William Leonard

Hey everyone! Welcome back to the Atlanta Startup Podcast. This is a special episode today, featuring myself, Valor General Partner Lisa Calhoun, Valor General Partner Robin Bienfait, and Valor General Partner Gary Peat. And today’s conversation is centered around capitalizing on the Atlanta Tech Ecosystem. We focus the conversation today on the current state of seed stage capital in Atlanta. And if there’s enough to advance our burgeoning backyard, this is a fun, lighthearted yet informative conversation with the Valor team and I hope you all enjoy it. Before we jump into today’s episode, be sure to remember that Valor is actively accepting entries for the Art of Inclusion Annual $5,000 Artists Commission. Please be sure to share this with a rising Georgia artist, whose work you appreciate. The deadline to apply is September 30th and you can find more information about this on our website valor.vc. And lastly, the final stop of the Atlanta Unlocked Tour is happening this Thursday at Atlanta Tech Park. Be sure to catch me and some of the other valor team members there. We look forward to seeing you. Now back to today’s episode. So let’s jump right in.

Lisa Calhoun

William, thanks for kicking this off. This is such a great conversation. We’ve been doing a lot of research about capitalizing on the Atlanta tech ecosystem, but you know, to get into the intro so that our listeners know who’s even talking. This is Lisa, I founded this firm a few years ago, and ran it through fund one. Fortunately, it was able to bring on some great leadership and talent. We’ve been investing together through fund two and now launching fund three so we’ve really been practicing what we preach and investing at the seed stage across the south and primarily in our backyard in Atlanta. Our topic today means a lot to me. Let me just toss the ball to someone else who’s got an incredible amount of perspective about tech ecosystems and join Valor in fund one. Robin Bienfait, tell us a little bit about you.

Robin Bienfait

Yes, thank you, Lisa. And William, thank you for pulling this together. I think this is such an important, not only important topic, it’s at a critical time for all of us, not only in Atlanta but across the nation. What I’ve been doing over my past, I guess, if you want to think of it, I’m a corporate person. I’ve been in corporate roles throughout my career and when I saw the lack of leverage of the talent here in Atlanta and the gap that there is for these early-stage founders and the mission that Lisa was on, I was like really quick to jump on board with fund one. Now, a part of fund two as a partner. I’m just ecstatic because I’m always set at the other side of the table in acquisition mode. This allows me to kind of see tech upfront as it’s growing and help with its placement. Gary, I’ll throw the ball to you.

Gary Peat 

Well, thank you. I’ve been investing in the seed stage in Atlanta for over 20 years. What I’ve seen has been just terrific, the community of startups here has probably grown twentyfold. In time, I’ve watched it happen and we’ve created the yawning gap which means we’re too little seed-stage capital, which for Valor has been scaling into that opportunity now for five years, thanks to Lisa and Robin. I’m just glad that we’ve got such an enormous opportunity in front of us in this community.

Lisa Calhoun

I am too, Gary. You know, it gets more exciting every day. As we’re growing and scaling through the launch of fund three and I think about the number of startups we’re actually seeing, there’s so much ahead of us, and yet, there are also some things that make Atlanta challenging compared to other markets. I think it’ll be interesting for everyone, all of us in this ecosystem, to talk about that. I think one of the most interesting perspectives I’d like to start with is really William’s, not only are you the host of this podcast, but I think you’ve talked with hundreds of entrepreneurs in the last few months. I know that you have. If you could maybe share what feedback are you getting about the amount of capital available here locally in Atlanta versus the number of entrepreneurs you hear rising from the ground at the grassroots level?

William Leonard

Lisa, that’s a great question. This is so fascinating because we’re hyper-focused on the seed stage. If you look at the PitchBook data seed-stage deal volume has remained consistent and even grown year over year. There were 56 seed-stage deals done in the first half of 2022 and around 50 closed in the first half of 2021. This is just Atlanta. That’s showing you that the seed environment here is growing but there’s also still a gap that exists. I think last quarter, I spoke to over 500 founders. These founders, the majority of them are here local to Atlanta. This is really demonstrating the need that there needs to be more capital infiltrated into this ecosystem at the seed stage because many of the deals that we’re seeing at the seed stage are coming from outside investors, whether they’re on the West Coast, East Coast, or the Northeast.

