Is Atlanta’s Startup Ecosystem “Mature”?

It’s Venture Atlanta week. BIP Capital‘s annual report is just in time.  This year, the report measure’s major southeast cities (Atlanta, Research Triangle Park, Charlotte, Nashville) as they compare to the San Francisco Bay Area, Boston, and New York City. I’ve always referred to Atlanta as a “teenager” in the startup world when compared to the likes of Silicon Valley. That means we’re not yet mature, but we’re bold (or stupid) enough to try things because we don’t have the knowledge and fear of failing at that thing.  It also means we have some lessons to learn before we can claim that we are “mature” as a startup investment player.  This year, BIP has evidence for Atlanta to “claim maturity, at least in the $3 million to $15 million deal range.”

You can download and read the full report here.

Interesting Notes About The Southeast

  • Valuation multiples on aggregate in the Innovation Hubs were more than double those in the Southeast.
  • The amount of dollars flowing into the private markets as a whole is on the rise, with more dollars than ever being invested in early and growth-stage companies.
  • U.S. VC funding is on track to reach record levels this year (2019), with the total funding amount through mid-year well above that in 2018.
  • We can expect a “rising tide” across the country when it comes to deal dynamics and, in particular, increasing valuations.
  • On aggregate, the rate of maturation in the Southeast is exceeding that of the Innovation Hubs.
  • The gap in revenue multiples between the Southeast and the Innovation Hubs is closing.
  • Revenue multiples increasing at a faster pace in the Southeast (40%) than in the Innovation Hubs (11%)
  • While a dollar in the Innovation Hubs and a dollar in the Southeast still buys you the same percentage of a business (per last year’s report), the maturity of that business is not the same. As an example, businesses raising $1 million in the Southeast have more revenue traction than those in the Innovation Hubs.
  • The increase in valuation multiples that we’ve seen from moving our data set forward just one year shows that companies in the Southeast are now raising capital with less revenue traction than before.
  • We are seeing more capital being deployed by Southeast investors than ever before, creating less opportunity for funds in the Innovation Hubs to invest in the region.
  • Local funds are getting larger and, therefore, have a bigger market presence in the region.
  • There is more innovation and more competitive early-stage deals happening in the region than ever before.
  • The number of deals for less than $1 million has consistently declined year-over-year since 2014.

My Opinion & Analysis

The piece of data that stands out to me the most is that last one. “The smaller deals are getting fewer and farther between.”  Couple that with “businesses raising $1 million in the Southeast have more revenue traction than those in the Innovation Hubs”, and you have a great intersection of opportunity for new startups and entrepreneurs.

Atlanta’s entrepreneurial leaders have preached for many years that the best way to fund your business is through customer revenue. The above information supports that methodology. Every week in Pitch Practice, we have someone with zero revenue and zero customers say that they are “raising $500k” or more. My advice to them is always the same: get traction first.

Doing so will accomplish two things. First, it’ll get revenue. Second, it’ll give you knowledge and understanding of what is actually happening in your business, rather than just what you think will happen. Quite often, those two things are very, very different. It’s much easier to update your expectations with your money rather than with an investor’s money. Once you know the basic cycles of your business, you can more confidently answer any investor’s questions.

Conclusion

It’s a great time to launch a tech startup in the Southeast, especially in Atlanta. You can get better revenue multiples and more investment than you could just a couple of years ago.

What do you think about that?

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