Lisa: Welcome to the Atlanta Startup Podcast. I’m Lisa Calhoun, Founding General Partner at Valor Ventures. We are a seed-stage venture capital firm, proudly headquartered right here in Atlanta. Today, I’m excited to welcome one of my favorite VCs — not in the city, not in the state or the country, but in the world — Alan Taetle from Noro-Moseley Partners. Thanks for joining me today, Alan.
Alan: Thanks for having me on, and thanks for saying that. I love you, too.
Lisa: It’s 100% true, and I want to give our listeners a couple of landmarks for me in that journey. I remember being a founder at a tech digital marketing agency, Write2Market, presenting to you as the chair of Venture Atlanta and talking about what marketing could do for startups. I didn’t know of a venture, really, from Adam at the time. You, as an outcome from that meeting, helped connect me with several of your founders helped connect me with venture capital in general. I did not realize the privilege of that access that you reached out to me with at that time. So yes, you’re one of my favorite VCs in the world, Alan.
Alan: Thank you. I really appreciate it. It means a lot.
Well, you have since given me a lot of mentorship as I’ve built Valor since it was a dream or a bud in the eye in 2015 until here we are in 2020. It’s been an interesting journey, and your advice has been really seminal. I would love for you to share with our audience what you love about being a venture capitalist.
Yeah, well, I better love it. I’ve been doing it for 22 years as you know, and now I’m in my, I guess, my third economic downturn from dotcom to 2008. This one has a whole different flavor and color we’ll talk about later.
There’s two prongs that I really love about it.
One is when it works, and you’re able to build a very exciting company with super smart people — that scaling and giving people really nice opportunities. There’s nothing better for me than if a company does well and exits and a very broad swath of people make enough money to feel financially comfortable.
It’s not like they’re going to be going to buy jets, but then now they can upgrade their kitchen, get a nicer car, and not worry about potentially putting their kids — if they have — them through college. That is immensely satisfying. The other thing that’s important to me is building companies that acquirerers really find meaning and value in. Being able to do that as well has been terrifically rewarding. We’ve had a number of companies bought by strategics, including Dell, and Microsoft and some others. That has been great. Then third is sort of a mentorship opportunity that I’ve had. Selfishly, I took you through a lot of how I see the world and how I, how we actually, work at Noro-Moseley and how we run things so that you could think like I do. When your deal flow comes, we would be of minded nature.
I’ve been able to mentor great people like you and a number of others through that program, and I think it’s a good start when you’re just getting into the business.
Lisa: Alan, you’ve been incredibly helpful, and I’m certainly not the only seed stage VC in Atlanta that can say Alan Taetle has had a hand in helping me develop my view of reality. I really appreciate it and not just me, I’m speaking for a choir and I’ll respect their privacy but not calling them out, but you do a lot of great work in this community. I’d love for you to share a little bit about all of your experience and the fact that you mentor and hear a lot of the deal for VCs like Valor.
What do you invest in? Noro-Moseley Partners just raised an incredibly nicely-sized growth fund. What are you looking for in the market today?
Alan: Yeah, we’re sort of a 20 year overnight success story. For that — thanks for mentioning that — we, just by pure luck and not any sort of true timing, we closed on $180 million in early May last year. We’ve been going slowly in our investing pace, primarily because we’ve been blown out of the water on valuation.
Lisa: That is turning around really soon.
Alan: Yeah, I would expect the back half of this portfolio is going to be going to be pretty strong and prices are going to come down. As far as what we look for, we invest anywhere outside Silicon Valley. New York’s a little bit tough just because it’s a pretty competitive market. We look for what we call early growth companies, so these are B2B SaaS companies that have north of $1 to 2 million in recurring revenue with proof of customer model that could use $8 to $10 million, at least a minimum of $4, to start off with over the life of our investment. We also invest in healthcare IT in a similar way and healthcare services. So B2B SaaS. We’ve been doing internet security for a long time and we have a couple other subsectors in the tech space as well as having a strong healthcare practice.
