What’s wrong with the Atlanta startup ecosystem and how to fix it

by Jeff Haynie on August 8, 2008 · Comments

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).

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  • gwinscott
    jeff....we unfort havent had a chance to meet yet....but thx for your openness and candor. i lived in atl from '87--'04 wkg for turner broadcasting (also live in sydney with them for 3 yrs) and was involved with 2 startups, one out of sunnyvale...ibeam broadcasting that got bot by williams/wiltel/etc.....anyway, i can certainly relate to a lot of what you are saying with your in depth analysis. im fighting the fight here in memphis at emergememphis (just think atdc with less companies and less funding/resources basically). i too wish there was more emphasis on startups/funding/sophistication and experience and that is one reason i havent started an angel network or early stage fund...but i feel the pain and applaud the move. as fleming said go make it happen there, but certainly keep your finger on all the activity in atl...it will come. lets try to connect up via phone, as id like to introduce you to a few folks and really just to hear more about all that you are doing and want to accomplish...gwin
  • TedTanner
    Hi Jeff:

    I am responding to this late for several reasons. 1) its painful 2) its honest so I wanted to take time to fully think about my response 3) We are in the same boat although not as "floaty" as with an institutional round. I came back to charleston sc after spending time in the Valley and PacNW. I looked at this as a HUGE opportunity. For instance we are paying 1.00 per square foot office space! My entire burn rate is LOWER than many west coast companies office rental. We have working software and I have farmed some of my former teammates from Apple,Microsoft and other west coast startups to come here due to the quality of life. Its about the team and execution. it will always be even if you have a grade B idea it can turn into a grade A idea with the right execution. Its also about the corporate contacts. We had two Series A rounds fall through for reasons that I have personally never seen. They fell through post tech due diligence and post strawman terms that had nothing to do with those two items. Disruptive technology isnt made out of a university nor through an SBIR or other. I have still been asked about an exit of an IPO. Given I have been on both sides of the fence for acquisitions the "companies inside the firewall" cannot afford another IPO to occur. Google, IBM,Oracle,Yahoo,Apple,Microsoft,AOL, oh yea the new CISCO) wont let it happen. I had one VC in the SE tell me aqusitions are not good for the investors. I was speechless. I build companies so I can affect change for the NEXT company that could possible be built. Invest in the same people that put you there. They in turn invest in the locale. Jeff I hope that you nail it. I have spent to many hours in Printer Inc on California Ave not being able to talk about work for fear of poaching and idea espionage. Good luck. We may have to follow suit. - tct
  • Jeff -

    I've just graduated from the Emory MBA program, and you're right, more of my classmates should be clamoring to get jobs in the start-up community, but part of that situation is getting administration to realize the importance of entrepreneurship. I took a very active part in starting (back) up the Entrepreneurship Club, and was a teacher's assistant in multiple entre. classes. One of the major pushers for increased traction in that arena is local serial entrepreneur/investor Charlies Goetz, who pretty much teaches all of the MBA-level Entrepreneurship classes at that school and gets students excited about it. And a lot of us are. But it take more than one professor. When the Dean of the school and the Career Center are more concerned about placing people in more "visible" companies (read: safe and guaranteed visibility), they won't put any effort into pushing entre. programs. So that's another thing that local entrepreneurship and investors can do, is reach out to those communities that can offer prime talent (we tried to do a LOT of work to get y'all in there, and for the most part, I think we accomplished a lot, but it's got to keep going and growing!). I can name a handful of classmates who went into start-ups after graduation, but it's still an area that students are exploring, and most go back into big corporations. They need more than job postings from local start-ups (which takes no more than an email to the career center). They need convincing, encouragement and more entre/investor presence around.

    Another opportunity I see: I've just started up my own business consulting group, and we focus primarily on marketing strategy, but definitely offer overall business strategy and consulting (I must admit, it's located in Boston, where I'm from). After experiencing the Atlanta entre/investor community, I walked away feeling that investors were, as you highlighted, timid, and that perhaps collaboration could be useful. I don't mean combining funds. I mean making partnerships between Entrepreneurs, consultants and funders to make the most successful business out there. I'm currently trying to reach out to investors both in Boston and Atlanta to see if some sort of partnership can be achieved, one where the start-ups get the business side up-to-par (let's be honest, a lot of start-ups have great ideas or products, but sometimes lack on the business side) to a point where the investors start getting more confident in the company. If people tried to work together on this problem, Atlanta could really move forward. It's the fastest growing major city in the US right now, and that means HUGE opportunity.

