Russell Jurney’s blog post has spurred me out of my blog-laziness to talk about something I’m passionate about – starting companies and helping entrepreneurs. If you haven’t read his most excellent post, titled “The California State of Mind” – stop now and read it.

As a follow-up from his post, I wanted to share something not widely known in Atlanta circles about how Nolan and I funded Appcelerator. Sure, everyone by now around town has heard that Appcelerator was funded by Storm Ventures, a well-known Silicon Valley VC. They’ve probably also heard that we moved Appcelerator from Atlanta to Mountain View, California last summer – almost a year ago now.

But that’s not the full story and I’d short change you if I don’t tell you the rest of the story. How did we get there? So, you know that we moved and that we raised money to follow our dream. But, how did we get there and how did we survive before that?

We had been in business almost a year and half before we raised money and had almost 15 employees when we raised money. The other little known fact – and for good reason – is we also generated just shy of about $1.5M in revenue in ~12 months *before we raised money*. Yes, our little ‘ole poor startup in Atlanta had real revenue from some real customers. Mind you, our revenue was largely services based and was revenue we generated by helping a few select customers implement our technology.

That’s the rest of the story – the back story to the funding. And there’s a lot to learn from that. Of course, as a small private company, I’m not really a big fan of talking about revenue. It’s just not usually fruitful to do that for a lot of reasons. However, it’s easy to misread the situation when you talk about our situation and your situation and the greater situation of the Atlanta startup scene. That’s because, most entrepreneurs get fixated on raising money to build their business – that they forget about what matters: solving real problems for real customers and translating that into cash. Remember the goal of that wonderful startup? Yeah, create revenue. Your cool product idea sucks if it doesn’t somehow, someway, create a path to value – which most of the modern world ultimately weighs as cold hard cash. Facebook’s doing it. Google’s printing it. Even Yahoo, that company we all thought was “dead” is generating billions of it.

The new VC is the old VC and it’s got the best terms on earth: cash.

No equity and no board meetings required. Just build something that they need and they’ll pay you for it.

Do that and you’ll transform your startup. You’ll have lots of options. Worse case, you’ll have a lifestyle business. (I’ve heard that 2 cadillacs and a boat is better than an office at the ATDC these days.)

So, I’m sure I’ve made it sound easy. Well, solving a real problem for a customer that will pay you isn’t always easy. But, guess what, if you can’t do that, you can’t raise money outside of the Bay Area anyway – give it up. And, guess what, the myth is that Valley companies don’t make money. Well, some don’t, sure. But, the pressure here to perform, to measure, to execute … much much much more than Atlanta. Steel sharpens steel.

Here’s what I did to make it happen

I was very, very fortunate to have a few trusted customers that believed in me. That’s right, not too much different than investors. They bought my vision and believed I could help them – and that by doing that, they would also help me (key point). They were willing to take a risk on me and what we were trying to accomplish and that there would be a mutually beneficial outcome.

The mutually beneficial outcome was that if we could help them solve some problems at a certain price and within a smaller than usual timeframe, it would be worth it to them (read: they would pay money). In trade, it would help us improve the product, work to refine our value proposition and give us cash. I love working hands-on with customers because there’s where it matters the most. It’s not as fun as just getting a pile of money to spend and getting in a nice little bubble… but trust me, if you’re not working with customers, you might as well assume you’re doing it all wrong – because you are.

We also tried on purpose to limit how many customers we worked with and what types of deals we did. We were small and wanted to keep it that way. In our case, we didn’t want to build a big services business. We wanted to continue to generate enough incremental revenue to hire 2 more engineers and still have 4-5 months of cash in the bank in case things slowed down. We funded almost 15 souls through around 5-6 full-time billable employees (granted, a number of us were working well over 70-80 hours per week on multiple customers).

But, we couldn’t have done this if we didn’t have great customers that helped. And they were willing to take risks. And we’re forever grateful for that. (One note, our customers weren’t all in Atlanta and in fact, we covered Boston and another area too).

So, why did we raise money?

Nolan and I both have experience in services companies and both have started services companies before Appcelerator. Most service companies are awesome lifestyle business. They’re also feast or famine and very difficult to scale. We’re software guys. I like software – a lot. So, we viewed our strategy as a way to work with customers to help us develop the product and to give us enough runway to figure out how we could scale the product (and really, what the product we wanted to build would be). It always takes a lot longer from the beginning to create “the product”.

We got to a certain point (read: revenue) that we had a choice. We needed to either ramp up considerably given the size of revenue and potential pipeline of new services revenue, or, we needed to raise enough capital to allow us to transition out of the services business to focus on the product full-time. It’s almost impossible, in my opinion, to build out a real product and do services at the same time. We knew that.

So, we had options. I had experience raising VC money and I had contacts. Once we got to a certain level, our advisors and Nolan and I started thinking that it would be time to think about bringing in outside capital. We also were lucky on the timing. We timed things just right, and that’s pretty hard to do given where the economy ended up just 6 months later.

My advice to you is simple. And, it’s a slight twist on Russell’s.

Either:

1/ Move to the Valley and shut up.

2/ Stay in Atlanta and stop complaining.

In either case, you’ll need customers. Fund your startup with customers. Build something that customer’s need and will pay for. If you do that, #1 or #2 really makes little difference in the scheme of things.

(P.S. This advice applies to everywhere else outside of the Bay Area too).

Last night I got the opportunity to come back to my home town and do the keynote this morning at SoCon09 – a very excited event that we started 3 years ago and is still growing!

Here’s my slides.

A bunch of the usual Atlanta suspects (Sanjay, Lance, Stephen, Scott and Paul) have just announced Startup Gauntlet. I love the name. Pitching is like being in a gauntlet.

Your pitch probably sucks — they all do. It takes a lot of going around and around to hone your pitch and most importantly, become confident in what your pitch is. You have too many slides, too much text on each slide, you’re trying to cram 3 hours into 30 minutes. That’s just how it is. Pitching to VCs is much more of an art than a science. It takes lots and lots of practice (read: failures) and a bunch of luck. But most importantly, you have to iterate and get it down to a few key slides that convey your message.

Remember: the goal of the meeting is to get another meeting. And ultimately, if you can keep them interested, you will make a deal (or quickly, it will end). Don’t try and answer every question possible in your slides — you’ll fail. Don’t try and cram a bunch of information on the slides for them to read, they can’t.

Slides should act more like an outline of the discussion. They should help you direct the conversation in a flow. But, in most cases, if you’re getting through the slides in an orderly fashion — you’re probably doomed. If they’re REALLY interested, you won’t be able to get through your deck. And don’t get pissed if you get off track, anticipate this. You will if you’re doing your job right. If you’re doing your job and they’re interested, their heads will be spinning with lots of ideas and questions and they will be engaged. If they’re just saying “uhhh huhh” and shaking their head — they’re probably just being polite. If they’re glancing at their iphone constantly, it’s time to wrap it up and move on.

Some of the best pitches I have done were one’s where at the end of the meeting, I was still on the 2nd or 3rd slide.

It’s not about the deck, stupid.

Think less is more when you put your presentation together.

I like to think in these terms:

• Who are we? (The team is 85-90% of the investment)
• What’s the problem? (Why do we need you?)
• What are we doing? (The solution to the problem and how’s it unique)
• The plan (The how and when, what are we doing today and what will we do with the money)

I’d suggest no more than 8-10 slides. You should put very little text on each slide. Instead, frame the topic transition with a bold and short title: “Our Team” Then, 4-5 big bullets. Watch out for the small text, you can’t read it.

Another tip: watch out on the contrast of your presentation. I once was pitching in the valley and was at a really big VC — really well know. I was my first introduction to these guys. They had really really cool offices with big logos of really well known Internet companies. I went into one of their conference rooms – and they were very nice. White everywhere. It was like being in a palace, literally. Then, they pulled down the backdrop (out of the ceiling) for the projector and it was white. And it was a bright and sunny day (even will shades turned).

I pulled up my slide deck, and I had a white background. FAIL. The contrast wasn’t too chipper and my deck was white washed out with everything else in the room. Completely impossible to have predicted this. But, as an entrepreneur, I was able to get around pretty easily by just quickly opening up the master and changing the colors. Lucky for me, I had followed the tips above and had simple text and only 8 slides.

