Why does Georgia get less than one percent of the Venture Capital money available in the US? Why is Georgia considered a second-tier market by the funding machine?
These questions and more were discussed and debated at a technology roundtable that aired on a recent episode of Bold Ventures Radio. We invited Tino Mantella, executive director of TAG, Ashish Bahl, CEO of Acculynk, and Urvaksh Karkaria, tech reporter at the Atlanta Business Chronicle, to share their insights on the state of entrepreneurship in Georgia.
Below are edited excerpts of the perspectives that these gentlemen shared during that intriguing discussion. Click here to listen to the conversation in its entirety.
BVR: Ashish, from your perspective as a CEO, and this is your third company, what does funding look like today?
Ashish: I think the environment is doing interesting things. This type of environment provides a great weeding out process. Any company that comes out of the last 18 months standing on its feet is going to be a strong company that will stay in Atlanta, create good jobs, and get higher-levels of investments.
The Atlanta venture pool is relatively dead in the local market, and strategic partners, which are companies that have an inherent interest in the technology that an entrepreneur is creating, that were once strong players have been distracted trying to get through the restructuring of their companies and the economy. The strategic partners typically have been a good source for early funding, and that's not the case anymore. With the VCs not participating and the strategics evaporating, that reality creates natural challenges for entrepreneurs.
Two solutions exist: Get the crowd from New York, Boston and the West Coast to be more active in Georgia, but they aren't that interested in early-stage companies here because many companies haven't been mentored enough to play in a big market. An investment from those geographies in early-stage companies is the exception not the rule in Atlanta.
The second solution for early-stage companies are High-Net-Worth individuals who have stayed in Atlanta.
Ironically, private equity deals in markets that the high-net-worth individual knows, and that may be the technology version of the high-net-worth individual's bricks & mortar business, they tend to be willing to write an entrepreneur a $200,000 check to get started. For example, if you're an automobile dealer and your sales are off and you want to do something that is tangential but doesn't require capital structure to your business, you may be interested in writing a $200,000 to get a technology going that will help your industry. And that scenario is happening in Atlanta. There's traction here. It's important, though, that the entrepreneur have some skin in the game and that the technology have vertical focus for this to work.
If an entrepreneur can do an angel round with someone with experience in the bricks & mortar version of the displacing technology that may work. And then do the venture round later.
BVR: What do you think it's going to take to get out of this funding rut?
Tino: It will take time. we do primary research, and it shows that VCs in other parts of the country will invest in other places. In Massachusetts, for example, VCs indicated that they invest more outside Massachusetts than inside. Our research shows that VCs would be open to investing in Georgia, if they knew more about it. So we have to raise the awareness of the Atlanta entrepreneur community.
Memorable Quote: "91% venture-backed companies in GA are backed by companies out of town. Not local money." Urvaksh Karkaria, technology reporter Atlanta Business Chronicle
Ashish: One of the solutions is that there needs to be an early-stage infrastructure that is trusted by Boston, New York and the West Coast, so that they can then come in later with the big VC money. Last year an informal group I belong to collectively put out $10 million in early-stage investment. We would vet the idea and if we liked it, we'd jump in. Not only can we offer the funding, but we can offer the shepherding to the management team and be a liaison with the big VCs who know us and there is a credibility there.
BVR: What can be done through legislation to support entrepreneurship in Georgia?
Ashish: What we've seen done elsewhere, in other cities, is that there are state-owned pension funds that can be invested in alternative investments. Currently in Georgia, zero percent of money is being invested by pension funds into entrepreneurial companies. A forward-looking legislative reform would have this at the top of its list for job creation..
This roundtable discussion was fascinating and delved into the history of funding in the Atlanta market. To hear more of the interview, please click here.
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