    I could write a TON more right now, but your post really hit the head on the nail, and someone needed to say it.

    I wish you luck in the Valley!

    Cheers,
    Kate
    www.othersidegroup.com
  • Jeff,

    Courage is an attribute that some people know, but that few truly own. You have it and you and your company are all the better for it.

    Make us proud out there in Cali; and remember to bring back lots of money for the rest of us!

    God's speed,

    James Harris

    CEO and Chief Storyteller
    Elemental Interactive / ListenShare
    934 Glenwood Avenue, SE
    Suite 110
    Atlanta, GA 30316

    www.elementalinteractive.com
  • Interesting insight. Living in TN, I find that the world is no better off here. I've got so many thoughts rolling around in my head on this one.

    The world tends to be risk averse. That is a joke because life carries risk.

    Getting VC is a hard thing due to the desire to get the 40x payback. If you can't generate the huge payback, its hard to get funding.

    For some folks, if you run the gauntlet of starting a business, growing it, generating a payback for investors, and possibly selling it and getting money out, I can see where a lot of folks don't want to do that again. Its like asking a soldier if he wants to go back into battle.

    I hope it works out for you in SF.

    Wally
  • Ben There
    Angels and the Angel Orgs have lost bizillions, If there was one decent success story, then you'd hear about it all over the place. But you don't.

    A's get hammered by B's who get hammered by C's and then the F's come along and take it all away. Or, it just flops before the vultures get to it.

    This 'mentoring pool' is not a reality either. Successful entrepreneurs go to the next gig. They don't become angel mentors. They've got real VC backers calling on them because they are proven. When was the last time you saw Brewer hanging around?

    Get a real job that pays and provides security. Self fund your business. Sweat equity can go a long way.
  • @knox: "You are actually advocating an old style of angel investing."

    Sorry, I don't follow you at all. OTOH, I'd be extremely interested in a post on your blog that that explained in detail what you meant, with examples. And I'm not goading you; I sincerely think it would be helpful. The more entrepreneurs can understand how the local angel investors analyze deals and invest in companies the better off we'd all be.

    BTW, I really don't have a horse in this race other than really wanting to see the tides rise for all the boats in the Atlanta area. Frankly I'd love to see all my fellow Atlanta web entrepreneurs hit home runs as success breeds success.

    The best way we can make that happen is for all of us to understand each other and work together to make Atlanta the envy of Ft Wayne Chicago and Boston as well as even Silicon Valley without us wishing we were them.

    Agree?
  • Jeff,

    It's been a long time since I read a blog post where someone left their entire heart out on the table. I think you've done that here and I'm moved and inspired.

    I definitely thing moving to SF is the right call. Congrats!
  • Michael Campbell
    I can't say I have any background knowledge about this sort of thing so I'm talking out my ass, but I would be /very/ surprised if "out west" was as meritocratous as you hope. Everything in this world is based on relationships.

    Good luck all the same.
  • YCombinator's Paul Graham has a great new essay on fundraising with lots of insight relevant to the issues raised by Haynie's post:
    http://www.paulgraham.com/fundraising.html

    There are several locals (still) working to bring a YC-like investing approach to the ATL. Stay tuned.

    wayt
  • Knox Massey
    Guys, you misunderstood me. (There are no "secret deals", Russell.) There are plenty of individuals who are willing to invest $25K-$100 in companies--but not necessarily a single company with $25K or $100K. $25K-$50k is a normal investment for an individual in a young company in the angel world--but usually not a single investment in a single company.
    I understand that you WANT $25K-$100K invested in a single company...to get the company to angel funding to the company get to VC funding, etc. That's actually how angel investing used to be. Lots of $25K investments here and there. It was very inefficient--which lead to the growth of angel groups. You are actually advocating an old style of angel investing.
    Anyway, this is probably not the forum to address this. Head over to my blog if you want to ask questions. Happy to answer.
  • Jeff-

    First off, congratulations to you and Nolan and the rest of the Appcelerator team! I'm definitely sad to see you go, but excited for you as well. Plus, hopefully this will be a good long-term play for Atlanta when you come back home in 5 years with $100M+ :)

    Secondly, great post. There seems to be quite a buzz in the community these days, so hopefully we can all take advantage of this and get the entrepreneur community to the next step.