Lisa: If a founder is hearing this, that’s going to sound pretty generic to them. What kind of revenues? What kind of target addressable markets? Can you give us any context for that?
Yeah, so we’re sort of old school. Again on the revenues, $2M to $10M recurring revenue, proof of customer. What I think is a little bit different about how we look at things is our underwriting model is around exiting at $150 to $200 million or potentially taking a growth equity round at that time from one of the really big players if there’s an opportunity to grow a billion dollar business.
We just did that with the internet security company, Red Canary — we took a nice growth equity round from Summit Partners because we think that that business can be $500 million to $1 billion dollars. In general, we’re looking for super capital efficient businesses, and we want everybody to win at $150 to $200 million. That’s not the Silicon Valley “it has to have a B sort of exit, it has to be a huge TAM.”
We will do small TAMs if we think there’s an opportunity to dominate. Another example that is a Charlotte-based company we closed a couple months ago that is the SAP for microbreweries. If you, in a vacuum, just looked at the TAM of that, it’s well sub $500 million but we’re counting on contiguous sort of TAM growth in specialty food and wine and some other things. Even if they don’t really grow as much as we think they can outside their core vertical, it’s still in a really nice business that everyone will do well, and again, at that exit level that I just described.
There are a lot of longtail businesses that do not get visibility in the kind of echo chamber in Silicon Valley. I mean, you’ve both been to San Francisco, Palo Alto, Menlo Park enough times. It’s just so many bars and so many places to have a croissant in the coffee, and that’s not necessarily representative of the whole world. The world is much bigger.
Yeah, they’ve had unbelievable success generating multi billion dollar exits. That makes up for a ton of losses that they do. If you’re doing venture capital-style investing outside of Silicon Valley, you can’t have the same loss ratio because you’re not going to have billion dollar exits. So you take a different portfolio structure approach when you’re when you’re looking at things. By the way, we lead almost every deal we do. We want to set the terms, we want to be the most active board member, we want to help recruit the management teams. We don’t want to be some tagalong investor, where somebody else is normally putting in some huge lug of capital and we’re just along for the ride. Is that less generic?
Well, yes. I think people are starting to get the picture. I have to say, maybe you successfully sold your mission because as Valor made the transition from fund 1 to fund 2, we really solidified on being a lead seed investor. I mean there are a lot of seed investors out there, but there are very leads who want to set the terms, but it goes beyond the terms. I mean, you’re setting the terms because you have the vision to help that company grow to the multiple that we envision when you set those terms. It’s a really different position, a differentiated position. I appreciate that you’re pursuing that on a different level and sharing so openly about what it takes. It’s exciting to see those opportunities come across.
You’re right. That’s part of you being able to raise Valor fund 2 is you can’t go in to limited partners and say, “Hey, I was in this company, that company, and this company” and then they go, “Well, I see Sequoia was in over a year, and not I don’t love Sequoia, and Benchmark was in over there.” You’re going to get no credit for those companies.
Right, like you and everybody else was in that company. How do we know that Valor was important there?
Yeah, right. Exactly. You were the lead director and that you drove this outcome is really, really crucial.
That’s really where we’re finding our strength. That’s really how we are learning to develop the whole firm. It’s just the culture dramatically as you become a lead and you move into that space. It’s interesting. But this is not about Valor. This is about Alan. We’re going to talk more about you. Although we shared in common, I want to open up the conversation around Atlanta. Where do you fall? Is this an emerging VC market or is this a VC backwater? I know you have trod this path and you’ve got a really good position.
When I first started doing venture capital, Atlanta was, if you went out to Silicon Valley, it was like, “Oh, I know Atlanta. Don’t you guys play checkers on a pickle barrel over there?” I mean, sure, sure and nice airports.
Welcome to dominoes really. To be honest, it’s dominoes.
You’re right, I’m dating myself, I guess, on the checkers. But Atlanta is solid and it’s come a long way. If you look at Venture Atlanta being sort of the bellwether of the whole community, that has gone from being sort of a “nice to have” conference to a “must attend” for 150 plus investors, and a lot of those companies that present are from the Atlanta market. The whole ecosystem has grown. We’re never going to be a backwater because we have Georgia Tech, and Georgia Tech is a world-class institution that creates world-class technology. Are we the next Silicon Valley? No, I don’t know anybody who is the next Silicon Valley.
