Every few months or so, various Atlanta startup thought leaders are corralled together on a panel or round-table to discuss what can be done to improve our startup ecosystem.  Invariably, the outcome is the same: a regurgitated list of things we already know all too well.

Examples:

• Lack of local funding sources for early-stage companies
• Lack of management talent to take a company from startup to growth stage
• Georgia’s legal inability to invest state pension funds into alternative class investments such as venture capital funds
• Too many smart people are leaving the state
• Lack of this
• Lack of that
• Blah.

Undoubtedly, we all want the Atlanta startup ecosystem to improve (or continue to improve, as I believe is the case).   But for the past few years,  there have been two distinct threads running in parallel.

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Jason Calacanis has a new cause.  He is railing against the so-called “pay-to-pitch” phenomenon.  A good read – check it out here.

Update: Scoble, Fred, and Lance have since commented on it as well.

My views on the pay-to-pitch thing are pretty well known, as I’ve written about it a ton in the past, and we’ve torn the topic to shreds several times on the podcast.  And I think we (the larger community, of which I am but a small part) have done a pretty good job here in Atlanta, at least, of (A) educating the entrepreneurs, and (B) tearing down the walls that allowed that sort of thing to come about in the first place.  Many of the pay-to-pitch groups don’t even bother with Atlanta any more (because they know they’ll get a boot in the face from the community). But I will add a few additional thoughts here …

I think the fact that someone with Jason’s “web-clout” is a bit late in jumping on this bandwagon is illustrative (to me, at least), of how “disconnected” the valley-minded crowd can be from the rest of the country.  Don’t get me wrong – I want Jason to fight the good fight   But StartupLounge (and others) have been screaming about this, and fighting against it, for several years.

There is a difference between someone in a place like the Valley paying to pitch, and someone in Des Moines, or Tampa, or Atlanta, et al.

If you are paying to pitch in the Valley, you and/or your idea, must really blow. It’s like the handful of applications for CapitalLounge that we get from startups in California that want to come to Atlanta to find money.  Wow – really? WTF?

If you are paying to pitch in some other part of the country (i.e. an under-served capital region, like Atlanta), you may very well be sitting on the next Google, but you likely don’t have the infrastructure and support system around you to tell you that you are wasting your capital paying to pitch – you may think that you don’t have an alternative. And that is where education comes in play.

Uneducated entrepreneur + desperation = “Gee, I bet I can charge this clown $5K to come ‘pitch’ at my service-provider dry hump fest.”

To me, it is all about supply and demand.  How do you kill the demand, since killing the pay-to-pitch organizers is, well, illegal? We’ve found that making more well-rounded, educated, and agile entrepreneurs is the best antidote for the pay-to-pitch problem.  If I had a nickel for every entrepreneur that we’ve collectively “converted” from the dark side through stuff like StartupLounge/CapitalLounge, PitchCamp, Startup Riot, ATDC, Startup Gauntlet, mentoring, et al, I could fund half the deals in the Southeast at least through Series-D

At any rate – good read – Jason’s a firebrand – gotta love it.  Kick ass – take names – peace out.

Cheers.

Urvaksh over at the Atlanta Business Chronicle recently published an article providing some coverage of the new $250M fund being launched by the State of Florida.  After reading it, I became engulfed in a sea of emotions, ranging from frustration to anger, finally settling on a mix of sadness and reflection.

The short version: This new Florida Growth Fund will not only provide capital to venture capital firms (in the form of Florida being an LP – Limited Partner), it will also co-invest (follow, not lead) directly in technology and growth companies.  The fund will be managed by a private equity firm on behalf of the Florida Retirement Pension Fund.

Georgia is the last state in the Union that does not allow private equity investments out of the state’s pension funds.  “Last.”  Wow.  Now there’s a word that simply emanates innovation.  Nothing says “cutting edge” like being listed as “last”.

“Last.”  That means that North Dakota is ahead of us in terms of allowing private equity investments from state pension funds.  WTF? Pinch me.

For all the hemming and hawing we hear from the state government about how great Georgia is for innovation, we’re really doing a pretty lame job of walking the walk, and leading by example.  We can pass a bill that invites the 2009 Georgia Peach Queen to appear before the House of Representatives, and slash the budget of the ATDC, but we can’t drive through a key piece of legislation to propel the Georgia economy into the 21st century.