Lisa Calhoun

That’s a great point. I feel like as I go around the city and attend different events, I know you’re super active at events, too, I keep hearing sort of a talk track that we have enough seed-stage investors in Atlanta. Gary, I’m gonna totally bring you into this part of the conversation because your perspective on investing at seed successfully in Atlanta is really second to none. But to finish the thought, with great new firms like Fearless Fund, Knoll, and Collab, Valor itself is relatively young. There are others. It can really seem like there’s a lot of new money in town and yet when we did our research, we pulled from PitchBook and looked at the real data, it turns out that this is a big number,  85% of the seed-stage capital in Atlanta this last year has had to come from outside Atlanta. Gary. in your 20 years of experience, is that normal? Is that a problem?

Gary Peat 

I think it’s a great indication, and I welcome my friends from the West Coast and the northeast whether it’s Canaan Partners investing in Georgia Tech spin-off, Lancope, that ultimately returned one time to the fund. Whether it’s Sequoia coming investing after we live the seed-stage and Endochoice that ultimately was a billion dollar IPO here in town, they’re welcome but I think the opportunity for the local seed-stage investor is 85% of the capital is just fly by having some great investors. But to build a company, mostly those investors are investing locally, and they’re able to avail themselves to the acceleration and growth in value and economic impact. We give so much of it away as a community and it’s not hard to see that 85% is just the wrong number.

Lisa Calhoun

It seems too much to me, too. And it really resonates with Robin’s and my experience in fund one investments. Now fund one was a really small pilot fund. The fact is, we didn’t lead. We didn’t have the capital lead. I mean, you could not write a lead check. That was just a little financial fact. What happened is, a lot of times, there’d be another lead VC. When I look back at fund one investments, for the most part, those were outside of our area. Now those founders, many of them doing incredibly well, mind you because they’re great founders but they don’t have a lot of opportunities that having a local lead VC can give them. I see the huge difference between the startups where we’re able to lead. We invest in fund two, capitalize to lead, and the way we’ll run fund three versus the way we had to invest in fund one. I really feel bad for founders who don’t have a strong seed lead. I think they’re missing out on a lot. I just wonder what you all think about that?

Gary Peat 

What do they miss out on? I think we all know this but it’s worth saying that building a company where you’re hiring more people every month than you did ever before and scaling it up to be worth a fortune in a short period of time, are not instinctive behaviors. It’s not breathing and heart beating, these are learned behaviors, and you can make a lot of mistakes. Do it slowly and waste a lot of capital, you can do it quickly and make a lot fewer mistakes and do it with a lot less capital. You miss out on the skill seed-stage investor can simply accelerate those behaviors that need to be learned. You can’t make up those great entrepreneurs and the things that they build, right? We chase them down, find and invest in them, but they’re gonna need to build a company. That is a great need for any great entrepreneur here in this community. That’s like 30 of our LPs do great successful software companies, they just know how to help that founder go faster than if they didn’t get capital from Valor at the seed stage. It’s, why are we making founders in Atlanta grow slowly?

Robin Bienfait

We see a lot of them bootstrapping. Bootstrapping for years before they can actually get the investment because it is so limited in the area. When I started with Lisa, we didn’t really have a place to meet. I decided to build out an ecosystem to help us not only source but also allow some companies outside of the region to land here in the state of Georgia, in Atlanta, and leverage some of the capabilities we have. I built Atlanta Tech Park to help us build out that ecosystem. The interesting thing is that we see a lot of technology, there are 90 plus companies at the park in acceleration and some in the early stage. What I see is the investment comes from outside and there’s so much opportunity for us to get involved locally and help them grow. But as our local talent is now helping these companies grow and then I see that at some point in time, they get picked up and moved away and I really don’t want to see that happen. I really want to see it land and expand here in Atlanta and for the state of Georgia.