A few other things to consider:

• You like your idea way more than anyone else
• There’s a lot you have even considered. Don’t try and have all the answers, it’s OK.
• A lot of the questions are more about how you react and think about the problems, less about their point of view.
• You’re wrong about the numbers
• You’ll need more money than you think
• You’ll need to hire a lot more people than you believe
• Fundraising will take you a lot longer than you’d like
• Most likely, fundraising will almost destroy you’re business during the time you’re doing it(time, money and distraction)
• It will be emotionally draining — highs and lows
• If you’re traveling to raise money (out of state), and you think you’ll be able to do “regular business” around it, you’re probably fooling yourself
• You’re idea might not be that unique
• You need trusted advisors around you that have your vested interest and can help you as a sounding board
• Make sure you take into consideration the people you’re pitching and talk to them on their terms and background — do your research!
• Time is on the VCs side. You need competition, a compelling event (not running out of money!), something to get them off their butts to move. They’ll move fast if they think they’re losing a deal. Don’t push your luck here, though.
• It’s about execution. Results speak much louder than good intentions and plans

And the last and probably key tip I’ll leave you with: DO NOT EVER PITCH OVER THE PHONE. NEVER, NEVER, NEVER. If you can’t meet them in person, you can’t read their body language and build a relationship with them. Sorry, pitching over the phone doesn’t work. You will get hit up on this and let me give you some tips for this. Most likely, they’ll have their analyst won’t to screen you if you’re not getting a really strong, warm intro to a partner. This is a weak sign, but one you may have to deal with. In this case, I would suggest you try and keep it at a very high level, almost act disinterested (but not a dick!). I would tell them you’re really focused on trying to build the business and would love to meet them sometime, but you’d prefer a face-to-face once that time is right. They’ll still try and get a bunch out of you, ask for your pitch deck or other materials, etc. Depending on what you have and at what stage, you can consider sending them some stuff. My recommendation is to never send them your pitch deck ahead of time. If you have a plan (which I would recommend is really very short as well), send that. Push for a face-to-face with a partner. If you can’t, your chance of success (and time suck) is much less. DON’T EVER TRY AND SEND A POWERPOINT AND PITCH OVER THE PHONE. You’ll be sorry you did. Trust me!

My last post generated a lot of great discussion about the good, bad and ugly in the Atlanta startup ecosystem. Thanks for everyone who sent me updates directly, via twitter and right here in the comments on my post. I also appreciated the one or two not so pleasant emails I received. You don’t have to agree with my perspectives on things — and that’s OK. Sorry that I pissed some of you off. My original intent was to provide some discussion in the community in a way to create a dialog that allows us to move forward. I think I’ve done that. It’s now up to you guys, the community, to take it from here.

Before I finally end my blogging about the startup ecosystem in Atlanta, I figured I’d depart with one last post on a more positive note. I want to highlight 2 great companies that I think are under-funded and currently dismissed (no fault to the founders or their businesses). I’ll speak specifically about each below, but both are great companies with great prospects. Will they be billion dollar businesses? Who the hell knows? However, they’ve got a lot of early traction, good people and deserve the community and investor support in Atlanta. As a disclaimer, I’m somehow involved in both companies – not financially by any means – but as a friend/advisor/cheerleader/customer/partner. Regardless of my involvement, I think these 2 companies serve as the great hope for companies being created in Atlanta.

Loopfuse

Loopfuse was started by Roy Russo and Tom Elrod a year or so ago. They had been thinking about it when they were still at Red Hat (after the acquisition of JBoss) and I’ll never forget the night I met with them to talk about starting the company and what their plans were. My advice: “quit your day job”. Like a lot of first-time entrepreneurs with good paying jobs and families – that was not something that was as easy as it sounded. But they did it. And, they struggled through building out the business – and they’ve really built something great. Not only a great product, but a great set of satisfied customers paying them real dollars every month. And some big customers. Appcelerator is a (tiny) customer too – and we put them through the ringer and they made the product better for us and we’re happy.

These guys tipify what local, first-time, startup entrepreneurs go through. They don’t have MBAs and they’ve never been CEO of anything. But they’re passionate, stubborn and just-fine-thank-you if they have to prove it to the world. And they’re doing it one day, one customer at a time.

Loopfuse makes a lead marketing product and it kicks butt. Every person with an online website / business in the world should be using this software if you care about turning those web site visitors into satisfied, life-long customers. You can think of Loopfuse as a Web2.0 version of Eloqua that doesn’t suck and that you can actually afford.

Tom and I worked together at Vocalocity. He and I co-authored JBoss Remoting together and worked on some of JMX for JBoss. Tom later left Vocalocity to join JBoss full-time as a lead developer. Roy joined Tom at JBoss and was the lead for JBoss portal. They’re tech guys and now they’re full-time entrepreneurs building something with real value.

Here’s the thing. These guys will eventually raise money – and my bet it will be before next spring. However, my 2nd bet is that they’ll raise money from the west coast if they don’t raise regional money this Fall. I don’t have any particular insight on this — this is just my opinion. They’ve got a lot of people who they’re helping – companies that have raised a lot of money out here. And, they’re really helping them making their businesses better. If the local investor scene doesn’t jump on this, they’ll be another Appcelerator quick. This is a great opportunity to really get in and help these guys out. I know they’ve been busting their butts working day-and-night to keep up with the business. They barely have any time to talk with anyone about investment because they’re busy running their company. Watch out Atlanta, if you don’t get smart and fund these guys now – you may lose your chance soon.

Skyblox

Dave Payne started Skyblox around a year or so ago. Dave’s an ex-Earthlink guy that worked in the local wifi group in business development. I met Dave through Andrew Zuercher who works for us at Appcelerator. Dave also knows a lot of the same people in Atlanta so we instantly hit it off. Skyblox is a really bold concept. Local marketing is the next big thing if you’ve been stuck under a rock. It’s where the big boys – Google, Microsoft, etc – are going. And Skyblox is dead in the middle of this with their Wi-Fi access point lead to local marketing and content. Think Web2.0 meets City Search + Yelp + Yahoo Local.

We worked with Dave to help him launch Skyblox in Atlanta. I think Dave thought he’d only get a handful of places in the highlands and some other local neigborhoods in Atlanta when they launched. Boy was he wrong – they got a lot of neighborhood’s signed up and from everything I’m seeing and hearing, they can’t sign them up fast enough. And, they haven’t even started their multi-city launch yet – but I think they’re seeing a lot of demand and success just right here in Atlanta.

This is another set of folks that are heads down and kicking butt. They’re making it through blood, sweat and tears. And, like Loopfuse, they’ll definitely get some attention outside of town if the local scene doesn’t wise up, quick. These guys have a big idea and it’s certainly not without concerns and likely capital intensive. But, if they can quickly replicate what they’ve done in Atlanta across the remaining major cities in the U.S., they’ll quickly lock up the entire local content/search/marketing marketplace.

So, in summary, here ya go Atlanta. Let’s see what we can make of these two great companies. They’re bootstrapping it, they have revenue and customers. They’re big, bold business models that will require sufficient capital to get to the next stage. And, if the bet is right, they’ll have a nice ROI. Best of luck to you. If you’d like any helping getting in contact with them, please email at jhaynie [at] gmail [dot] com.

Last thought: if I didn’t mention your company, don’t get upset. there’s lots of other companies. I’m just highlighting two i know about well.

Before I start this long-winded post I want to give a disclaimer for everyone that attempts to spend the time to read this: this post is my thoughts based on my viewpoint and will hurt some people’s feelings. I’m trying to give an honest account from my perspective. Think of it as a constructive exit interview. If you don’t like it or disagree, that’s fine — I can appreciate that. If I step on your toes, I’m sorry – but I feel like I need to say a few things to help clear the air and hopefully give some perspective.

As most people have heard as of last week, I have decide to relocate my family and the Appcelerator headquarters from Atlanta, GA to Mountain View, California – in the heart of silicon valley. There have been a whole host of reasons for this – some I will attempt to explain here. I am going to also attempt to outline some thoughts on what I think Atlanta needs to do to prevent others from doing the same.

Appcelerator and Atlanta

First, it’s important to know that Appcelerator will continue to remain in Atlanta and will continue to invest in Atlanta. We have around 12 employees still in Atlanta (only 4 people, including myself, from Appcelerator made the move), we will continue to have an office and hopefully we’ll grow the local Atlanta office.