    Best of luck,
    Alan
  • Thoughts too long to post here but they need to be said.

    http://blog.weatherby.net/2008/08/observations-...

    Flame on.
  • Russell Jurney
    If there are many $25K-100K deals happening on the sly but they are known to you, Knox, why isn't ATA doing them? Why is that left to individuals that then for some reason keep them secret? Can you give an example of one such deal?
  • Every place has to build it's own unique niche, like your valley investor told you -- actor? go to Hollywood... tech entrepreneur? go to the valley -- what is Atl's niche?

    I'd have to say the rise of hip-hop entertainment... hip-hop is the new rock&roll and its coming out of Atl... businesses that build around this will be very successful in Atlanta and hopefully spark a thriving entrepreneurial community.

    Jake and I have been up in RTP working in the iContact building... RTP is obviously much better than Atlanta for tech entrepreneurs, but the VCs still don't get it like they do out west... they want cash flow biz, not change the world biz

    It's a mindset... freedom... a greater purpose

    You made the right choice Jeff, have a great ride man.
  • @Knox: I'd like to start blogging about those $25k to $100k deals that you are talking about. Can we set that up so that I can provide some exposure to the fact that is happening?
  • Very interesting post, Jeff, and thanks for having the courage to speak your mind.

    “Calling it like you see it is” an attribute that harkens back to perhaps Atlanta’s most successful entrepreneur: Ted Turner. And maybe it is time for all of us to be more direct and see if we can grow ourselves out of this bind.

    For the record, you did leave one of Atlanta’s early high-tech companies off your list of successful home-grown companies: A.D.A.M., Inc. founded in 1990. Profitable, growing and public, A.D.A.M. is still based here and employees over 120 people. As one of the company’s co-founder and long-time CEO, I am proud that A.D.A.M. has added many valuable jobs to our local economy and helped Atlanta create a reputation as a leader in online health information. Jeff Arnold and Reggie Bradford’s great success with building WebMD, other health technology innovations produced here and the existence of the CDC, American Cancer Society, the Arthritis Foundation and the new Health Museum give us a chance to create an important niche around health for future entrepreneurs.

    You are right that successful entrepreneurs help create the next generation of companies. Personally, I have spent a number of years and many dollars building my next company, ThePort Network, a leader in the white-label social media platform space. It has been a challenge growing a social networking company in Atlanta, though some of that is my fault and certainly not the Atlanta tech community. That being said, it would be much easier to get venture financing for a company like ThePort if it were based on the West Coast, or even in NYC or Boston.

    Going forward, Atlanta should leverage more of its historic publishing/media strength to create a niche around new media and Web 2.0. With Cox Enterprises, Turner, the Weather Channel and others, we have many media and Internet savvy folks around. ThePort is certainly willing to be part of this effort and perhaps your insightful posting will spur the tech community to action.

    Best of luck with Appcelerator.
  • Knox,

    Are there really $25k companies being funded? If so, they aren't well publicized. I'm not saying this because I don't believe you but it would be good for other entrepreneurs to know where to seek these deals in the current market and to know that if companies are funded $20 or $50k that the investors would actually talk up these companies instead of keeping them a secret.
  • Knox Massey
    Thanks for the suggestions, Russell.
  • Russell Jurney
    Sorry, Knox. I'll clarify - I'm talking about:

    What I meant to say was, 'Why doesn't the ATA do what Erik suggested - do a lot more deals for less money?'

    Here's what I'm suggesting:

    1) Invest earlier.

    2) Make more investments.

    3) Invest LESS per deal. The web is creating a lot of value for a lot of companies - for LESS money. Commodity technologies make getting to market with compelling products much easier and cheaper than even 5 year ago. Reflect this in your investment structure.