Lisa Calhoun

Absolutely. I think about recent investments we’ve made, like PrologMobile or Allelica, where we’re able to help them access great Atlanta talent and grow here. Because why? Because their seed lead investor is here and we’re connecting them to talent. We’re connecting them to Georgia Tech. We’re connecting them to opportunity and that’s why they were attracted. Sometimes to us, in the first place, they love the economy in the region that we were in. They see their customers here with a corporate density and it makes sense to have local seed-stage capital here. I was really shocked looking at these last year’s numbers and seeing that the gap in seed-stage capital, just in Atlanta, in our own city, is $200 million. That’s capital that is being invested in our strong founders. It is being invested in our innovation economy, but it’s coming from outside the state, which to the point you just made Robin really, it puts our local founder at a very big disadvantage in a lot of different ways. Well, what else should we share about that? Is there anything that comes to mind? I mean, how are y’all feeling?

Gary Peat 

I have a question for William. You see more founders, over 500 in the last quarter, and I think you started talking about people inbound to Atlanta that are moving here. Some of these entrepreneurs that you’re talking about, what are some of the motivations you’re seeing? What’s changing? What’s happening?

William Leonard

What I’ve seen is that founders are moving here because of the lower cost of living, and the amazing local university town of Georgia Tech, Spelman, and Morehouse, these schools are pumping out just some of the next best innovators coming out of the city of Atlanta. There’s an article from The Economist that said Atlanta was the number one most livable city in the United States. I think factors like this are very important to consider. An anecdote on the Atlanta Startup Podcast, last year I had Ariel Lopez, the CEO, and founder of Knac, join me. The focal point of that conversation was why she made the executive decision to relocate her company from New York City down to Atlanta, and for everybody listening, if you want to go back to that episode, you’ll hear Ariel articulate the core reasons why the cost of living, access to talent, the density of corporate networks, greater access to capital and diversity. What I’ve seen over the last year and a half speaking with founders who are pondering the idea of moving to Atlanta, but she’s not the only one. She won’t be the only one going forward. I can probably name four or five others. There will be more stories of founders relocating the early-stage and seed-stage companies here for these reasons.

Lisa Calhoun

Robin, you’re seeing a lot of inbound new tech companies coming to Atlanta through the Park, right?

Robin Bienfait

We get probably two to three a week. They’re coming in from all different kinds of countries because they want to land somewhere as their first instance in the United States and they’re finding Atlanta as their number one pick. They come in with an investor sometimes behind them. In some cases, they come in looking for somebody to help lead and invest in investment and they have a strategy along with them. If I could build another building, I could probably fill it up. It’s just one of those, I don’t want to say missed opportunity, but a lot of opportunities that we would love to be able to back and support.

Gary Peat 

The thing I might like to add, if it’s all right, Lisa, the economic impact. If we take a really specific example of a company that’s grown up here in Atlanta, LeaseQuery, an extraordinary founder, George Azih. He’s built a company where there are hundreds of employees now and it’ll be worth, whether it’s a multi-billion dollar value company one day, it’s just totally up to George how long he wants to grow that thing. First of all, you should know it’s gonna make a fortune for our limited partners and for any other investor that George happens to have, but what is the impact of it being a local company built locally, you’ve got people that come out of college into the middle class and the richest nation in history and then they go up from there and he’s at hundreds going on thousands of employees. The impact of having those thousands of employees in Atlanta instead of Silicon Valley, it’s untold times that the return for our investors may be our primary motivation and the thing we’re happiest about delivering but the economic impact to this community of growing those companies here, it’s extraordinary.