Jeff and Atlanta

If you didn’t know, I’m an Atlanta-native. I was born in Gainesville, GA and most of my family still remains in or near there. My family and I will continue to be back in Georgia quite often as we can. I love Atlanta for so many reasons. Also, it’s important to know that this is not the first time I have left the area. Each time I left and came back, my horizons have expanded and I’ve been blessed with new opportunities. I first left Atlanta in 1989 to join the U.S. Navy and spent almost 4 years in Tokyo, Japan (with brief stops in Chicago, IL and Whidbey Island, Washington for training). I left Atlanta again around late 1996 for Jacksonville, Florida and returned in 1999 to join Jeff Levy in starting eHatchery – just as the dot com boom was happening. I’m leaving 9 years later and I plan on returning one day. I hope when I return next time, as before, my life will be improved and I will have grown professionally and personally. And, that’s the challenge in front of me and my family.

I’d like to talk with you about why I decided to leave and my perspective on the startup climate in Atlanta.

A little background

I’ve been doing the startup and tech entrepreneurial thing in Atlanta since around 1993. My entrepreneurial experience actually goes back to 1983 when I was quite young. My first company was called Bizzare Software. My step-brother and I tried to make a go at games for the TI-99/4A when we were teenagers (the first game we tried to make was a break dancing game). We ran out of memory since we only had 16K if I remember.

However, since 1993, I’ve been part of 3 fairly decent size VC-funded ventures and associated in some way with many many more. I have personally been involved in raising around ~$35M in venture capital from at least 6 different venture funds and lots of local angels. So, from one point-of-view, I have some experience doing the startup thing. In fact, to be honest, I’ve raised a lot of money and been involved in losing most of it to date. It’s not fun losing other people’s money – at least, not to me. I don’t like losing my own money and I really, really hate losing other people’s money – especially when I know they’ve invested in me personally. At eHatchery, my parents personally invested $250,000 of their own money as well. Yeah, that really hurts. At Vocalocity, we raised a lot of local money (and West Coast money as well) and we didn’t have the outcome Mike and I should have achieved. There were some very odd and unusual circumstances that eventually caused an eventual premature acquisition that I can’t talk about. However, we should have done better. I still feel very unhappy about how we ended that chapter.

Failure, probably as much if not more than success, really shapes a person. I’m a very driven individual if you don’t personally know me — and I’m very passionate. However, I’d like to think I’m also self-aware and always thinking a lot about how to improve myself and my organization. I work hard, demand exceptional results and don’t like to give up. I’m a serial entrepreneur. I would do what I do even if I never made money. I don’t really do it for the money — I’ve calculated before that I would have made much more money I would have had a “regular job”. However, I hope I never have to get a real job. I will do this till I die most likely.

When I started Appcelerator with Nolan Wright almost 2 years ago after Vocalocity – I had no idea ultimately what we’d come up with. However, I knew 2 things: I wanted to start another software company and I wanted to eventually get a shot at raising money and succeed at creating a great return. There were a lot of specific life-lessons I could apply this time around and things always seem to go much smoother with each venture. I think failure really helps you avoid pitfalls – and much faster.

From the outset, I had a very specific plan about how I wanted to grow the company, even though we had no idea what the company would do. I had a few specific objectives:

1. I didn’t want to raise outside investment until we had a product, revenue and customers
2. I wanted to raise money from a reputable venture firm that believed in what I was doing and fit my style
3. I wanted to make sure than when we raised money, we had our stuff together and we had options

We accomplished all 3 objectives.

Appcelerator has been an amazing ride so far, even though we’re just getting started. It feels like everything we’ve set out to do, we’ve done. Not always at the speed I’d like, but certainly, with results that basically have matched expectations.

People around me know that I had very specific ideas about how things would come together with our first investment. However, I really struggled with one major issue: what to do with the local investor community. That’s probably a really strange issue for some locals, I understand. I’ll try and explain.

I don’t have the patent on the prevailing opinion about local VC community. The opinions and frustrations are real and they’re not something that we should just ignore. There are pretty big problems with the local startup community. Here’s what I think are some of them:

• Local VC money is mostly non-existant. It’s a supply-demand problem essentially. Low supply of great startups and some big hits, very little demand. (Note: I didn’t say lack of money)
• The local community is a relationship-based economy. It’s who you know … The ‘ole boy network. The valley is a meritocracy.
• We have no real track record of big successes we can tout. OK, let’s stop using ISS, JBoss and Mindspring. JBoss didn’t raise any local money, ISS was started over 12 years ago and most young people have never heard of Mindspring
• What few winners we’ve had, they don’t feel compelled (or even obliged) to re-invest / give-back to the local community

Local Investors

We don’t have any real early stage venture investors in Atlanta. OK, investors, go ahead and get pissed and stop reading if you’d like. But, it’s the honest truth. Noro-Moseley is one of the largest and oldest firms in Atlanta. They have some good guys there (Greg Foster has recently joined and he seems like a great guy) like Alan Taetle. However, I’m sorry to say this, these guys aren’t early stage guys. They don’t understand early stage. Period. That’s not to say they haven’t made early stage investments – they have. For example, Clearleap. They invested along side Trinity. Trinity is a great Valley firm. We spent time with them. But here’s the rub. Noro probably wouldn’t have done the deal alone, nor would they have done the deal if it was 3 guys just out of GA tech with no experience (in fact, the founders are ex-N2Broadband guys who had a good exit).

Despite what Alan said in a comment on Lance’s blog, Noro had the opportunity to do the Appcelerator deal – 100% as the only lead investor – on a silver platter. Alan and Greg know that – even though they’ll try and say they didn’t, publicly. But the true story is that I gave Alan one week to put a term sheet on the table; he had a told me and several others many times he would. In fact, Alan told several people around town that they wouldn’t lose the Appcelerator deal even before we had decided to raise a round. I’ve known Alan for a long time and I’d like to think of him as a friend – so I know he’ll be pissed at me for putting this out there. However, it’s the truth and I’m sorry if the truth sometimes hurts. I think ultimately, Alan was probably paranoid that he’d lose the deal anyway and I was just using Noro to price the deal. A number of inside people know this: I had told everyone that I would give them the deal if they put a decent term sheet on the table we could live with (which I think was reasonable with expectations). I even told Alan I would give them dibs for a week before we talked to anyone — which I honored. In fact, we waited almost 2 weeks before deciding that they were playing games.

Alan insisted on 2 things that I think ultimately was a proxy for their true colors: he wanted detailed, 5 year financials and several days to “dig through the financials” and he wanted to spend time with our 2 key prominent advisors. In fact, that’s part of normal due diligence especially for a round size we were talking about. However, it’s also symptomatic to part of the local investor problem. I’ll contrast that with all the investors I met with on the west coast: we didn’t even talk about financials to late in the discussion.

Let me be straight here: we had very detailed financial models and we have great advisors which are very active. However, when you don’t know what’s important and you don’t understand how to evaluate a deal like Appcelerator, you gravitate towards what you’re comfortable with.

The problem with Noro isn’t that they’re not a good firm. They are not experienced early stage investors. They haven’t had a great track record and most of their partners haven’t had any amount of reasonable success. OK, I said it. I’m sorry, but it’s the truth. It doesn’t mean that their money isn’t greener than the next guys – it is. And they have a decent amount of money in their latest fund. They should be really leading the charge in Atlanta – but they are not. I hope that changes. I think for a region to have a vibrant startup community, it needs some anchor VC tenants that can lead the charge. We’re really missing that in Atlanta.

And here’s another hard-to-stomach fact. West coast money specifically told me they did not want local money involved. Even after I had decided that Noro wasn’t a good fit and moved on, I was still trying to angle how I could let them in to the deal in some capacity. Up to even after signing a term sheet, I talked 3 different times about a possible local partner and I continue to get the same line: “why? what value can they possibly provide”.

You see, you raise money for more than just the money. Don’t get me wrong, all money is green. However, $4M from a west coast VC is so much different than $4M from a local VC. That’s a hard pill to swallow I realize. But, everyone knows it. Get over it. Sig said in the Atlanta Business Chronicle article that he could (my paraphrasing) help find a VP of Sales but couldn’t help with contacts at Google or Microsoft. Hello…. VP of Sales is important, but to most early stage startups, Google … Microsoft … yeah, you need to have relationships there. It’s just too important for so many reasons.

