There was an interesting post over on Lance Weatherby’s blog last Friday that generated a huge amount of comments. The side issue was Jeff Haynie’s decision to leave Atlanta after taking funding from a CA based venture fund. The main issue was the availability of early stage and angel stage financing (or lack thereof) in Atlanta. Lots of discussion. Some coments were constructive and well thought out, some not.
I did pick up on one very open comment by Allen Graber. Allen is one of ATA’s founders and has been one of the more active, and more importantly, successful angels in Atlanta since 1998.
I have highlighted the important parts of Allen’s comments. Here is a shorter version of his post:
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“This post encouraged me to go back and examine my own personal track record. Since 1998, I invested my own money in over 15 companies, the majority of them Atlanta based. To date, I have received a positive exit in only 2—SPI Dynamics and SearchIgnite. Out of the other 15, I still am holding out hope for a positive return in 2 or 3. With the other 10, I have either lost my entire investment or have received an amount less than my initial investment. So, on the whole, I estimate that I am at about break even over the last 10 years. Put another way, my average annual return over the preceding 10-year period is about 0%!
So, what will get the Atlanta angel investor excited to stroke more checks and how can we solve this issue—we need more BIG success stories. We need to hear about how angel investors here in Atlanta invested $100,000 and it translated into $2,500,000. You hear those stories in the Valley. We need the state of Georgia to provide qualified and transferable tax credits for investing in startup companies. We need more people to consider early stage investing their dedicated profession–we can’t expect Sig and Melanie to carry Atlanta. We need more early stage funds to be established. And we need to ensure that the venture capitalists respect the risk and capital that early stage investors have taken.“
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What are the lessons here?
- We need 1000 more Allen Grabers in Atlanta
- Angel investing is highly risky and harder than most people think. We have learned that a process is needed to help with the financial returns. If every angel loses most of their investments, they are not going to continue to invest in local startups
– Angels should be respected for the risks they take–both from the community and other investors. We need the support of the community–not the criticism.
– The State of Georgia needs to support INDIVIDUAL angel investors –and not just specialized state supported organizations and funds
Thanks for the frank and open comments, Allen. There needs to be more similar to this on both sides of the equation.
Oh, just now happened to read Jeff Haynie’s follow up post. It’s a doozy!
9 responses so far ↓
Ron Thompson // August 8, 2008 at 5:39 pm |
Knox – Great insights on the high risk world of early stage investing and how Angels need to be sophisticated to realize the high returns they should expect. Allen’s example of 0% ROI and the many failures over 10 years clearly demonstrate the issues. Worse, many Angels I know actually have a -ve ROI ! And, unbelieveably they not meaningfully changing to become successful ! Go figure ?
Moving forward, I commented on Jeff;s blog too since his points should resonate with many people in the venture funding community.
To help address these issues is why I am a big proponent of Angels collaborating more and syndicating deals. In this context, let me of ventures you become aware of with significant potential.
Urvaksh Karkaria // August 8, 2008 at 6:31 pm |
Knox
I’ve been meaning to write an article on the shortage of seed and early stage funding in Atlanta and your post provided a at least one big reason. Let’s talk more about this.
The Appcelerator piece, incidentally, got way more traction than I ever expected.
BTW, I lived in Fort Wayne for six years. Would love to hear what you thought of the place.
Russell Jurney // August 8, 2008 at 6:51 pm |
Allen broke even over a 10 year period – and he’s one of the most successful Angel investors in Atlanta? Are the rest of you losing money?
Knox // August 9, 2008 at 10:50 pm |
Urvaksh–
Sure, happy to talk. Let’s also talk about the shortage of local successful technology exits that had local seed and early stage funding.
Knox // August 9, 2008 at 10:59 pm |
Russell–
I misspoke a bit. Allen is one of the more successful local entrepreneurs AND active angel investors in Atlanta.
Many angels had had positive exits and positive overall returns –but many have not. The years 1999-2001 still weigh heavy on many of us who have been active for a number of years. Lessons learned.
This is a high risk type of investing and there are losers–and winners. The losers tend to outweigh the winners–so as an angel gains experience, he/she tries to create a targeted process over time that picks the winners–instead of going for a “shotgun” approach.
Question for you.
If the angels in Atlanta were approaching 0% return, should they continue to invest in Atlanta based technoloy companies?
Mike Schinkel // August 11, 2008 at 8:10 am |
Hey Knox: Good piece.
One thing I’d like to add for something that would help is something I think we need as much as we need funding, and that’s coaching and mentoring. We need to collectively (entrepreneurs, investors, and all other stakeholders) find ways to nurture the people and companies who are not yet fundable so that one day they can be if we want the Atlanta region to grow.
The co-working discussions we’ve been having are just one of the many ways we could do this, but there are many other ways to ensure more Atlanta angel investors and entrepreneurs see great results besides just cash invested. Hopefully these kind of approaches are as much of interest to you and your angels as they are to many of the entrepreneurs in the Atlanta community. I for one plan on trying to move the ball forward on at least a few of these initiatives if not more.
-Mike
P.S. BTW, what happened to your Ft Wayne-Chicago-Boston-Atlanta post? Google still has but your blog does not:
http://angelatlanta.wordpress.com/2008/08/07/ft-wayne-is-chicago-is-boston-is-atlanta/
Knox // August 11, 2008 at 12:59 pm |
Hi Mike–
Thanks for the comments (and reading the blog!) I agree with you on coaching and mentoring. ATA does do a good bit of mentoring to companies we fund–and to some companies we do not fund. Clark Gilder, Allen Graber, Wayt King, Mike Eckert, Meade Sutterfield, Steve Chaddick (all ATA members) and countless other members put in 1000’s of hours doing this–and have for years. We don’t talk much about it–we just do it. So, unfortunately, ATA gets lumped in as “just another” funding group. I know you and I have talked in the past, and I look forward to talking again, on how to initiate this type of process for the community.
I also think the community needs to get past the name calling and personal attacks–which only destroys morale. Let’s figure out how to work together to help move Atlanta forward.
(Ft. Wayne post got deleted when managing the site over the weekend!)
Mike Schinkel // August 12, 2008 at 12:23 pm |
Thanks for the response Knox.
Yeah, I assumed you’d mentor the companies you fund, and even some you don’t, but there are many more than aren’t even close to being experienced enough to fund and those are the one’s I’m talking about. I doubt you spend the time on helping people who are still a long way from having a good team and a good idea, right?
How to make it work? It’s going to have to be peer-to-peer as that’s the only way it will scale, with occasional involvement from those not in the peer groups.
Anyway, planning to talk to Alan Graber about it soon, and maybe can talk to you about it too?
As for that post, Google’s cache still has it; you should grab it and reenter it; history is a sad thing to loose.
Knox // August 14, 2008 at 1:11 pm |
Mike–
Reposted the Ft. Wayne story. As for how we help those companies/entrepreneurs that are not yet ready for funding? Long answer–probably better suited to a one on one discussion. Short answer–We’ve worked with companies for up to a year before funding them–all for various reasons. Each entrepreneur has a differnt set of strengths and weaknesses, so how we work with them varies. Conincidentally, we had a long discussion yesterday at the ATA BOD meeting about the lack of informal “training” in Atlanta for young entrepreneurs. That’s maybe what you are referring to?– and what Angel Lounge lunches/groups seems to be focusing on (my perspective)? All for the good.