I don’t mean to interrupt, but I’ve got to say, right now we’re talking through the COVID quarantine. I know not every listener is going to hear us in that moment. But I’ll tell you what, right now it does not look like it’s a great idea to be in an extremely dense environment like New York or Silicon Valley.
Right. That’s a great point. The social distance that Atlanta has because it’s so spread out, which has been somewhat of a liability but it’s also a major asset right now. People don’t live on top of each other in this town.
They’re used to thinking about: How do I avoid the traffic? Do you mind if we just have a phone call? Would that be okay? And we’re not alone in that. I think it’s really interesting. Some of the strengths of traditional venture capital ecosystems, like The Valley, like New York, like Boston, have a lot to do with the density of the geography, the density per square mile, per square yard. I am not in the business of prognosticating what’s coming next in venture capital, but I do think that there’s an additional benefit to companies in our portfolios — I know there are a few in yours and there’s a number in mine, like LeaseQuery — that are strong businesses that already had virtual infrastructure. While they may have a beautiful office, like LeaseQuery does, they’re able to pivot quickly because they grew up not prioritizing the density of the social environment.
Yeah, I think that’s a really valid point. I guess the only counterpoint or struggle I have with Atlanta, just to add on top of that, is that if you look at millennials and you look at people in their 20s compared to when I was growing up, you kind of went where the job was. When I was growing up, I had my first job in Detroit, as a matter of fact in a Detroit suburb, but now the millennials will pick where they want to live and then figure out where they want to work. If you look at Atlanta and how it stacks up to Denver and Austin and some other some other places, we’re not quite there yet in terms of: Do we have the green space? Do we have the lifestyle that is going to really appeal to the millennials as much as other markets? That’s something we need to continue to get better at and think about. We don’t have a natural body of water, it’s a bit of a liability. But we have a lot of other assets we need to continue to leverage — things like the BeltLine, making paths all over the place and making it a much more fun and livable city.
Could not agree more. I was just compelled by this article from the US Census, which is going on right now, that metro Atlanta — metro Atlanta, so that’s the heart of the city — is the fourth fastest growing metro in the country. Wow. These people have come here for the jobs, the opportunity, and the lifestyle. But whether they stay here I think it’s an opportunity for our metro area to really dig into the arts. I’m a huge fan and supporter of the Woodruff Arts Center.
Exactly. You come here for the job, the quality of life, the cost of living, but stay. We have a unique opportunity here as the fourth fastest growing metro. That’s really recent. I mean, that’s new. So I’m also really interested to see how these trends play out.
Great. Well said.
Lisa: Regarding Atlanta in general, one of the things I’d love to ask you about is if you’re a founder in Atlanta, given our population is growing, we are attracting a lot of new people, who are one or two folks that founders/entrepreneurs in the Atlanta ecosystem should really prioritize connecting with? To some extent, some of the feedback I know you’ve heard and I hear all the time is that our ecosystem is very dense but it’s also hard to process. Do you go to ATDC? Do you go to Tech Alpharetta? Do you go to Atlanta Tech Park, Atlanta Tech Village? There’s a lot going on. What would your advice to the next awesome founder in Atlanta you met be? Who should they meet?
Alan: I think a great nexus of Georgia Tech meets industry meets community is the Engage platform, and meets big business, which is led by Blake Patton at the ATDC offices but not formally part of the ATDC. The ATDC is the Advanced Technology Development Center, which is the first, I think it was the first incubator in the country backed by Georgia Tech.
Lisa: It was one of the earliest, in which Blake was the former executive director. He certainly knows the grounds.