Side note about a smaller local VC

I will say that I did have a good experience with Nelson Chu and the partners at Kinetic. While Nelson didn’t invest in Appcelerator, he was extremely aggressive and helpful. Kinetic is out of Maryland and invests all over but Nelson’s base has been in Atlanta for a long time. Nelson’s been a wall flower at events in Atlanta for a long time — Nelson now has some new money and I really hope he gets active in some smaller, local deals. He’s very smart and tries to work hard and really understand what you’re doing.

A new fund?

There’s rumors that Said Mohammadioun is rasing a small fund, around $80M or so I hear. OK, another good example of a persistent problem: Not enough money based on their profile as a VC. They’re going to only be able to make around 5-7 $5M deals to be able to keep enough dry powder ready for follow-on rounds. At least, I’ve been told that’s their target. Maybe they’ll do some $1-2M deals and get it to around 10. But that’s part of the problem. Not enough early stage money that’s ready and willing to invest much earlier than we’re comfortable with in Atlanta. Said is a great guy and was on our board at Vocalocity and I have much respect for him. However, I’m afraid they’ll fall into the same trap we’re already in.

Local Supply and Demand

Part of the local problem is 2 fold: not enough decent deals to invest larger dollars in and not enough smaller capital to invest in smaller deals.

We need a $80M fund that will invest in 80-100 deals with enough follow-on capital. But here’s the dichotomy: even if we had it, we don’t have enough (currently) smaller local deals that are fundable. So, Atlanta would need to be willing to churn through some deals over a period of time to cultivate a culture change, a set of lifestyle changes and major ecosystem changes – and that’s going to be tough and painful.

Here’s what I think are 5 key requirements to make this happen:

1. We need to build up a vibrant, less risk adverse investor / entrepreneur / employee base. Investors need to be funding as much as they can as early as possible, entrepreneurs need to be encouraged to try everything we can pre-revenue, pre-customer and pre-perfection. Employees need to be more excited about working for the next cool startup more than UPS and Turner. This is a symbiotic relationship where the balance needs to be near equilibrium. Right now, it’s all out of whack. Tech and Emory students should be dying to intern and then work for or start a startup as soon as they graduate. We should have a problem of students dropping out to start companies. In fact, the opposite is true. They leave as soon as they graduate and they intern outside of Atlanta during the summer.
2. Lots of deals for some period – say the next 3-4 years – will fail. Our goal should be to fund smaller amounts faster, build some teams up that can execute on different ideas without much concerns for revenue models and salespeople, and then FAIL FAST. Fail as fast as possible with as little capital invested as practical. Once they fail, they must be encouraged to START AGAIN as soon as possible! Refactor. Get back on the horse. What can we do different next time around? These failures should be not be shamed. Let’s go ahead and get rid of the startup scarlet letter. We need more starts. We need an economy that allows the whole thing to get going and fail and get going again – without having to mortgage houses and without having to present 5-year financials to get $50K. Go go go. Dream big and let’s find you some money to try it out.
3. We need to create an ecosystem around startups. TAG is wonderful for big corporate companies who have money, it’s irrelevant for startups (no offense to Tino). We need a heck of a lot more Startup Riots, Startup Lounges, Barcamps, Atlanta Web Entrepreneurs and SoCons. We need more Jelly’s and Open Coffees. In fact, local investors should feel compelled to help pay for as much of these events as possible. They should be sponsoring any person who wants to create one of these events carte blanche. To date, we (the entrepreneurs) have largely had to fund them along with some gracious sponsors – a lot who aren’t necessarily invested locally like Microsoft. Stop that. We need these events. Please show up to them — you’ll learn something. Actually, go to a barcamp and hang out with the locals. At last year’s Barcamp, we had all sorts of really cool ideas and great debates and discussions. At each event, there are very smart people who are tomorrow’s great startup entrepreneurs or startup employees. Get to know them. Get off the golf course and from behind those big conference room tables and get to know some common folk. (And, while we’re on it, can we please get a little less stiff about the dress code. In the valley, i wore jeans or shorts to meetings. I would get stared down at Startup Lounge if I came in looking like that…). How many local investors have a twitter account (that they use, not to lurk) and blog? How many now in the valley or boston?
4. We need to mandate – at least through peer pressure and possibly through some sort of social contract – that entrepreneurs must give back. It must be reciprocal for this to work. In the valley, if you make it, you’re socially compelled to re-invest and give back in some way. In Atlanta, forget it. The one’s that can and should, don’t. There are some that do, so don’t take that as everyone. But most, don’t. Not even close. And, I’m not talking about just money – I’m talking about giving back to other, younger one’s behind them in the form of guidance, assistance, mentoring, etc. Sit on boards, write checks, make connections — but please, HELP. In fact, only put in a little money — since plenty of other locals with help with the money — just help with the connections, help with all the stuff that you’re in the best position to help with: experience.
5. The last major hurdle, which is a major one – is the acquisition economy in Atlanta. Atlanta is a technology laggard. At least, for bigger companies. Even though we are corporate headquarters to some big brands like UPS, Chick-Fil-A, Georgia-Pacific and Delta (just to name a few) – none of those guys are technology leaders or startup acquirers. This makes it pretty difficult for Atlanta given that strong startup communities usually have strong economies around larger companies acquiring smaller ones to grow and innovate. You would think with UPS that Atlanta would have a very active community of shipment, tracking and transportation startups. They probably would if UPS invested and bought local companies doing innovative things in this area. They don’t. And how about CNN, Turner and Cox? Huge media companies with major presence in Atlanta — but all the cool video and new media startups are in San Francisco. Why don’t we have all of these cool local companies built up around new media? We do have a decent cluster built around Security – given ISS and it’s long history (started in 1994 by tech student, Chris Klaus). However, I do believe that’s a relative anomaly. Why? ISS itself hasn’t really been active acquiring security companies locally (or even outside of Atlanta). In fact, most of the local security companies are really the result of a local cluster of security having been created by a number of dissatisfied entrepreneurs leaving ISS to do something better. Either way, with CipherTrust and SPI Dynamics having decent exits – it’s been a good thing for Atlanta and the security cluster. So, as far as larger corporate acquirers, I’m not sure exactly how this can be solved. These local big companies neither make good acquirers or early stage customers.

Here’s the danger

Local money needs to understand a few things I’ve consistently heard:

1. Out of town VCs could care less about local money. In fact, in this day, they’d prefer to not even have them involved. I know that’s going to be contrary to what we hear locally. Locals would like us to believe that out-of-towners like to have a local person in the deal. That’s baloney. It’s just not true. That’s a ruse that locals create to (a) get into an out of town deal and/or (b) mitigate their risk with someone bigger/smarter. In fact, I have repeatably heard that they would prefer to not have smaller, local firms involved *at all*. Out-of-towners have been consistently burned but smaller locals.
2. Clean cap tables and simple terms are much more attractive to bigger firms. We have a problem locally where startups raise money (over and over) in smaller amounts from lots of angels or local firms — and our cap tables look like our 5-year financials: overly complex and exhaustive. We need to ensure that cap tables and terms are clean. I realize that can be tough when you get money from lots of individuals – but we need some solution that’s both practical and protective. And enough with all these silly, overly burdensome terms. For all the money and ill-will we’ve created in all these startups over the years — how’s our track record on all those onerous terms? Hmmm… how about 0%. Please name one company where investors have been able to take a failed company’s IP and make something with it? Name one startup where those 3-4x liquidation preferences have yielded a decent return. C’mon, we’re killing ourselves here and only making the local lawyers rich.

Unfortunately, I don’t believe that the Atlanta startup community is at a cross roads — it’s not that simple. It’s more like a labyrinth. This problem is a multi-variable equation. And, it’s one whereby all parts have to work together pretty consistently.

The local community has a lot of reservations all around. I do believe it can work. I do believe that a few leaders from each constituency can emerge and provide 80% of what’s needed to get us there. I also think it can happen. However, it will take some time. It will probably take 6-8 years for this to really work if we intend to see a major shift. That’s quite a long time in startup time – and here’s why: we need to get several rounds of failed startups (2-3 years) through the system and then get some decent base hits but a great set of teams. Then, we can go back through the normal cycle (4-5 years) to get some really decent hits. At that point, we’d have enough stuff in the pipeline that we could really change things. And, enough decent successes following the formula, that they’ll start their re-investment for the cycle to continue again and again.