“Last”.   You may also recall that Georgia is also “last” (or at least close to being “last”) in another category as well – public education for our children.  It is no coincidence.  We clearly have a remarkably uneducated group of people keeping us from joining the rest of the country in diversifying the state’s investments in the private sector.  Guess that lack of education has already caught up to us.

Does our state government really take these issues seriously?  Certainly there are some – many of whom I’ve met and had great conversations with.  But as a whole, no.  There are those that are hell bent on laying down in the middle of the street and preventing progress.

The most common arguments that I hear from opponents of such legislation is that it is “too risky” and “wouldn’t provide much in the way of economic development for anyone but Altanta.”  Humor me for a moment.

The Georgia Public Policy Foundation, which is a non-profit, independent, public policy think tank, recently published a very interesting article.  In the article, they cite the “lack of diversity” within the investments of the state’s pension funds.   Every investment has risk, but obviously the only defense against market risk is diversification of investments.  “Diversify or die”, as I like to say.  Not diversifying is even riskier. They lay out a pretty compelling case across the board. Read the article – it’s short and worth it.

With respect to the whole notion that Atlanta would be the sole beneficiary of such investments – that is simply ludicrous.  What these pundits fail to realize is that this is an ecosystem, not a one-way street.  All boats rise with the rising tide.  Would those dollars necessarily create direct jobs in rural areas?  Probably not, or certainly not that many.  Companies that attract venture capital and private equity investment tend to be fast-growth and/or high-tech companies, and those require infrastructure and a large labor force.  And those things exist in abundance in Atlanta, but few other places within the state.  But, what those investment dollars would do is create an economic return for the state.  And those additional dollars eventually make their way into port projects in Savannah, highways, schools, agricultural programs, and other projects around the state. Viewing this issue through any other prism is negligent in my view.

Normally, I would tell everyone reading this to contact your local state representative or senator, and tell them why you think passing legislation to allow the state to invest in private equity funds would be a good thing.  But we’ve all done that already.  Several times (SB80, HR249, etc).  I tire of the whole thing.

The only thing that can save us now is the passing of time, and the hope that at some point, enough rational people are voted into office to get us back on the right track.

“Last”.  I hate being last, don’t you?

Cheers.

We get a TON of applications every time we put together a CapitalLounge event. While most of the applications have some degree of merit, and eventually get accepted, there are many that don’t.  Historically, we have a non-invitation rate of anywhere from 20-30%.   Despite the enormous level of detail that we’ve published as to our selection criteria and process, invariably, we get a flood of emails the week or so leading up to the event with people appealing and arguing with us (or trying to) about why their deal was rejected.

Here is a tongue-in-cheek look at some reasons why the event applications for some entrepreneurs and investors get rejected.  If you don’t find any of this at all funny, then you most likely fall into one of these categories.

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Lately I’ve been getting some blog comments and Skribit “suggestions” from an anonymous visitor.  Let’s just say the comments haven’t been terribly “engaging” – some of them have actually been quite nasty. And look, I’ll be the first to admit this – I cuss like a sailor (well, a former soldier), and believe me, I can carry my weight in a bar, but I try to have at least some modicum of class when it comes to what I post on the Internet.  Nothing says “class act” like posting an anonymous comment on someone’s site and using an email address of “dickbastard@gmail.com”.

I normally would not engage in a dialog over these types of comments, but today I am going to make an exception.  I just received this comment from Captain Anonymous:

any successful startups in Atlanta?  Seems like alot of “talk” and no meat.  When was the last exit?

Wow, where do I begin?

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Matt McCall (Draper Portage Ventures) wrote a very interesting post yesterday. In it, he describes the current venture capital landscape as having “flatlined”. Matt is an ultra bright, fairly conservative venture capitalist (at least he was way back when Portage was a key investor in one of my past lives – MetalMaker). A good read if you are currently launching a startup, and/or you are seeking funding for one.

I’m certainly not an economist, but I will say this: things could certainly be better. The job market sucks, the housing market is nonexistent in many places, and we’re staring $5 gasoline in the face. But how does it really affect the capital-seeking early-stage entrepreneur? It doesn’t sound like this is a particularly compelling time to start a new venture. Possibly, but not necessarily.