Alan: Yeah, and Blake has got a great sort of sense of what corporations are doing as well as what’s going on at Tech. He’s very entrepreneur friendly and gives very sound advice. Blake would be one, and then the second guy is going to kill me for saying, but that’s okay. It’s my show. There’s a great angel investor, named John Hallett, here in town that a lot of folks know. John is a super successful investor as well as operator, and he’s more than generous with his time. I’m not saying he’s going to fund your business, but he gives you provocative things to think about and will try to help anybody he can. He’s just a terrifically smart guy, very detail oriented and extremely well respected by other investors, both institutional and angels.
Lisa: I couldn’t agree more. John Hallet is humble, hard working, real down to earth, and a great conversation for any founder. Yeah, he’ll be open to them. So everyone, take a note. He’s not hard to find. He’s actually really interested in speaking with founders. That’s beautiful.
Now other things that I’m sure our listeners are interested in hearing your thoughts about. Right now, as we’re talking, we’re in quarantine for COVID. Even after quarantine is over, I know there’s going to be very, very strong long-term structural impacts from a global pandemic like this. How are you thinking about market conditions in the next 12-24 months? Has it changed your frame of reference in any way whatsoever?
Alan: Yeah, it’s completely changed my frame of reference. At least when this first started, people were thinking of a “V” style recovery — a quick dip down and then a quick dip back up. I really don’t see that happening. I mean, if you kind of follow what’s been going on in China, it hasn’t really happened. You know, part of it is just a tremendous amount of dislocation that we’re seeing with the unemployment rates being filed and people finding new jobs and getting back to work. But another thing that that’s really given me pause and given me some time to think about is our economy has been consumer driven for probably since the Reagan era, we’re talking 40 years, and so I’m not sure the consumer, when we all get out of this stay in place quarantine, is going to be going on the discretionary spend sort of spree that people are thinking that they’re going to be on. I believe that there’s going to be a higher savings rate because of this ongoing uncertainty around health. I believe that that’s going to have a material impact on how much retail there’s going to be. I think that alongside the fact that a lot of things that we’re doing now I think will stay. I’ll be traveling less and working from home more.
Lisa: Let me ask you about your personal take, because are you going to be committed to traveling less?
Alan: Yeah, I am. I really am.
Lisa: Me too.
Alan: Those things where you have to have dinner with everybody, you know? I think that those are a thing of the past. I mean, I really do. I think I’ll still be traveling some. I might be very old school, but I can’t, today, see a situation where I’m going to close a deal just having met the founders over Zoom. Going into the office, seeing what the culture is like — that’s very hard to replicate. I do see some travel. But do I see us having to have an in-person board meeting every month? If it’s in Austin, Texas? Absolutely not. I think Zoom is more than adequate. Travel is not going to go away entirely, but I think it is going to be substantially reduced. As you and I were talking about, just seeing the benefits on the ecology, where air travel is 10% of the total emissions, it’s just the weather’s been spectacular since this whole thing started. So it gives you a lot of pause.
Lisa: I think that to some extent, my personal experience is that there is a real frenzy, almost a FOMO frenzy, for the VC world about “be there, be here, be there” and it has to be face to face or it’s not real. Now we’re all having to create, in a virtual space in this quarantine, real. It still has to be real. People can’t live without that. But now we only have the digital tools, and thank goodness we do.
I think it’s interesting watching my network, which is fairly broad in terms of technical literacy, all grow to appreciate Zoom. I’m back from the late 80s, early IRC, this computer network in front of me has been part of my world, but it’s not part of everyone’s world.
Oh, wait. Yes, now it is with a large percentage of the whole world in quarantine. It’s definitely conditioning a market that expects and accepts digital as real life.
Alan: Yeah. Let me ask you a question back at you. Sorry, I know I’m not supposed to do this but I’m curious.
Lisa: It’s your show, Alan
Alan: Okay. You’re a Kauffman Fellow, one of the most respected programs for educating venture capitalists. You had a Kaufman conference in Dubai, right, with your other Kauffman Fellows from around the world.
Lisa: It was awesome.
Alan: Everyone flew to Dubai, right, as part of that?
Lisa: Right at the end of February.
Alan: Yeah. Do you think that’s going to continue to happen?
Lisa: I think it is. I think it is. Yeah, I do. Now, on the same regularity — that’s an annual event — maybe, maybe not. Maybe we start to have five year events like that.