The other alternative is status quo, or worse, an imbalanced ecosystem. One example of imbalanced ecosystem is what’s happened in the last year in Atlanta. The entrepreneurs have taken the mantle of driving the startup ecosystem. That’s not entirely bad, but it’s also not sustainable. All the local events (that are meaningful) are being driven almost exclusively by entrepreneurs (myself included). The burden is heavy. Everyone needs to participate. Everyone needs to be involved.

So, why move?

Well, frankly, I’m both tired and scared. I’m tired of pushing hard and need to focus on my own startup right now. And I’m scared that if I don’t get every possible advantage in my own court, I’ll fail again. I really want Appcelerator to succeed in a big way. I believe I can change the world – at least the small part of the world that is impacted by what we’re doing. And, I believe that if we can even be partially successful in what we’re attempting to do, we will. I need every advantage I can get to make that happen. The Silicon Valley area is part of that plan because it puts me (and Appcelerator) in the heart of where things are happening today with a set of partners that have done it over and over again. The ecosystem is in place here and it’s working consistently. It’s not without its own set of new challenges: the valley is ruthless, expensive, somewhat overrated and definitely a different pace of life. But, with all that, it’s still the place to be. Very few significant technology companies make it big outside of the Silicon Valley – and that’s just the facts.

One very prominent valley investor told me: “Jeff, if you want to be an actor you go to Hollywood. And, if you want to be a tech entrepreneur, you need to be in the valley.”

So, I’m going to have to put my own self-interest (and that of Appcelerator) ahead of my altruistic concerns for Atlanta. At least for a while. If I’m successful, I do believe it will help Atlanta in many ways.

So for now, I’m outta here. I’ll be living in Mountain View, California just off Castro Street and our new headquarters is in downtown Mountain View (just 3 blocks away from my house).

I wish Atlanta the best of luck and I’ll really miss all my local friends and colleagues. You have been so good to me for so long and I really appreciate everyone’s well-wishes and congratulations. You’re in my heart and on my mind. I really hope we can keep in touch.

One of my goals as part of this transition is to blog more – specifically about this experience and how it’s different (both good and bad). So, please stay tuned and subscribe to my blog (and my twitter stream if you want more rapid updates).

Since I blog a good deal about entrepreneurship, I receive emails from would-be business people who want to take the plunge, live the dream, making the leap – become a startup entrepreneur. Some of them, have decent credentials from a big company standpoint. And often, they lead in with how wonderful their idea is and how it will change the world – and how they can’t tell me what it is (but it’s big!).

OK, first off, regardless of my good-hearted jabs – I think this is incredibly wonderful and reminds me of a decade ago when I used to receive all the incoming ideas at eHatchery – a local incubator where I was CTO. I often get incredibly detailed emails that give me almost no idea of even how to respond. I often respond something like this: “there’s little to no value in your idea, execution is all that matters. if you don’t feel comfortable sharing your idea with me, that’s OK. i have about a million ideas of my own I don’t have time to execute on, i really don’t care to try and add yours to the list.”
I’m not sure what else to say…

there’s little to no value in your idea, execution is all that matters.

The idea of sharing your golden egg with the rest of the world, I realize, is scary. I think it’s especially scary when you have little ability to execute: no capital, a full-time job and you need programmers. Yeah, that’s pretty scary. But, remember: there’s like 6 billion people in the world. You’re probably not the only one that’s thought about what you’re thinking about. And, maybe even some have gotten further than you – I know, hard to believe. That’s not to say that your idea isn’t good and you should keep your day job. It does mean that ideas in your head most likely will just stay there – and turn into a lot of frustration.

The only way to take a good idea to reality is execution. And, if you’re stuck in your day job with a great idea and no ability to execute – well, maybe you need to either find out a way to make it happen, or get back to work. No offense intended, really.

Entrepreneurs find a way. They make it happen. They don’t always know either – and most of the times enter into things with no freaking clue how they’ll make it happen. They show up like they’ve figured it out and make the corrections as they need to. If you can’t get going, maybe you should stay home – you might not be an entrepreneur. And, that doesn’t mean your idea sucks – it just might not mean you’re the guy to make it happen by yourself.

To me, at the end of the day, all that matters is execution and results. Figure out how to try and make it happen – even if you can’t quit your day job initially. If you can’t figure out how to get your first $50K, you’re probably going to panic when you have to raise the next $1M and quit anyway. If you don’t know any “programmer’s to do the work at equity” as I often am told, well, you’re probably not ready to take the plunge. In a big company, others are responsible for everything else except what you’re responsible for. In a startup, everyone is responsible for everybody else’s stuff – we all do it and we all have to make it happen – or it fails and we have to do something else that sucks. I’ve started 8 companies and I can tell you – my biggest fear is not if I’ll fail and I won’t take home a paycheck. My fear: I’ll have to go work for IBM. I swear to you, I worry more that I’ll have to one day go work at some deadend job, sitting in a cube, a cog in the wheel – a big blob of nothing. I always joke with my wife: “don’t worry, worse case I’ll have to work 30 hours a week a draw a nice salary with benefits”. Of course, I realize, not everyone has that fall-back (or at least, they don’t perceive to).

all that matters is execution and results

Can’t you just make it happen – at least get it going – before you look around to others to take some risk on your behalf? This isn’t saying reach out for help, just don’t reach out with your hand looking for a paycheck before you quit your job. I understand, we all have a lifestyle to maintain – we all don’t want to worry about how to pay our mortgages. But, c’mon. If you can’t make it on your own, you’re not going to be able to build a company and support others. And, just because you got that big $1M investment, doesn’t mean it’s an easy road from there. Most people assume when you raise capital, you’re done. Back to work. Focus on the product. Just make the business work – easy street now. Are you kidding? You don’t realize how much time you’ll spend focused on what happens when the $1M runs out – because now you realize, that $1M isn’t too much and that as you add people (and the resulting burn), you’ll quickly need more. You’ll now also realize that it took so long to get the first money that if you don’t start in 3 months again, you might not have enough time for to get the next round closed. Yea, the cycle begins. Been there, done that.

You gotta figure out how to get your product going and get some revenue – any amount of revenue – to validate what you’re trying to do. Yeah, I know – it’s going to take time and money – and people besides yourself. Get it going, please, and I promise it’ll be a much easier rider. Get it going and it’ll be easier to hire others, raise money and acquire help. Keep it in your head, and you’ll only be frustrated. And lose the idea that investors and other entrepreneurs are just looking for other people’s good ideas to steal. Crap, we’ve got enough of our own ideas and issues to worry about your next Google.

Are you an existing business that needs an eMarketing jolt? Entreprenuer magazine and Caffeine Marketing Jolt are having a content for $20K. You can get more details from Brent Leary’s Technology for Business Sake’s podcast show. Brent’s a partner at Atlanta-based CRM Essentials and a judge for the content. If you haven’t checked out Brent’s weekly show – you should – he’s got top notch and high profile guests with a wealth of good information.

technorati tags: atlanta, startup, entrepreneur, entrepreneurship, funding, ideas

This is such a bold title and one that I’m not sure I can really address. However, a group of us have started to try and address this question and last night was our first formal dinner meeting. What started out a few weeks ago with a handful of us starting a brainstorming meeting – last night turned into 18 people very passionate about helping improve the environment. I’m sure this is just the start and it was apparent from last night’s dinner that there are a number of people that have a desire to improve the startup world here in the Southeast – starting right here at home.

Since I’m not sure who wants to have it known that they’re involved – or at least interested in being formally involved in this venture – I won’t name anyone here and keep their confidentiality. However, I can ensure you that we’re not talking about a few people who don’t have the resources, connections and talent to pull this off. And, I can bet that this is just a start. Given that our town is generally full of followers, I’ll predict a lot of people will pile on to this effort soon.

But while all this sounds fun and interesting – there are some potentially fundamental issues in front of anyone interested in taking on this issue, especially here in the Southeast. This project isn’t going to be for the faint at heart or the person that is looking for the quick fix. The issue as one attendee expressed is very complex and multi-dimensional. It’s also wrought with a number of tangled macro and micro issues.

I can’t begin to address all of them here and I won’t claim to have any smart thoughts yet on how we can address them. This will take a community effort – and one that reaches way beyond this group – some efforts will reach beyond Atlanta, reach beyond the current generations of the “powers that be” and will affect our educational, financial and government institutions.

