Atlanta’s Angel “Mavericks”…

“All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.”

Arthur Schopenhauer 1788-1860    

Imagine a world class surfing spot within the United States with 20 to 30 foot waves that nobody believes exists because of local opinion.  Well, that’s the story of “Mavericks” located in Half Moon Bay, Northern California. A local surfer, Jeff Clark, first surfed “Mavericks” in 1975. Clark did so alone for 15 years because no one else believed he had found 20 to 30 foot waves in California. The surfing opinion of the times simply stated that there were no large waves in the US. Jeff didn’t really mind; after all, he had a world class surfing spot to enjoy and the ability to fulfill his personal passion right in his back yard. In 1990, Jeff finally lured a few surfing friends to the spot and they quickly realized the importance of Mavericks to the US surfing populace. A picture of the location was soon published in Surfer magazine and Mavericks finally became known as a “see and surf” spot for surfers and spectators all over the world.  

Atlanta is “Mavericks” 

So, what the heck does surfing “Mavericks” have to with angel investing in Atlanta? Well, I believe that this analogy comparing the history of the Atlanta angel market to the history of Mavericks is apt for this article. The angel market in Atlanta, similar to Jeff Clark’s experience at Mavericks, has been through the years of disinterest by the local investment market (20 foot waves in California…?-Ha-Ha!), the years of solitude practicing a craft most individuals and companies misunderstood (you’ve been surfing where for 15 years?) and finally, the beginning of an acceptance of this style of investing as a logical local funding option for many early stage Georgia-based companies. As Mavericks early on was considered as not a good surfing location, Atlanta is often not considered a world class technology community with a vibrant entrepreneurial venue and a good market for investments (in our case, technology investments). Angels in Atlanta have known the opposite for years and have been happy to invest locally, but have struggled to convince outside investors of the validity of the Atlanta technology market. However, a few “hits” in the last year or so (JBoss, OpenSpan, Spi Dynamics, Internet Security Systems, Witness Systems, etc), have finally convinced the outside market of just this fact.

 How are the Mavericks Organized? 

The “old school” style of angel investing is quickly disappearing. By “old school”, I mean the separate or disparate individual angels who have in the past acted as lone wolves when funding companies. These individuals do still exist, but they are far apart, hard to reach and generally do not know the market as well as angel groups. The “current” school of angel funding involves local groups of angels who can collectively combine their resources to source investment opportunities, to conduct due diligence in a timely and competent fashion, to fund companies in a sophisticated manner and to contribute time, talent and experience to these companies when needed or warranted. The “future” school of angel investing is likely to involve syndication of angel groups on a regional and national level. These “future” angel groups will fund companies in a variety of structures. These structures might include the “pledge” model whereby groups of individual angels pledge specific amounts to reach the funding needs of a company or a differing funding structure might include pulling capital from a variety of “pooled capital” funds (in the $1M-$5M) range from various angel groups locally or regionally.

 What’s new? 

Atlanta is starting to see angel market practices shift. These following changes are occurring in angel groups both locally and nationally.

            - First, we are starting to see founder “exits” again. The capital and operational experience from these “exits” quickly find their way to angel groups and are beginning to quickly contribute to the community.

            - Second, many new angels have the financial capacity, the business experience and the patience to fund companies with $500K-$2M over a multi year cycle without looking for outside funding. These angels can and will help push a company to profitability for a smaller, but still profitable exit for all parties. If the company does not perform, the company will be shut down in an orderly manner.  

           – Third, with the creation of the Angel Capital Association in 2004, angel groups across the nation are now creating long-term relationships, communicating “best practices”, sharing lessons learned, and syndicating interstate opportunities. This new “sharing” of ideas and practices will lead to better investment opportunities, better internal processes and hopefully, better results!

            - Fourth, 21 states have created tax credit or tax incentive programs directly aimed at “angel investors” to help stimulate statewide early stage investing.  Expect this trend to increase dramatically. Currently, Georgia does not have a similar tax credit. However, House Bill 435 (HB 435) was introduced in the House of Representatives in 2007 and has a good chance of passing in 2008.

 Angel investing in Georgia is here to stay. As the entrepreneurial market in Atlanta continues to mature and as earlier angel funded companies are sold or acquired, the resulting availability of capital and successful entrepreneurs will enable this particular funding cycle to continue to grow.