Right. Right. That’s a good point. Sort of the frequency will be evaluated. Do we really need to do this every year? It’s not just the money.
It’s not at all — especially for the Kauffman Fellows — it’s not the money. COVID was on the radar in February when this happened. It was a real discussion point, but there wasn’t a lot of knowledge around it. I will say that. What’s interesting about the Kauffman Fellows group of global VCs is the rapid pivot that I’ve experienced in that community to digital. We just held a global venture capital digital conference. It ran over the last three days — it was actually this week, Alan, and almost like you read my mind. It was only from mid-morning to lunch. But it was global and a time period when people from Silicon Valley and people from China, Singapore too, could also join and facilitated through Zoom webinar, Zoom face to face, Zoom breakouts, but I talked to Jenny Lee. I talked to VCs from all over the world, and we discussed how this is impacting venture capital. We did it face to face from our spare bedroom or quarter of an office. It was fascinating because everyone was very — well, you saw what was their current reality in quarantine. So in some ways, it’s an interesting experience, I think, for the global VC community that the world is right here if you want it to be. What are you doing? It’s like an opportunity that this rather awful experience has opened up now.
These tools, like Zoom, were designed for 20 million people, not 200 million, and they’re still working on it. But these tools we know will get better and better around high definition.
With the global satellite network that’s coming into place right now, thanks to Tesla and so many others.
Alan: I think there’s going to be a new Renaissance. This is where a great opportunity is — is that the internet infrastructure is going to have to revolutionize again. It’s going to have to get much, much better and much more robust, particularly that last mile. I think it’s going to be really interesting going forward.
Lisa: I do, too. I think the rural communities in the United States, as well as globally, are going to enter a potential Renaissance. It was already happening, thanks to the satellite communications infrastructure, but this is really cleaning it up. That’s a great place to sort of land. How do you see bright spots for Noro-Moseley Partners in this developing economy? I know it’s really early to ask that so a generic answer is completely fine. I’d love to hear how you see investing bright spots in the economy today.
Yeah, well, I can describe a few from our portfolio company that might help give some specificity around this. I have one company in Austin called PureWrx that provides Certified Pre-Owned equipment for Cisco routers and Juniper routers.
Lisa: How timely.
Alan: If you have a broken Chinese supply chain and you really need to beef up your bandwidth, they’re in a great spot, needless to say, to be able to furnish much quicker delivery. Juniper’s got some very long lead times on some of their switches because of disruption of the Chinese supply chain. I think that there is going to be ongoing opportunities because people are going to really start to think about the Asian supply chain and the Chinese supply chain, in particular, and how much dependence they really want to have. Of course, we’re always going to be dependent but do you hedge your bets a little bit? I think that’s going to be pretty key. The security company in Denver that I mentioned before, they provide endpoint detection management as a service, they’re just having a field day, right? Because endpoints are laptops. People aren’t working in offices anymore, and so people are working on their own home network and you’re all of a sudden having to do a different level of locking up security than you did before. The remote worker, as much as a huge benefit, is much more of a liability from a cyber perspective. I think there’s going to be ongoing opportunities there. Then the entire e-commerce infrastructure is just — now we’re really starting to see stuff. I think that there’s all sorts of opportunities around providing more and more areas for retailers and everybody else to get more online and count on more deliveries. That’s not going away anytime soon. And of course, there’s always home fitness equipment.
Lisa: You’re a Peloton, man, if I recall. Is that right?
Alan: Yeah, I think I bought the last treadmill in Atlanta before everything fell apart.
You’re killing me, man. You’re killing me. I’m looking at rowers right now. We need to add a rower.
Alan, people are going to want to reach out to you after they listen to your perspective on the market. How can a founder or an entrepreneur who has something they want to get in front of Noro-Moseley Partners each out?
Yeah, so just please email me. I have a really weird last name, so it’s email@example.com. Send me a note, and I can’t promise I’ll get back to everybody right away, but we’ll do our best. Would love to hear from your listeners. And I really appreciate you inviting me on the show.
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