Lisa Calhoun

Gary, I’m so glad you brought up that point. I could not agree more. I mean, even before I founded Valor, when I was working at the previous company I founded, Write2Market, and scaling that, all we did at Write2Market was help software and tech companies scale and grow. That was our bread and butter. Seeing so many jobs created organically, I learned that at a grassroots level. But recently, I read a book that just came out not too long ago called The New Geography Of Jobs, and I felt like Atlanta was just flashing in my mind as I read through this book. It’s from a researcher at Berkeley but it basically says that a lot of cities that have a manufacturing background, we can all think of those, they’re in trouble. They’re in a lot of trouble because they have a lot of great people who are highly skilled but manufacturing is not a growing part of the economy for the most part. And then there are the innovation cities, those like New York and San Francisco, they’re at the frontier of multiple industries and the highest trained people are working there on some of the hardest problems facing our world. Those innovation economies are great places to live for lots of different levels. As the book’s research and the argument goes, it says the cities that are the knowledge cities, who are neither fish nor fowl, they’re not the front of innovation and they’re not fantastic at manufacturing their cities like Atlanta, we have a big opportunity to make a decision about which way we’re going. I think Atlanta’s really prepared on the edge of becoming a first-class, world-class, innovative city. I feel like the way it is now and Valor’s certainly part of it, but I want us to catch that way with everything that I have because I do feel like there are several narratives in our city. Everyone’s opinion is valid. We’re all here. But I believe directionally, more innovation funding, more innovation, more high-level tech jobs more locally, is the future of Atlanta.

Robin Bienfait

I’m a big supporter of that because I’ve seen a number of companies when I was in those corporate roles being siphoned off, not only for the technical IP, but for the talent, and a lot of them out of the state of Georgia, out of Atlanta. Stemming out of Georgia Tech, Emory, from Morehouse, and just shows you that it would be better for our economy here to let them just stay and land here and thrive.

Gary Peat 

Without a thriving seed ecosystem, it’s really hard to do because the truth is at the seed stage, it’s not but a third of the companies that really make a great return for the funds. You really have to scale the process of professional investing at the seed stage to hope to get those kinds of companies to grow locally. We just have a yawning gap, 85% of the money gets it, and they come from New York and California, all day long. There’s nothing wrong with that. We still want our friends to come and do that. We just don’t want them to do 85% of what we need to be doing here in Atlanta. We would rather make it a stronger ecosystem locally.

Lisa Calhoun

Absolutely. One of the things that are really a strength for us is certainly we have entrepreneurs. I know in that recent white paper, we all contributed to capitalizing on the tech ecosystem in Atlanta, it’s on our website, under Reports. but one of the things we pulled out is that new business licenses in Georgia, Georgia is a top 10 state, and it’s a top three state for a lot of different types of business licenses, like in technology and information systems. We have this super entrepreneurial population who’s trying to build great businesses but is underfunded locally. Entrepreneurs miss out on the board experience of seeing lead investors locally then the talent connections locally, and the next investor connections. We did our founders survey this year in June and our founders told us the top three things we do are celebrating feedback, number on, and it’s better local because it becomes more resonant in your local environment. Number 2, the next investor introduction because we’re connected in that way. Number three is customer introductions which is really a place where the south overall shines. We have all of the ingredients that I’m really excited about scaling our seed-stage venture capital available through multiple strategies, obviously, not just Valor, it’s going to take more than one great seed-stage firm here to pursue all of these opportunities.

Robin Bienfait

Everybody getting this white paper because the white paper is just phenomenal in bringing all of this together. I want to thank William and everybody for pulling it off. It was just a great document.

Lisa Calhoun

I’m really appreciative because it was definitely a consulting firm that came to us and asked us for our opinion as a leading seed-stage investor. We have a lot of perspectives, thank goodness, longitudinal perspectives too, thanks to you and Gary. What we’re able to pull together with other organizations we’re a part of like Startup Runway, we could really provide what’s really going on, but then bumping it up against the actual analysis through some of our data sources, is fascinating for us, too. On our website, if you go to valor.vc, you can go to Reports, and we’ve always put out a lot of data. We‘re kind of geeks that way about investing. The most recent one is this fund and it’s a completely free download for any investor that would like to say send it to me, and we will send it to any investor that’s curious about it. Speaking of that, though, Robin, I wonder if we might turn the conversation to how we would advise seed-stage founders who are listening to this podcast. I mean, we might have just gobsmacked them with the fact that their seed capital is much more likely to come from outside of the city. I want to say y’all wait for fund three, come on, tell Valor, go to our website, we were here for you. And we really are. But they might not be building B2B SaaS, which is what we focus on. They might be building B2C, they might be building in gaming, they might be building a medical device, or areas that we don’t focus on. Maybe one of y’all could take the lead on the shaping of what you would say to our founder listeners, who are not building B2B SaaS, and thus we’re not even able to help, how should they find their seed-stage capital?

