motive – I think – of Scott’s efforts.

    It is incorrect to think that the real life boxing rules are applicable for the GRA/TAG competition. GRA is partly funded by Georgia’s budget. So the funds must have the only aim to maximize the gross benefit in Georgia (in this sense in Georgia’s entrepreneur community.) Gross benefit and a company success (net benefit) are not synonyms. It is better to lose under boxing arena rules and win under kindergarten rules.

    The market survival philosophy may be good for selecting of a particular best one-time effect supplier, but is extremely inefficient for analysis and control of the long-run adoption capabilities of a society. (For a popular training on the subject watch http://www.youtube.com/watch?v=QalNVxeIKEE) So it is essential, the business plan competitions send the correct signals out there to the children in entrepreneurship. It is an encouraging state-rage Olympics. It is not a professional world-class play-off. The real value of correct signaling is tremendous. It is in activating of hidden reserves – the only resource able to shift situation.

    But -yes- in institutional investment terms the money on signaling would be spent inefficiently. The VC-guys club was probably not the best judge service here. They bias off the big picture if not under control.

    I’ve been there and took notes. The best presentation was by ProperNotice. Though, they represented weaker market and had less anchoring to the Atlanta’s financial market moguls. ATM Direct were out of time, have jammed financial part and have not made plausible the technology is hacker-safe (I could provide you a couple of tips if you are in hacking.) I left the event with a thought, I miss something in the story. Now I know what. Thank you all.

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