Atlanta’s Next-Generation Of Capital

Collette McKenna Parker

January 21, 2009

T here's new money in town, and it's not from a government bailout package. It's from good old-fashioned capitalism, and it's intended for capitalists at the top of their game.

Luckily, entrepreneurs need not all compete over the same dollars. According to Michael Blake, co-founder of Startup Lounge and managing director of Adams Capital, there are new venture capital funds from four firms in Atlanta: CEO Ventures and Buckhead Investment Partners, the details of whose funds are still private; and Shotput Ventures and Tech Operators, who are officially open for business.

The good news is that despite the economic storm clouds - and in some cases full-blown hurricanes - people are still even willing to part with their money. "Investors are writing fewer checks and smaller checks and taking longer to write them," says Blake. "And the valuations favor the check writers."

But for the economy to rebound it will take innovative new technology like the Internet - think alternative energy or genetic engineering this time - and you can almost bet it will come from entrepreneurs currently working in a garage, hoping to survive until they can raise some capital.

Here's a look at two new sources for that capital in Atlanta:

1. Tech Operators - Has put together a $30 million fund to invest in growth-stage software companies. They're looking for companies that have already launched their product or service and can point to revenues of $1 million, but will need help with operations getting to the next level. Tech Operators plans to invest between $2 to 4 million in each company, most likely over the course of several rounds of financing.

While almost every company needs additional revenue just to keep the doors open during this economy, the real value of Tech Operators may be from the knowledge and experience of the VCs. Founders Tom Noonan (you know, former chairman and CEO of Internet Security Systems, which was acquired by IBM for $1.5 billion); Glenn McGonnigle (also a co-founder of ISS and a serial entrepreneur); and successful serial entrepreneurs Said Mohammadioun and David Gould bring their knowledge and experience to the table, as well as their own money.  

"We're focused on technology companies in the stage where we, as former CEOs and entrepreneurs, can add the most value. Not at the seed stage, but at the stage where the commercial market adoption takes place, and where we can help scale the business through our own networks and our own brainstorming," says McGonnigle.

Unique to the Tech Operators' fund is that entrepreneurial experience of the founders. "We've all had multiple companies, and in some cases took it from nothing to IPOs and successful exits. As former technology entrepreneurs and operators we're in a unique position to mentor the entrepreneur. We don't mind rolling up our sleeves and getting dirty. We don't want to be passive board members," says McGonnigle.

While it's not the best of times to raise money for a new fund, there are some upsides, says McGonnigle. They began the process of raising the first fund in spring of last year - when things weren't as bad as they became. But Tech Operators leveraged their networks and reputations, and it helped that they contributed out of their own pockets. "Investors could see that we were putting skin in game. We were quite pleased at the level of responsiveness, and we continue to get requests to participate in our fund," says McGonnigle.

"It's a great opportunity to be investing smartly. Valuations are lower. If you're smart about that it's a nice time to be buying low," he says.

2. Shotput Ventures - Atlanta's version of Y Combinator. It's less about the money than it is about an opportunity to launch an early, pre-seed stage company. Shotput has between $150,000 to $250,000 to invest in eight to 10 companies, parceling it out $5,000 per company and $5,000 per founder. Each company must have at least two founders, but not more than four. The idea is to give enough money to survive for the summer - the length of the program - and get the company from a mere idea (yes, even on a napkin) to a real product or service. 

For this amount of funding, says Shotput Ventures founder Sanjay Parekh, they're obviously not looking for automobile manufacturers, but software companies that are capital light and capital efficient. The program includes weekly speakers, weekly dinners and mentoring from a network of executives and industry professionals.

The startups must stay in Atlanta for the course of the three-month program, and then are free to return home or stay here. While Y Combinator has run for several years in Boston and Silicon Valley, it's a new concept for the Southeast. "There are very few venture capitalists here in Atlanta," says Parekh. "All eight of us at Shotput are angels, but for everyone it's the first time to get together as a fund as a group."

New funds are important for Atlanta, for many reasons: retaining talent, creating innovation, new companies and new jobs. But it's also to attract new companies and new talent. Tech Operators, for example, represents an important type of investors. They're like the fathers - or young grandfathers - of new entrepreneurs. Experience serial entrepreneurs themselves, they've grown into venture capitalists who can nurture the next generation. It's an important step for Atlanta, whose small VC community is not overwhelmingly made up of former entrepreneurs. Silicon Valley and Boston, however, have already seen this shift.

Says Parekh, sharing the feelings of his fellow VCs, "We want Atlanta to become a magnet for good companies and additional startups."

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