Robin Bienfait

In a lot of cases, Lisa, I always point them to the SBIR grants. Anything in the space, because they’re already figured out how to bootstrap pretty well, but anytime they can go get grants so that they can get up and running a lot faster. It allows the early stage seed or US seed is a good place. You can put in your request in 30 days, they tell you whether or not they’ll do a pitch or take a pitch from you. They’ll also give you feedback on where you are and what you’re doing. I always tell the founder that’s needing that cash flow to kind of keep things running and get to that next iteration of what they’re building. Even though it doesn’t fit our space, I give them the links. For them to keep iterating on that before they start giving away some of the ships to investors, at least get that going. And if that’s not working, we’re always still gracious and connecting them to people that may actually become customers. We keep those connections, because, at some point in time, some of our portfolios could actually serve and help in their development or some of their features or some of their capabilities. I’m on the Board of one of our portfolio companies and it’s nice to see their growth but the nice thing is, they’re building a lot through our connections here locally. If you can build a lot in your backyard, I think it shows the strength of your capability. Number two, it leverages all of our connections here around the table. Atlanta being—I think we’re probably number one in Fortune 1000—I have to go back and look at the article. But I think we write as number one in Fortune 1000. That in itself tells you there’s a lot of opportunity to engage with that corporate mindset that would be looking for this capability and helping them get and grow faster.

Gary Peat 

My advice to founders would be pretty simple. Imagine that you’re going to be wildly successful, you’re going to build a company, you’re going to scale, and it’s gonna be worth a fortune, and focus on executing that. To do that, you’re going to need to learn how to build a company because if you’re a little lucky, it has to hire a ton of people and raise a bunch of capital. What you want to do is keep in mind one thing; it’s not the ownership you have today, it’s the percentage of ownership at the exit, and you the founder who built it, who took it all the way to exit, you got to get a financial partner that helps you get your just rewards for doing so. It will speed everything else up if you find the right partner. Wait, find the right partner but Valor’s the right partner, so come to us.

Lisa Calhoun

And I think William is trying to say something, too. William, was that?

William Leonard

I was gonna echo a lot of what Robin said about the SBIR, that’s a great program. Equally, there is just a plethora of resources locally. If you think about the new blockchain center that opened up back in June, that’s an amazing resource that not a lot of people really know about. The Propel Center is also another resource opening up here soon and that’s opening up in partnership with Apple and Southern Co. You think about those two enterprises right there, the networks that could come out of that relationship. Equally, we also have the resources that are the pillar of this ATL startup ecosystem: the Russell Center, ATDC, and ATV. Equally, The Gathering Spot is also a great place as well to immerse yourself in these centers of innovation. You’ll meet other incredible people who are building and executing incredible ideas.

Lisa Calhoun

There is an incredible peer network of founders in Atlanta. Thankfully, our seed-stage capital with things like Valor fund three coming online is growing to meet the incredible demand we have here locally. Faster would be better, but I think another point that a lot of founders don’t understand is that seed-stage capital is one of the most collaborative capital layers. I hear a lot of times, I need a lead but what is the lead? But then will you keep everyone else out of the round? While we’re on the topics, we would like to jump in on that one because I think it’s a real frontier for founders building their seed round.

Robin Bienfait

We were just talking about all the different venues. ATLUnlocked is here at the Park on the 22nd. Register for that at five o’clock and come meet some of us Valor folks because the majority of us will be here. Gary, I think you were wanting to lean in on what Lisa was saying.

Gary Peat 

Well, I think we’re really just scratching the surface of the opportunity Atlanta has to take advantage of the great entrepreneurial ecosystem that the best seed investors in the world from California and New York see and fly in and just pluck away from us. I’m not complaining about that. We need collaboration and we need them to continue to do that but I think we give ourselves a big boost in the region by doing more of it ourselves.