And here are a few of our initial challenges in the form of questions. While these are presented in a numbered, linear fashion, they are not intended to be expressed in this form – it’s the only way I can enumerate them effectively in this blog.

1. Does Atlanta have sufficient supply ready to meet capital demands?

While we all initially think that Atlanta (and the southeast in a broader since) has a venture capital problem – it’s probably much less of the issue. Some of my fellow entrepreneurs will disagree with this statement and point out that most of the successful companies raise capital outside of town, namely in the Silicon Valley and Boston. And that is true. I could wax many digital pages in this blog talking about how the venture capital system is broken in this town – but I don’t believe it’s broken because of the lack of capital. In fact, I’d argue that there’s plenty of capital right here waiting (yearning) to be put to work.

But capital alone doesn’t make a difference if you don’t have a supply of quality entrepreneurs and quality businesses (read that as that, businesses) – one’s that are investable. Sure, that statement will no doubt aggravate qualified entrepreneurs or one’s like myself who had to go outside our region to raise capital and build companies. Remember, I said this was a complex issue and one that is interwoven in a number of other macro issues.

So capital is like water running down the mountain – it will find a path to the end – even if it takes twists and turns. Our twists and turns seem in the past few years to be other ways to invest capital and make an ROI: real estate, S&P and “later stage” deals to name a few. And for all, ROI is ROI – especially in a safe bull market.

A chicken and the egg problem indeed: more successful deals that convert to exists will create more opportunities for capital sources and more capital brings more entrepreneurs seeking capital to the region.

2. Is there a strong, vibrant community to cultivate and grow the startup environment?

I can say a lot of us have really been focused on this — and almost exclusively from an entrepreneur-driven motivation — in the past year. I can name a number of groups and activities around town that are grass-root activities aimed at this very question. Just a few are David Ratajczak’s YnR meetups, Mike Schinkel’s Atlanta Web Entreprenuers or Scott Burkett’s Startuplounge, Pitchcamp and Capital Connections. And this is just a few events to mention – there are plenty more happening organically.

Additionally, there are a number of other events that point to Atlanta playing part in the larger community conversation with events like SoCon07, BarCamp Atlanta, Podcamp Atlanta and Startup Weekend. These are events created by the community and for the community – nothing like TAG events (no offense to that great organization) over the past 10 years.

So, we’re making wonderful strides in this area – we’re just beginning – and in some cases, we’re actually pretty far behind the crowd on these events. While we’re good at creating similar events like Barcamp, we’re certainly not “innovating” in these types of community-based efforts on our own right. Atlanta has done a decent job of eventually creating environments that are similar to other areas – but only after we’ve seen it happen in other parts of our larger community outside of the Southeast.

While it’s easy to think we need a more organized, concerted effort to drive these types of activities – I contend we need the exact opposite and we need more people to drive it. We need more fragmentation of these activities – completely separated, but symbiotic in un-explainable ways. We need environments by which people self-organize and help each other and then move on to create and help others. We don’t need to create another set of organizations that resemble corporate counter-cultures in the name of “community”. We don’t need more organization around these events – and in fact, organizations like Atlanta Web Enterprenuers that look like they’ll have the ability to reach up to 500 members and 100 people at an average meetup in a few months – should look to splinter on purpose, and do it as they fast approach size. We should focus on micro social networks that create community and help drive change, improvement and relationships. And please please please, can we just do away with all the self-congratulatory awards that every group seems to feel like they need to give away to each other?

I can’t even compare our environments to other major areas like the Valley or Boston – it’s just not much of a comparison. So, I won’t. Atlanta can become it’s own community and has the ability to not only do what others have done before us – but also innovate in it’s community environments. And, we need more people – “completely unknown” around town – to step up and make it happen. We need 100 Billy Payne’s passionate about making Atlanta a successful startup community, as much as the real Payne did for the Atlanta Olympic quest in the late 80s.

3. Can our educational institutions help us create graduates that have jobs in the region and a reason to stay?

This has been a hard problem for most of our institutions to grasp I think – mainly because I’m not sure they’ve really ever thought of it this way.

Georgia Tech is a great institution, well regarded around the world in wireless, hardware, robotics, aeronautical, chemical and industrial engineering and a number of other hard sciences.

How many companies in the southeast employee those types of engineers?

Scientific-Atlanta and Bellsouth a decade ago created a lot of demand for engineers in this area. Today, not so much. And some of the top wireless companies in the world are recruiting GT students because of its top notch wireless programs and research.

So, in effect, we’re inadvertently creating and training a strong workforce for other regional economies – like the Silicon Valley. And while in the global marketplace – that’s perfectly OK and way beyond Atlanta in terms of creating a globally aware, competitive nation. But as far as our little ole place we call home: our tax dollars help create wonderfully trained, bright minds and then we ship them off in droves every year.

And while we shouldn’t change any of these programs – they’re incredible and terrific – we should understand the impact this has.

At Stanford or MIT, at least I’ve seen and heard, a lot of graduates start or join companies right in the region during or just after college. Heck, at Stanford, you’re thinking about how you can start a company with your classmates before you’ve graduated in a lot of cases.

In my experience (and I’ve hired quite a few Tech graduates over the past 10+ years), we’re not generating students that can’t wait to create companies or pursue their dreams of making something to change the world (some of us would call those people “entrepreneurs”). We’re creating employees. We’re creating highly skilled laborers. And we all know that we those workers go off to bigger companies, mostly outside of town. But, unfortunately, that doesn’t help create a thriving startup environment right here in Hotlanta.

We do have an exception here – and probably others I’m just not aware of – in Emory University. Emory is well regarded both in medicine and in bio-tech – and there are a host of successes in the region specifically addressing this opportunity. And, we have the advantage of a built-in “larger institution” that can feed off innovations in the CDC and a number of regional medical institutions. It seems, people actually want to come to Atlanta – and stay – in these areas of technology/business. And this is a good thing and we need to learn from this.

4. Do we have an economy of larger companies that need to grow through acquiring smaller, innovative companies in the region?

Almost any large company in the world that grows naturally through acquisitions will not stop because of geographic distance to acquire a company because of a need. But, it takes concentrated effort, long distance connections and worst, travel. Do we have a pool of large enough acquirers actively looking to grow their business (or teams) through acquisitions right here in our backyard?

Do we have larger companies that produce entrepreneurs from the company that have dreams and aspirations – and domain expertise – to create off-shoot businesses that feed back into large region industries?

I was talking with a person a few months back about how large Atlanta was in terms of “old” and “new” media – and how lacking we are in companies feeding into that hot area of innovation. By far one of the largest media properties in the world (CNN/Turner) sits adjacent to the Georgia Tech campus – and there are almost no new media companies driving innovation in video, music or gaming here in town – except one (that I know of) with Chris Klaus’ Kaneva. However, recently, Turner brought in a host of companies from out-of-town to talk with them about “strategic opportunities”. We’re literally sitting at the nexus of the old and new media and we aren’t even currently feeding this opportunity.

And music? Atlanta is now the capital of the hip-hop world. Aren’t there opportunities in this area that some local entrepreneurs could capitalize on? Can’t we at least attempt to organize around several strengths and exploit them to our advantage?

But another little problem that most people miss about Atlanta’s corporate elite institutions – in Geoffrey Moore terms: they’re laggards. They’re not known for adopting technology early or embracing risk in an effort to grow innovation. A friend of mine recently told me when he was building a very successful startup company here in Atlanta how he approached selling software in the region early-on: they didn’t. They went straight to New York (financial institutions) and the Valley. His reason why? Atlanta-based companies are easier once you’ve got early adoption from some larger known companies – companies that generally will take risk to get ahead sooner. Once you have them, the local guys are easy.

5. Do we have a successful community of people “who’ve made it” who re-invest back into the community?

Do our successful entrepreneurs give-back? Well, probably most of them do in their own way. Nobody would ever dismiss (and certainly not me either) the impact that people like Bernie Marcus, Arthur Blank, Charles Brewer and Chris Klaus have had around town.

But is there a self-imposed, social obligation to re-invest – not just money – but time, connections, energy and through participation – back into the startup environment? Do we have a lot of one-time successes or a lot of successful serial entrepreneurs? Do we have an economy of mid-and executive level management teams ready to join new startups? Are “our success stories” getting back in the game once the exit happens – or, are they happy that their few million allows them to be a major star around town?