    4) Less excel - more potential. Traction Smaction. You have a large pool of knowledge there - use it to make predictions not based on Excel. Develop intuition in the group. Use it.

    You guys funded 40 companies in 9 years. Invest in 40 next year.
  • Hi Jeff:

    I really appreciate you taking the time to write this post and for sharing your candid assessment. As a former early employee of MindSpring, and someone that has tried to start three tech companies in Atlanta (I'm working on #3 now), your sentiments really spoke to me. Best wishes to you, your family and to everyone involved with Appcelerator! I hope to see you again soon - Duncan
  • Knox Massey
    Russell--
    Sorry, do what?
    If you are talking about $1M deals, very, very few angel groups (if any outside of , yes, CA) can do that amount alone in one deal--or want to.
    Few angel groups are that large and few angel groups want to concentrate $1M in one deal.
    Lots of reason why. Follow on financings in later years, desire to diversify in a larger number of deals at $250K-$500k a pop, etc. To complete a $1M angel deal would also probably require syndication with 1-2 other local groups--and possibly an outside angel group (NC, FL,VA, etc.) That takes a LOT of work--and and most angels are never compensated for that amount of work. No carry and no managment fee.
    I'm not sure why you consider our current method possibly "non" fruitful. Perhaps you could elaborate/ We've funded 40+ companies in the last 9 years--but we don't go out of our way to crow about it.
  • Russell Jurney
    Knox, why doesn't the ATA do that? Wouldn't that be much more fruitful than your current method?
  • Knox Massey
    Erik--
    There are plenty of local investors investing $25K-$100K in young companies in Atlanta. Not not "every" company and "every" entrepreneur is going to get funded, but companies ARE getting funded here at an early stage. To imply differently is wrong.
    A $3M round for angel investors is huge and almost a non-starter. Three years ago, a $500K round was the norm. That has inched up to $1M. That's reality.
    Don't know where you got the idea that a $100K seed or angel deal demands "huge" financials or a "huge" excel spreadsheet (yuck). I'd run from that investor, too.
  • Jeff - I suspect many cities are like Atlanta. Because of this is why Angels serious about success and prudently managing risk are syndicating deals more. As an example, approximately 35% of my portfolio of venture investments are in geographies outside of Toronto. Besides expanding deal flow and having the opportunity to invest in the better quality ventures, I find collaborting with sophisticated early stage investors very rewarding. In this context, let me know if you have an appealling investment opportunity.
  • (I had previously made a much longer reply, but WP ate it. Ugh.)

    Well said, Jeff.

    The problem with Atlanta investors is threefold: Size, risk and exposure.

    There are almost no investors in Atlanta willing to invest less than $3M. We need more investors willing to plunk down dozens of $100k deals, and hundreds of $25k deals. Trust me, there are entrepreneurs out there to take these deals.

    With the greater number of smaller deals, it is absolutely necessary for there to be lower barriers to investing. Asking a pre-revenue company for huge financials and a business plan for a $100k deal is asinine. Investors should be able to go with intuition and a 4-page primer document. Requiring a huge excel spreadsheet just shows how clueless the investors actually are. They have no idea if the business will actually succeed- they need fake numbers on a spreadsheet to fool them into thinking that it is a good deal. For a pre-revenue company, the spreadsheets are useless- they are fake numbers with crazy assumptions, and they don't do anybody any good.

    You hit the nail on the head on the third one. The startup ecosystem is much better than it was a year ago, largely due to the events that have been held. But these events highlight the biggest problem with Atlanta investing. It is the entrepreneurs who have largely been spearheading these efforts, and the investors have been almost nowhere to be seen. Even when investors do come to meetings, they are very explicit about not being pitched. Investors here are paralyzed of being pitched- they have to make sure that there are spreadsheets and referrals and all sorts of craziness before someone pitches them. That's silly. Investors should be out there *asking* for pitches, not the other way around.