Lisa Calhoun

Absolutely. Couldn’t agree more. William, what else should we cover on your podcast?

William Leonard

Well, this was great. I think this is giving our listeners a true comprehension of where the Atlanta seed-stage VC ecosystem is. What is one thing that you all are most looking forward to for the remainder of this year?

Lisa Calhoun

I am really looking forward to our Valor VC Day and Startup Runaway Georgia, which is on December 15. That’s going to be an absolute smorgasbord of seed-stage investing in Atlanta. We’ll have a lot of investor partners and co-investors with us, a lot of our LPs, and a lot of our founders. We’re holding it at the Woodruff. I’m really looking forward to that just sort of celebration of seed-stage in Atlanta. I haven’t obviously done any research, but I think it will be the largest seed-stage-focused venture capital event in Georgia period for the entire year. I’m really looking forward to it. It’s really fun doing some of the planning and I’m enjoying planning that with all of us, with Mecca, and with the Startup Runway team.

William Leonard

What about you, Robin?

Robin Bienfait

I’m going to the party for sure. I’ll be there on the 15th. That’s going to be a phenomenal time. We’ve got several things going between now and then, there’s a lot of activity here in Atlanta with different FinTech events. I have my unplugged event with Fintech on the 28th It’s a private invite for the corporates and some FinTech founders, some of our portfolio companies will be there. It’s just seeing them grow and thrive is just a day-to-day set of excitements, but there’s a lot of activity in September and October building up to the 15th of December.

Gary Peat

My one thing would be, we’ve got a whole stable of triple-digit growers in our second fund that I’ve had the good fortune of being a part of and they’ve blown past this sub 1 million and they’re still in triple-digit growth. We’ve seen maybe 50 deals or 100 for everyone that we’ve done and we’ve got an incredible portfolio and yet, we’re still just a drop in the bucket compared to what we could be doing. I’m just excited about getting to meet the next great entrepreneur that William finds and we back.

William Leonard

Likewise, Gary. I think as you said, we’re going to be meeting entrepreneurs Unlocked later this month in September. Venture Atlanta is coming up in October. That’s going to be just a blast. I’m excited to meet a lot of our listeners who will be coming in, even from out of state to come to Atlanta to showcase their company. VC Day on the 15th of December, that’s going to be a blast at the Woodruff. Certainly looking forward to doing that and more with you all.

Lisa Calhoun

Thanks for pulling us together, William. It’s a great conversation. If anyone has a startup they’d like to share with us, please do drop us a note on our website. There’s a really easy place where it’s like, tell us about a startup and literally, that rises to the very top. We do weekly meetings and we go through everything that we get the opportunity and the privilege to review. I’m hoping to hear from you if you’re listening and you know of a B2B SaaS startup looking for a seed-stage lead investor, please think of Valor first. William, thanks again for having us all on the program.

William Leonard

Thank you all for joining me.

Gary Peat

It’s great to be here. Thanks very much.

Lisa Calhoun

We’re thrilled to have you as an Atlanta Startup Podcast listener to help you get the most out of the experience. Let me invite you to three insider opportunities from our host Valor Ventures. First, want to be a guest on this amazing show. Reach out to our booking team at atlantastartuppodcast.com. Click on booking, It’s a no-brainer from there. Are you raising a seed round? Valor definitely wants to hear from you. Share your startup story at valor.vc/pitch. Are you a woman or minority-led startup valor sister program? The Startup Runway Foundation gives away grants to promising startups led by underrepresented founders. The mission of the Startup Runway Foundation is connecting underrepresented founders to their first investors. Startup runway finalists have raised over $40 million. See if you qualify for one of these amazing grants at startuprunway.org. You can also sign up for our next showcase for free there. Let me let you go today with a shout-out to Startup Runway presenting sponsor Cox Enterprises and to our founding partners, American Family Institute, Truist, Georgia Power, Avanta Ventures, and Innovators Legal. These great organizations make Startup Runway possible. Thanks for listening today and see you back next week.