The Early Bird Is Going Hungry

2cents.gifLance Weatherby (ATDC) had a short post on the Q3/2006 MoneyTree report a day or two ago. I’m just getting around to opining on it a bit. As Lance pointed out, the $126M raised in Georgia for Q3 (overall) was a two year best. However, as his small footnote points out, out of the 21 deals measured by PwC in this report, only 3 were early stage deals.

From his post:

All in all not a bad quarter for the state of Georgia. $126 million was raised during the quarter by Georgia companies, the largest amount since the fall of 2004. It was also a pretty big increase over the $56 to $70 range raised in the first three quarters of the year and puts the state in sniffing range of the top ten.

A total of 21 companies raised money. ATDC member companies Air2Web, CardioMEMS, EGT, iVivity, Jacket Micro Devices, and Nexidia collected around $73 million. Seems like a good amount of participation by Atlanta VCs in the majority of the deals. Of the 21 deals, only 3 were early stage.


Couple of things to point out:

First, the obvious. If you look at the early stage numbers from the past three years, this is what you see (taken from the very cool Georgia VC Dashboard on my home page here):

early_stage.png

Second, it is apparent to me (and has been for some time) that we (as a market) are not planting enough seeds for tomorrow. Sure, there are more mature plays that are feasting on a little outside capital right now, but unless we start to germinate the area with more of tomorrow’s Mindsprings, we are going to eventually run into trouble.

When I say “germinate,” I mean doing better than 3 early stage deals a quarter. I’ve been working on a rather lengthy post around this topic, in which I attempt to offer a few ideas as to how we can collectively tackle this. I hope to get that out soon.

Don’t get me wrong – I am glad that Georgia investors are putting their money into anything.  However, by and large, what we are seeing in terms of participation by Georgia VCs is with companies that are in the later stages of development. In a healthy (i.e. expanding) private equity market, these numbers should be more balanced. We should be seeing a more early stage deals, and perhaps fewer on the later end.

I should point out that data points for investments in early stage companies is probably more difficult to obtain than data points for later stage deals.  I am sure there are early stage deals that are getting done without fanfare, as those deals drift down toward the range of the angel market.  Food for thought – but I think the trend is still present irrsepective of this.

On a related note, I had to remove one company from my recent post on Georgia early stage ventures, as they made the difficult decision to relocate the business due to lack of funding interest here (and I actually liked what they are doing.)  I disagree with the move, though – as I’ve said before, entrepreneurs in under-served markets have to become more adept at sourcing capital outside of their geography sometimes.  Moving the business is a bit drastic.

Cheers.

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