In the Valley or New York, a few million isn’t too much. In Atlanta, with a few million, you can become an angel investor and get a really nice house and live comfortably for a long-time. In the Valley or NYC, you can pay some bills, afford a very small house or apartment and then you have to go back to work and do it again. I’m not saying that’s a dream in my opinion – but it creates an environment that feeds back into itself a continuous cycle.

6. Can a person with passion and an idea raise money without a lot of connections?

Wow, this is a trick question. OK, raise your hand if you think you can walk in off the street in Atlanta and raise capital without knowing anyone or how the “system works”?

Not quite. Part of this is because of a lot of other factors (some above) like Atlanta largely existing of people who like to follow (or “pile on” to deals as you’ll frequently hear). You don’t have a lot of people willing to step out and take a risk on unknowns. Heck, Atlanta is so bad in this regard that if you don’t get endorsed by two prominent angel groups – regardless whether the deal is a good fit for their investment strategy – you have to wear an implicit scarlet letter around town. Everyone questions: “If X didn’t invest I wonder what’s wrong with the deal?”

In the southeast, it’s still a good-ole-boy-network.

7. Does anyone know about what’s happening inside and outside of town?

A very large part of the problem, and a very important key to building a startup environment, is marketing and buzz. Does the world know – and do people around town know – about all the wonderful things going on here in our city? Are people buzzing about some of the fun and exciting things going on? Do people want to move here to be part of what’s happening? Are companies around town getting a steady flow of people who want to work for them?

We recently had a local entreprenuer named Alec Peters get covered on TechCrunch. His business, called Screaming Sports, is right here in Atlanta – and a web2.0 startup. And by far, companies in the Web2.0 world all die to get covered by TechCrunch. I asked everyone last night if they had heard of this company? Not a single person did. If this crowd doesn’t know about it – we got problems, yo.

Conclusion

One of my questions at last night’s event was the following: “If we had unlimited funds, could we fund 15-20 startups tomorrow without just pissing our money away?”

How would you answer this?

1. Do you have a business (not an idea, although those are potentially needed too) that creates values and demonstrates this value with real revenue?
2. Do you have a business that others want to acquire (even if not right now because of the stage you’re at in your lifecycle) – either in private equity markets or the public markets through IPO?
3. Do you have a business that can scale it’s workforce rapidly with a qualified and skilled workforce – in a reasonably efficient and affordable manner?
4. Are you willing to risk everything to make it happen – possibly with a reduced lifestyle and paycheck (at least for a period of time)?

These are just a few questions to answer for yourself.

While I don’t claim to have much of any good answers – only strong opinions – I think there are the right mix of raw ingredients available to us in the region. Some of the negatives can be tweaked slightly to become competitive advantages.

How can you be part of the solution?

technorati tags: entrepreneur, atlanta, startup, georgia, community

A few weeks ago I put out a public challenge to a few local venture capitalists / angel investors:

So — my challenge to the local VC community – which I dearly respect: start blogging.

Here’s my public challenge. I’d like to see the following at least start a blog and post one meaningful article related to venture capital and what they’re interested in:

• Stephen Fleming, Chief Commercialization Officer, GT Venture Labs
• Alan Taetle, Partner, Noro-Moseley
• Fred Sturgis, Partner, HIG
• Knox Massey, Atlanta Technology Angels
• Sig Mosley, Imlay Investments

And here’s my offer: I’ll help in anyway I can – set up the blog, provide the hosting, find the templates – even help give some tips on how I do it.

Almost immediately I received a few emails and stirred up some interesting conversation about the value of VCs and blogging. The value of blogging is still wildly misunderstood – with the usual main reactions:

• “Nobody cares about what I eat for dinner or where I’m going this weekend”
• “I can’t talk publicly about stuff I’m doing”
• “Nobody gets much from personal blogs”
• “I don’t have time”
• “Blogging is just gossip”
• “I don’t want to be self-promoting”

I guess anyone’s opinion of “what blogging is” is just that: their opinion. And everyone has a right to their opinion. From my experience, blogging can be more than the above — and can also include the above — and be successful, useful, interesting and valuable. It can also be a complete waste of time and sometimes not worth the trouble. Blogging is a long-tail implementation in the world-wide, social phenomenon kind of way. How blogging came to be and how it’s impacted the world is probably one of those Internet change agents we’ll look back one day and say “aha”. And the impact, as can happen with most technology trends, are not all positive. And they don’t have to be. You need to take the good with the bad in cases of innovation. Nuclear power can be both used for bombs and for energy. And both, sometimes, are appropriate and inappropriate in different contexts.

For me, it was a hard transition from becoming an occasional hobby blogger to one with purposeful, serious intent – which happened almost a year ago. Before that, I had first started blogging in February of 2003. And, once the transition happened, magically, things changed for me in ways that can be hard to explain to someone who hasn’t experienced it. But, the change wasn’t really difficult – it was almost obvious and once it happened it made a lot of other things that are occurring in web 2.0 much more easy to understand. I’ll stop there — since that’s a little too deep and probably justifies a longer post one day.

So, the update on the VC blogging challenge?

Alan Taetle, Partner at Noro-Moseley was the first to take the challenge – which I posted on my blog a few days after the challenge. Thanks, Alan for that nice post – and a topic that merits much community conversation.

Knox Massey, Executive Director at Atlanta Technology Angels – has been raring to start blogging after I had lunch with him a couple of weeks ago. I setup a brand new blog for ATA a few days ago and I think that should launch soon with some great content from Atlanta’s premiere angel group. More to come on this…

Stephen Fleming, Chief Commercialization Officer, GT Venture Labs – Stephen is such a geek and sent me this really nice email after I volunteered to help set something up a few days before: “I was in a conference this weekend with Wi-Fi and a couple of boring speakers (yes, I went to a conference over a holiday weekend!), I went ahead and set something up on Blogger. Turns out that Adobe Contribute knows how to speak to that, so it was pretty simple”. And, the best part is his 2nd post was done from his blackberry from the conference. Awesome.

Well, 3 out of 5 isn’t too bad. And most importantly, this social experiment also demonstrated the power of community and blogging first hand.

technorati tags: vc, blogging, atlanta, southeast, vc, venturecapital

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This post was published on behalf of Alan Taetle, General Partner at Noro-Moseley. Alan and Noro have been very active investors in the southeast venture community for many years. I’d like to thank Alan for the time to put together his thoughts in response to my earlier post. -Jeff

Many of you know that we at Noro-Moseley have spent the past year raising our sixth fund. We have had met with at least 70 groups in the U.S. and in Europe. What you’re looking at above was one of the questions most posed to us. After all, we are a regional early-stage and early-growth venture fund focused on the region – who better than us to know?

Venture capital investing is pretty much based on the theory of ‘black swans‘ posed by Nassim Taleb in his most recent book (he is a great author, by the way; this and his first book, ‘Fooled by Randomness’, are must reads for anyone who invest for a living). The black swan is the outlier success story that provides insane returns. Google is the primary example in the last 5 years. Where are the black swans in our region? I am going to give you an example of the challenge we faced when fund raising when we were asked to prove what is world class.

Let’s first look at one area where some of the big wins have been in the IT space in the Southeast and where investment dollars seem to be going. First there is Internet Security. Tom Noonan and Chris Klaus created a mini black swan company with over a $1 B in economic value and just as importantly, Tom Noonan has invested and mentored other entrepreneurs to pursue opportunities in this space. Companies like SPI Dynamics, one of the leaders in web application security, would not exist if it weren’t for ISS. The Georgia Tech Information Security Center has cranked out new interesting technologies like what’s found in Damballa, a company built to combat the botnet problem. We also have Jay Chaudhry, who started one of the first security consulting firms and then one on to build Ciphertrust and Air Defense. In total, there are well over 15 start-ups in the security space in the Atlanta area many of whom were started by ISS alumni. Secureworks, one of NMP’s companies, will be the next major player to be noticed given its scale.

What I wrote above sounds like its a great world class story save for three things. First none of the companies remain public. ISS will not be Cisco. It’s now part of IBM. Ciphertrust is part of Secure Computing. All of the major public Internet security companies are based in the Valley. Second, why is RSA, far and away the largest trade show for Internet Security, in San Francisco? Why isn’t RSA located in Atlanta, the home of Internet Security? Third, what has our region done to market itself as a center of excellence for Internet security? Nothing that I’m aware of.