I founded my last company in 2000 – unless you were living on a deserted island then, you will remember how nasty the market was. Nevertheless, through persistence and self-funding, I managed to keep the thing going until I could exit (2005 – when the market was more in my favor). Timing is everything, as they say. Granted, the exit wasn’t overly lucrative, but we made money, and no one got hurt in the process.

I do want to point out one thing, though (and Mike and I are going to discuss this a bit in our podcast recording session later today). If you are an entrepreneur that is banking on someone else’s funding to help you to build, launch, and realize your dream – your expectations were probably out of line to begin with, so now it gets doubly hard for you. I see deals like this all the time (as do most investors):

Acme Software provides a world-changing solution to the way consumers shop online! Our cutting-edge, paradoxical approach to e-commerce will drive us to $1B in revenues in just 24 months. Seeking $5M to hire a team, build out the product, and start selling it.

Sorry, not gonna cut it. This is laughable. Telling an investor that “with my time and your money, all things are possible” is not a value proposition. If anything, it a nice fat red flag to any serious investor that you aren’t a bankable jockey (rightly or wrongly – this is the reality).
A tough capital market makes the second mile on your journey possibly more arduous – however, the first mile should not be affected. Innovate, sell, and meet the investors halfway.

In an underserved market like Atlanta, you are not likely to waltz in and secure a first round of capital with an idea alone (save for the occasional angel that truly gets what you are doing). Even if you have a prototype product, your chances may only marginally better. So guess what? Nothing has really changed for you. However, once people are buying what you’re selling, the opportunity will stand out like a diamond in the rough. This is your challenge.

If Acme came in with this pitch, however, things get interesting:

Acme Software’s beta product currently provides over 50,000 consumers with a very unique way to shop online. For the first 12 months after launch, the company generated revenues of $1M, and we’re now at cash-flow break-even. Seeking $2M to expand our product and to expand our sales efforts.

When markets get tough, investors withdraw. Their margin for error is already small, and it gets even smaller in tight markets (true for most entrepreneurs as well). However, entrepreneurs are in a slightly different position. They have the “x factor” – the gene. The thing that makes them drive for success even through the toughest of times. The thing that separates mid-level Fortune 1,000 managers from someone who will try the unthinkable. When the landscape sucks, it actually drives innovation and resourcefulness even further. A blessing in disguise to a serious entrepreneur. Not the same for investors – they are often content to ride out the storm – as well they should, since they are most likely investing someone else’s money. But if your deal represents a chance to return even a mild multiple in a tough market, you may find takers.

Good deals get funding … still. They likely always will. But proving yourself to be a “good deal” could be getting a lot harder if you are on the uber-early end of the spectrum. So adjust your expectations if you need to, then get out there, execute, and don’t worry about things you can’t control. Turn a bad market into an opportunity to move forward, while many others sit on the sidelines. If you can’t (or aren’t willing to) do this, you are most likely going to find the next 12 months to be a colossal waste of your time, energy, and precious capital.

Of course, if your venture is already off and running, Matt serves up some pretty good advice to try and insulate yourself. Good reading, for sure.

Cheers.

We had a great time at the recent PitchCamp session. If you haven’t heard of PitchCamp, it is a free workshop that we offer to entrepreneurs to help them better refine their pitch. We also get into some adjacent areas, such as the ins and outs of investor networking, and how to maximize the value from things like our StartupLounge.com investor networking events. It is amazing to hear the difference in the “before” versus “after” pitches.  And you get the benefit of learning by watching all the other pitches evolve as well.  Good stuff.

The first few times we did PitchCamp, we had 20-25 entrepreneurs in the room. It turned out to be too many. It was hard to give everyone the attention they needed in a limited amount of time. We’ve cut the audience in half, so only 12 slots are available for each session (which we seem to be doing once a month now).

Another cool thing is that something like 60-70% of the angel investors in our Angel Lounge have shared their interest in helping at PitchCamp. We hope to bring in some of these folks to help out with the sessions moving forward.

We have a few slots remaining for our upcoming May 7th, 2008 session. It is from 2p-5p over near Galleria. If you are interested in attending, contact me and let me know. This thing fills up fast …

Cheers.