The Storm Approacheth

tornado.jpg“They sicken of the calm, who know the storm” – Dorothy Parker.

We have movement. The early-stage venture capital market here in Atlanta is shifting. There is a storm brewing, and I’m not the only one who sees it.


Through their sustained complacency, prolonged fear of failure, disengagement from the larger entrepreneurial community, and inherent cultural shortcomings, the old guard in Atlanta have made themselves largely irrelevant. They have failed to take advantage of the single biggest current driver of the macro venture market: transparency.

Who are the old guard of which I speak? They include our so-called “early-stage angels” which now only seem to invest in post-product/post-revenue slam dunks being driven by proven CEOs, as well as our former high-flying venture-capitalists who have embarrased themselves (by their own admission) by missing success story (JBoss) after success story (EZ-Prints) after success story (MFG.com). And of course there are the hordes of “I-got-my-hand-out-how-about-you?” service providers and the handful of dubious “pay-to-play” angel “deal matching” networks that prey upon ignorant or desperate entrepreneurs.

The old guard have a rather nasty public relations problem on their hand at this point. And fixing their reputation may no longer be as simple as drifting back towards early-stage deals. As a result, some of them are now struggling to raise new funds, getting passed over by local entrepreneurs (oh, the irony), and getting bypassed by out-of-town dealmakers. Perception is reality.

Just as water eventually learns to flow around a rock placed in the middle of a stream, an entirely new generation of entrepreneurs are largely learning how to work around the “rocks” we have in this stream called “Atlanta”.

I have shaken the hands of more out-of-state investors here in Atlanta in the past year than I have the hands of Georgia-based VCs in the past five. More importantly, there is also a growing groundswell of newer, more vibrant seed and early-stage financiers slowly but surely getting their funds together (I know of at least 5 or 6 new seed-to-early-stage funds that are in the works here).

From holding “no-service-providers-allowed” networking meetings to starting small support groups all over the metro area, the entrepreneurs here are staging a comeback. And they’re largely doing it alone. Overcoming adversity is in their blood, after all.

I want you to grab a pen, and mark this day in your calendar. This is the day that I told you: The successful Atlanta investor of the not-so-distant-future is only going to get quality deal flow by being engaged within the community, playing a constructive role within the larger ecosystem, being an approachable resource for entrepreneurs, and being part of the solution, rather than the problem. The days of sitting on the top floor cherry picking deals are largely coming to an end.

There is a quiet storm brewing here in Atlanta, and despite what some might say, this is a great time to be an entrepreneur here.

Cheers.

3 Comments

  1. Meeting in the local ‘diner’ is becoming an outdated method of identifying excellent investment opportunities.

    Global integration through the rebirth of the .com age and the exponential growth of bandwidth is creating the new ‘diner’ ~ global collaborative environments that help foster the development of ideas, not shut them down to meet ‘investor requirements’.

    Scott has identified the real issue – current methods of finding opportunities are not as efficient as they need to be.

    Investors must become more PROACTIVE in guiding ventures from the concept development phase, BEFORE the business plan pitch. Through this means, the diamond in the rough will be uncovered and not rejected because of surface imperfections.

    So how can one guide every wanna-be fast growth entrepreneurial venture on earth? :) I’m sure Scott could give you an excellent answer. But here’s a hint:

    Facebook You Tube LinkedIn Adobe Breeze iChat Leopard OS globally connected video conference rooms Universities Incubators Chambers of Commerce Business Service Providers Investors Seasoned Entrepreneurs Global Press Business Coaches $0 cost to entrepreneurs = THE Entrepreneurs Society = Positive Global Impact

    Don’t just skim over that last paragraph, re-read it and think! If you don’t recognize all the pieces, learn about them.

    Then ask yourself this question, “Am I truly caring for those who will take care of this world, or am I ONLY focused on cashflow?” I believe, focusing on the former, will generate the latter.

  2. Well stated! this phenomenon exists in other cities as well but the end result in the same. The VC’s need to understand that they are not at the top of the food chain, but a part of a cycle.

  3. Michael Blake · March 16, 2007 at 11:09 am

    The real answer in my mind is that the traditional VC investor simply does not exist in Atlanta. I’m not hanging that on the private equity firms here in town. It’s not their responsibility nor is it appropriate to invest outside of their mandate. And, if the PE funds’ strength is in engaging companies that are, for all intense and purposes, up and running, is it even logical to conclude they have the requisite skill sets to provide credible support to seed ventures? I’m not sure it is. What can someone who makes a living investing in companies with product and revenue really advise someone who has only one or perhaps neither?

    Lance Weatherby’s blog has a very interesting point. His blog leads me to believe that the biggest blow to the so-called venture community here is in the real estate market. That market has provided a pretty high risk-adjusted return and frankly, operating seed stage companies don’t necessarily look attractive next to real estate, and most investment advisors will tell you that real estate and venture investment dollars come out of the same “alternative investment” pool of capital. In effect, real estate has crowded out the venture dollars. Perhaps the sub-prime market correction will make angel investments more relatively attractive.

    Now, I love Scott’s point that this lack of an ecosystem in Atlanta (his term in an excellent presentation that he gives around town) has led to some very cynical forces; consultants demanding fees for dubious value (can someone downsized from a Fortune 500 really have an intelligent perspective on the seed stage firm?), consultants demanding fees for advice that is frequently free elsewhere, rampant (unlicensed) finders who want a cut of money changing hands in what amounts to rolodex prostitution, and dubious angel networks. But I don’t blame that on the private equity community. I blame it on the fact that our entrepreneurial community is at least 10 years behind the northeast and California in terms of sophistication, odd social factors that make networking in Atlanta an unusual challenge (as well as rampantly poor networking skills, including my own), and overcrowded service provider market with lots of bit players, and the fact that unemployment really should be much higher – many consultants and finders would prefer to get a full time job again, but can’t get one in Atlanta because of all the downsizing and M&A activity that makes jobs redundant.

    Solutions? 1) Encourage organic funds to shepherd seed stage companies. Most of these will fail because most virgin (1st time funds fail). It’s a statistical fact. 2) Welcome out of state funds trying to fill the gap. 3) The state government needs to manage the economy better to keep high quality corporate jobs in Georgia and bring more in. We don’t do enough but that’s another blog. 4) Pass, at all cost, the bill that allows GA pension funds to invest in VCs. Make more funds available and earmark a portion for investments of $500K each or under. 5) Each of us who knows something about growing companies should take a couple seed stage companies under our wings and coach them for FREE, and make useful introductions for FREE. I have 3 right now that I am doing this for, and yes it does take some time but I find it immensely rewarding. They will eventually become large customers that will be indebted to you for life. 2 of my present clients are such success stories. Let us, as service providers, help companies put money into their pockets before we try to take it out.

    If you actually read this whole thing, don’t blame me.

    — mike

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