If we want to really move to the next stage of venture evolution with more capital invested, more start-ups and most importantly, more black swans, we are going to have to market our region more systematically on what we are world-class in. Excellent quality of life alone will not do it.

technorati tags: venturecapital, vc, atlanta, georgia, entrepreneur, noromoseley

Today, ATDC celebrated a very important milestone for the southeast and Georgia in particular. ATDC celebrated the fact that its companies had raised over $1 BILLION dollars in venture capital financing. And, Tony Antoniades, General Manager of ATDC, reminded us many times throughout the event just how big $1B really is:

• You’d have to spend $22M every minute for the entire ceremony to spend $1B.
• You’d have to eat a Varsity lunch every minute for the next 10 years.
• You’d have to combine the highest grossing revenue movies of all times – Titanic ($600M) and Star Wars ($400) – to get $1B.
• You’d have enough money to buy everyone in Atlanta an iPod nano with $1B.

One billion dollars is quite a significant amount of capital invested in startup and emerging growth companies – and those are all ATDC companies. By the numbers, that’s 160 deals in 75 companies from 138 venture investors. The average deal size is $6.7M for each ATDC company.

Deal makeup stats:

76% software
16% communications
2% life sciences
2% hardware

Interestingly enough, many people think that ATDC is only about Georgia Tech. However, 76% of the ATDC companies have had no affiliation with Georgia Tech. Only 24% have had a GT affiliation.

32 of the companies raised from $0-5M. Only 10 companies have raised more than $25M.

Top deals in 2006. Air2Web came in at $25M and Cardiomems just behind them at $22.5M. Jacket Micro Devices raised $12M and iVivity $10M.

ATDC represents a significant portion of all investments in the State of Georgia with 21%. The remaining 79% of state investments are non-ATDC affiliations.

2 Major firms sponsored the event today: DLA Piper and HIG Capital.

DLA Piper is an elite technology venture law firm. They’re helping companies secure capital as well as structure their growth. DLA Piper ranks #3 in venture deal volume – with #1 being Wilson Sonsini and #2 being Cooley Godward.

DLA Piper did 246 venture deals in 2005; 397 deals were done in 2006. Of the top firms, DLA Piper is the only firm currently that has a presence in the Southeast U.S. Of their deals, GA ranked #3 with 8 deals behind Boston with 7 and California with 13. Interestingly enough, Jeffrey Leavitt of DLA Piper reported that Noro-Moseley toped the GA investments with 7 deals in Georgia.

HIG Capital is an early to growth stage venture fund out of Miami, FL that has an Atlanta office. HIG Capital has $4B of total capital under management with investors such as Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, MIT, Morgan Stanley, Stanford, Verizon and Yale University.

HIG has around 100 investment professional and has invested $50M in 7 ATDC companies. Their latest fund of $300M. HIG is a strong partner of ATDC and has only invested in 1 non-ATDC venture. From Fred Sturgis‘ perspective, “ATDC is the crown jewel of the souteast from a technology investor perspective because of the marriage of tech & commercilization”. Fred said that ATDC “is a hub of bringing capital into the region”. With $1B raised in its companies since its inception, that’s apparent.

ATDC has also had a dramatic economic impact for the State of Georgia by contributing $12.7B in revenue and has contributed 52,000 employment years. The State of Georgia has yielded $100M in profit from ATDC companies. The goal of ATDC is to “increase the technology business base in Georgia by helping entrepreneurs launch and build successful companies.”

• Consulting – strategic business advise
• Community – interaction with other entrepreneurs
• Connections – connections to people and resources
• Centre – facilities designed for startups
• Credibility – instant recognition

ATDC today also announced it’s new venture catalysts:

Lance Weatherby (ex-Mindspring and Cipertrust) – Atlanta
Jason Burr – Savannah

ATDC also has a strong Enterpreneur-in-Residence program which helps facilitate the collaboration of startups and seasoned enterpreneurs.

Ron Curtis (founder of Webtone) and Jeff Hoffman (founder of Priceline) are the current EIR. Interestingly enough, two-thirds of EIRs join or start ATDC companies.

This year’s ATDC champions included:

• Gordon Eilen – for establishing CTO roundtables
• Joan Herbig – from Cambia, taught workshops for entrepreneurs
• HIG ventures/Fred Sturgis – for publishing, speaking and venture whitepapers
• Jeffrey Leavitt – DLJ Piper
• Mike Slawson – Venture Lab Fellow
• Jim Stratigos – for being the poster child for entrepreneur at ATDC – famous quote: “Jim is the Paris Hilton of ATDC”. (lots of laughs)

And speaking of clapping, it would take the entire room to clap straight for 16 days to total one billion claps. With a $1B, you could give every website in the world $10.

Tony announced what was on the horizon for ATDC:

• Extend the impact – they announced an entrepreneurship blog which will launch in the summer
• Capital readiness workshops
• An offering for non-tenants – possibly a north metro offering for all of us who don’t like driving all the way downtown. Yea!

The ATDC advisory council:

• Bird Blitch
• Wain Kellum
• Darryl Lemecha
• Said Mohammadioun
• Emma Morris
• Sig Mosley
• David Stern

And, now – on to the graduates. The graduates were split up into 2 categories: Venture Lab graduates and ATDC graduates.

Venture Lab is run by Stephen Fleming and the goal is to start successful companies based on GT research. It’s been around for five years and Stephen says that “if ATDC is an incubator, Venture Lab is neo-natal care.” Much of the available pre-seed funding available through the Georgia Research Alliance.

Some of the prior Venture Lab graduates have included CardioMems, Nuventix, GTronix, Orthonics, JMD, QCept, Stheno, Radatec, Virtual Aerosurface Technologies.

Today’s Venture Lab Grads:

Asankya, Scott Ryan CEO
Asankya is enabling high-quality real-time content.

Damballa, Steve Linowes, CEO
Addressing threats that are compromising the foundation of the Internet (bot armies).
Stephen said that Damballa “made 6 VC pitches and received 5 term sheets”. Wow – that’s impressive – and quite un-natural.

Innovolt, Suresh Sharma, CEO
Complete Power Protection for all electronics. Current surge suppression instead of the existing volt surge suppression products.

Medshape Solutions, Kurt Jacobus
Better health through better materials. A bio medical startup focused on memory polymers.

Sentrinsic, Mike Orndorff, CEO
Position sensors for use in industrial automation, robotics and aerospace applications.

Vivonetics, Gang Bao, CEO
Applying beacon technology for health and life sciences.
Vivonetics is the newest ATDC company.

WiSPI.net, Dave Kelly
Companies tagline: “Batteries are cheap. Replacing them isn’t.”
Micro scale fuel cells – size of the tip of your finger.

And, the ATDC graduating class of 2007:

Cambia
Founder was member of elite XForce Team from ISS

FTrans
70 customers including Synovous
Raised $7M

Jacket Micro Devices (JMD)
4 patents granted, 25 pending
Based on early Army research grant
Packs RF components into a very small chip
Tony noted: “one billion JMD chips stacked back to back will stretch from Atlanta to California and back.”

QCept
6 months to get their first patent award (wow, that’s very fast!)
chemical inspection for semiconductor industry

Racemi
$10M raised in total
Racemi was a company that struggled and survived the 9/11 hard times when very few companies could raise money.
Co-founded by Paul Freet and now has 26 employees.

ScanTech
2 U.S. spies found interesting technology in Russia and licensed it after the Cold War
Received Homeland Defense award for “best innovative solution” in the U.S.

Tony outlined some of the ATDC learnings that are expressed in it’s graduate lineup:

• world events / macroeconomics – such as 9/11 and Iraq War – provide both opportunities and present chaos for all companies

• near death experiences – some companies were on the virtual collapse and navigated through it

• takes longer than expected – each company experienced longer than they expected to turn a profit, raise money and produce their product

All-in-all I thought the event was very enlightening and encouraging to see so many interesting companies doing a variety of different market segments.

The “official presentations” from Tony are below:

– ATDC Ceremony Presentation
– Venture Lab Presentation
– Gold Sponsors: DLA Piper and HIG Capital Presentation
* Thanks for Mike Schinkel for the nice photos.

technorati tags: atdc, georgia, venturecapital, vc, entrepreneur, atlanta