    Only then, after these three are fixed, can things happen like you've outlined. We need a few failures, a few hits, and for people to reinvest their money when they hit and their experience with they fail. Only then can we have a balanced ecosystem.
  • Knox Massey
    Best of luck, Jeff. Despite all of us wanting you to stay in Atlanta, I think you made the right decision. Thanks for the followup post. Care to have any visitors sometime soon? :)
  • I think a lot of entrepreneurs conveniently skip over your first objective-"I didn’t want to raise outside investment until we had a product, revenue and customers"- and then complain about lack of VC opportunities. VC funding should help you grow, not jumpstart your company.

    For anyone not familiar with Jelly, it's a co-working group that meets on the northside of Atlanta every Wednesday. Feel free to join us, especially if you're interested in talking about creating a physical co-op: http://wiki.workatjelly.com/JellyInRoswell
  • Coty
    Great post, Jeff. I'm really impressed by your candor. I'm sure it is going to piss some people off, but hopefully they will be able to channel that energy into proving you wrong.

    I can just imagine what it must have been like for you to write this. Just reading it was like going through all the emotion of the last several months in only a few minutes—and I was just experiencing all that vicariously from talking to you.

    You know I wish you all the best out West, but I have to say that I hate seeing the updated footer and "About" page. So kick ass out there and hurry on back. (Though I fear you may be less keen on that after some time.)
  • Thanks for the honest and insightful writeup, I enjoyed reading it. I think it was the right move, not only in terms of getting funding, but also to have better access to your target market. In order to keep gaining traction, I think Appcelerator can use the larger mindshare of startups present in Silicon Valley. They are more likely to be early adopters of your technology as opposed to the larger corporations prevalent here in Atlanta. I wish you guys the best of luck, and I hope to be seeing a sold out AppceleratorConf sometime soon :)
  • Speaking of Barcamp and sponsors, Atlanta Barcamp is October 17-18 and is looking for sponsors. So if you\\\'re reading this and you want to get involved, this is one of the easier ways to do it.
  • I've preached the value of a "local lead" investor for a while (I used to be one, after all), but I understand Jeff's experience as well.

    If I were a Silicon Valley VC firm, I would like to have a local lead investor who (1) understood startups, (2) understood founder psychology, and (3) understood the basics of the technology. It really does help to have someone who the founder can call at 9pm and say "I have a problem. Can we have breakfast tomorrow?" Can't do that from an airplane ride away. I've played that role before -- you wind up being a combination of shrink, coach, drill sergeant, and father-confessor -- and it's valuable.

    That local person or firm needs to have some level of investment in the deal, but it doesn't need to be large by Silicon Valley standards. (It needs to be enough to hurt the local investor if the deal tanks.)

    On the other paw, I don't see any value at all to having a "local lead" who is just going to play spreadsheet jockey (hat tip to Sanjay). If that's the Silicon Valley VC experience with Atlanta investors, I can see why they'd rather go it alone.

    There are both types of investors in Atlanta -- probably a higher proportion of the SSJs than is healthy. But they're not interchangeable. And one bad experience can taint an outsider's perception of the whole barrel.

    For the record, I have zero issues with Jeff's decision process and outcome, and I applaud his transparency in sharing his thoughts with us here. I wish him the best of luck striking it rich on the West Coast, and I want him to return in triumph in a lot less than nine years!
  • Paul Freet
    When raising money for Racemi, prior to the Five Paces term sheet, I was told consistently by Boston, New York and West Coast VCs that they would prefer local money, but Atlanta didn't really have any. One prominent west coast VC said "Atlanta VCs should stick to Denny's franchises because they would not know great technology if they saw it."
  • "Out of town VCs could care less about local money." Do you think this statement is highly dependent on VC firm's POV on where they would prefer a company to be located post-funding?
  • Any Mouse
    Thanks for talking about this, Jeff.

    Interesting contrast with the other blog I read this evening, from a local investor that calls for the status quo and says things are 'just fine' thanks: http://angelatlanta.wordpress.com/2008/08/07/ft...
  • @Jeff: OMG. I honestly had goosebumps reading this. I can't tell you how valuable I think it will be that you have taken the effort to analyze this and explain it. WOW.

    That said, here's hoping those of us who are obviously staying behind can make you proud so that when you do return triumphant you'll find a vibrant community that will be able to multiple everything you give back by orders of magnitude.

    Anyway, subscribed.

    P.S. I guess you need to update your blog's footer... '-(
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