The market in Atlanta is challenging. We want desperately to climb higher in the venture rankings; and why not? It certainly is in our best interest to do so. The other day, I came across the following post on another blog. I replaced the actual city in context with the word “SOMECITY” – and the actual region of the country with “SOMEREGION” – sound like somewhere familiar to you?

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The SOMECITY area has really been falling behind in terms of venture-backed activity. If you click through some of the other reports on the site, you’ll see that outside of biotechnology and later stage deals, the amount of early-stage IT investment activity in SOMEREGION is a small fraction of Silicon Valley.

The SOMECITY area was always some fraction of Silicon Valley, but I think that the environment in SOMECITY is even more depressing than the numbers would indicate. Several VC firms that had been very active in SOMECITY have fewer active investment partners than they had previously. And, very few VCs are interested in investing in some of the more interesting new market sectors (clean energy, Web 2.0 apps). Some quotes I have heard from SOMEREGION entrepreneurs when they try to raise money in SOMECITY:

• It’s impossible to raise $2M in SOMECITY. It’s too much for most angel groups, but too small for most VCs that are looking to put much more money to work. But, it’s exactly the right amount for my early-stage business.
• My deal won’t appeal to SOMECITY VCs. But, I am getting more interest from NY and definitely Silicon Valley VCs. They get it. I guess I have a Silicon Valley deal.

So, what will it take for the SOMECITY area to become more vibrant in the venture business:

• We’ll have to work harder to build up deals in more interesting spaces. They won’t just be able to ride on market momentum.
• Team building will require significant effort, particularly on sales and marketing
• VCs will have to dip their toes in to the water in some new market segments.
• CEOs will have to work hard to expand their skills into new market segments
• Web 2.0 companies will have to work hard to stay relevent to the Silicon Valley Web giants.
• Work harder to leverage outsourced technical talent from Eastern Europe. I know several companies doing this successfully now.

Also, one challenge for SOMECITY is that there are virtually no ‘anchor tenant’ big companies that provide a solid base for the high-tech community. Most of our big exits have been companies acquired by Silicon Valley companies. I am regularly working on convincing entrepreneurs to stay in SOMECITY rather than move to California. If they all leave, the environment will just get worse.

I am committed to the SOMECITY area for myself and my family. So, we need to rally all the stake holders in the area to make sure that SOMECITY remains a key market for innovation in venture-backed companies.

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No, it is not Atlanta, although it certainly sounds a lot like it. Oddly enough, the original city in context was “Boston” (as reported originally in a post called “Is There Hope for Boston” by Michael Feinstein on his excellent Fein Line blog).

And no, it isn’t just Bostonians who are complaining. Check out this post on the problems in NYC, entitled “Incubate This!” found on the blog of former Union Square Ventures analyst, Charlie O’Donnell (now with Oddcast.)

I do find it interesting. Atlanta wishes it could be Boston. Boston and NYC want to be Silicon Valley. Perhaps it the logical path of progression – everyone striving to reach the ideal. However, Silicon Valley isn’t an ideal – it is an outlier that skews the numbers. The other 49 states need to remove California from their spreadsheets and compare apples to apples (or peaches to peaches, in our case.) How does your venture market stack up against all non-California regions? That is the real answer – and based on that, you should be proud Boston.

Boston and NYC represent the next two largest concentrations of venture capital investments in this country, and they have for a while. In fact, Silicon Valley, Boston, and NYC represented over 55% of all venture capital investments in the United States last year.

Boston will never become a Silicon Valley. Neither will NYC. However, I do think cities like Atlanta can continue to strive to become a Boston.

Cheers.