Lisa Calhoun
Welcome back to the Atlanta Startup Podcast. I’m Lisa Calhoun, your co-host, and General Partner at Valor Ventures. Today, I’m having a conversation with one of my colleagues at Valor and co-host at the podcast, a voice many of you know and love, William Leonard. Hey, William, good to be with you on the program.
William Leonard
Hey, Lisa, thanks for having me again. It’s great to be back with you again. Hey, everybody, William Leonard here, an investor at Valor Ventures. Lisa, it’s a pleasure to join you.
Lisa Calhoun
Today, we have a really exciting conversation about what happened this summer. For those of you in the startup world, it was a record-setting summer. One of the things we do regularly at Valor is we have a bit of a monthly rhythm or we take a look back at the numbers that we’ve been gathering, and come up with some trends. William really digs into that. Why don’t you tell them a little bit more about some of the things we look at on a monthly basis before we dive into some of the highlights we saw this summer?
William Leonard
On a monthly basis, we started this blog series a few months back, and now we witness a lot of historic trends. We’re looking at how many founders are coming into our pipeline, then we’re looking at funding trends, who’s raising what, what types of industries are having these higher valuations, which industries are raising more capital. I think we’re looking at a plethora of data points and really trying to condense it down in these monthly posts.
Lisa Calhoun
Now, for some of the founders listening, you’re like, “Okay, data. And that’s the last thing I need more of. I have plenty of information I need. I need people.” But I’m going to ask you to hang with us. Because the fact is when you look at your peers, and that’s exactly what we do, we look at the pure set of data for founders just like you, here in Atlanta, and across the southeast. You can learn what’s actually market without having to build the wheels yourself. Would it be cool to drive your fundraising car fresh off the lot, shiny coat of paint, knows exactly where you’re at, instead of relying on national figures? And a point about national figures, they’re not always southeast region friendly. And that’s even one of the things I think you’ve taken a hard look at, right? We’ve talked a little about how the southeast relates to national numbers and what are some of the trends that you’ve been spotting over the summer months?
William Leonard
When you think about where the southeast is situated in comparison to the national venture scene, traditionally, valuations here are a tad bit lower. But we’re starting to see valuations here in this region creep up a lot. I think an interesting trend was observed. You and I definitely spoke about this, was with female founders across the quarter and Q2, were out raising their male counterparts, essentially when you think about in terms of implied valuations. Oftentimes, we know that historically, VCs are only investing about 45% of what they do in male founders into female founders.
Lisa Calhoun
Hang on a minute. Hang on. I want our listeners to really catch up for that. Because I think what you said is that women raised 45% of what men do? Is that what you just said?
William Leonard
I said that. That’s really it. That’s the statistic there.
Lisa Calhoun
Is that national? I mean, drill it down for me, because even though I am a woman, and even though I know that we raise less money, generally speaking, that’s just I mean, that’s almost half. That’s exorbitant like that’s extra right there. Half is, at least when you’re talking about the pay gap, the average pay gap is 70 cents on the dollar. VCs the pay gap is like 55 cents on the dollar to a national, regional, I mean, is that Georgia? Where are those numbers from?
William Leonard
That’s on a more national scale. But as we’re thinking about the southeast, I think in June, I was really appalled by the data that I saw. I think in June we observed that there was a 76% difference in the amount of capital raised across Angel and pre-seed rounds between male and female founders, and obviously, in favor of male founders. When you think about that 76% difference, I mean, oftentimes, women founders are doing more with less in some of these situations, Lisa, but you think about the seed stage, and how crucial of an inflection point this is for your business, right? You’re past the idea stage, but you’re not quite at the Series A scale. You’re really in this sort of make or break middle ground, and being historically underfunded and having that 76% difference, and now, maybe factoring it into a seed raise can be truly detrimental to your business, if you’re underfunded.
Lisa Calhoun
Absolutely. This was one of the reasons in 2015, I started Valor. I won’t mention his name, but there’s a very good friend, also a Valor Fund 1 and 2 investor. I was riding with him in his Tesla. This is years ago, this is 2014 or 2015, sharing in shock the National stats I had found on women raising money. At that time, there were very few regional stats. Crunchbase had not yet come out with their really excellent reports. There was not so much information, but the information there was on the shockingly bad side. What I have to say is closely tracking that market and having led many a seed round into female founders in this area, it hasn’t actually gotten any better. Which is why I love it that the trend you pointed out and the data over the summer was that women are kind of once they get in there, they raise a much smaller angel or first round, and then they come back, what you’re seeing at the seed or series A is they want to raise even more than the guys do at that point from what I understand. Walk me through it a little bit; how do the numbers actually look?
William Leonard
In some months over the summer, we observed a 12% difference, in what men and female founders were raising at the seed stage. Other months, it was a little bit narrower, probably 6-8%. But the consistent theme was that the women founders were outracing the male founders. And I think we’re beginning to see women founders really try and bridge this gap at this seed raise from, of course, from what our data shows and really seeking more capital than males in Q2 in this region.
Lisa Calhoun
I’ve definitely noticed it from a pitch level, too. And you know, I think what really happens is, it’s going to be really hard for y’all to follow as listeners, I’m sure but the first Wonder Woman came out last year, and it was really cool. It almost feels like that though, I’m really excited to see female founders and female-led startups, gaining the experience of having a less than appropriate first raise, and coming back hitting hard and saying, “This is what I mean to build this business. And trying to make it up a little bit.” I’m really excited to help that iteration going faster and hope that more women founders will not settle for less in the first round. I’m not trying to blame the victim here. I think this is a cultural problem. But to some extent, we need to change the culture. Women founders need to know what’s happening. And also, all of these other investors out there. These numbers don’t lie, and this might be unconscious, but next time you’re making a term sheet for a female founder, I want you to lay the last five term sheets you wrote next to it and make sure it looks similar. But anyway, I digress. William, we’ve got a lot more interesting information out there. What else should we be paying attention to, especially the founders in our audience?
William Leonard
I think it’s interesting. Something that I noticed was that a lot of the companies that we spoke to, in this region in the last quarter over the summer, many of them are transplants here from other high tax and high cost of living areas. You think some of the founders that we’ve had here on the podcast are perfect examples, right? Kristina Williams of Unpacking, moving here from the west coast to Atlanta. Ariel Lopez of Knac moving from New York to Atlanta, and many others that you and I have really spoken with and we got gotten to build a relationship with. I think it’s interesting, we end these conversations with these teams, we really try and get deep into the underpinnings of why these companies are relocating to the southeast, and then at that point, we realize it becomes bigger than a venture, right? I personally see this as closely tied to the company-building aspect of startup life, and really creating the best possible lives for their teams, right?
Lisa Calhoun
Can you tell us what you mean by that because I mean, I’m a Georgia person now and I was raised here. I went to high school here but I was born in San Diego and I do speak fondly on the first few years in the sun. Can you help us understand what you mean by company building here in Atlanta?
William Leonard
I’ve been to Southern California, Northern California, Napa, it’s all beautiful. It is. But you have to think about living there and you think about the unfortunate wildfires that are ravaging the region and now it seems like an annual basis. You think about the incredibly high tax rates. You’re thinking about the inequitable cost of living standards in Northern California and we compare that to living here in the southeast in a city like Birmingham or Chattanooga or in Atlanta, Greenville, South Carolina.
Lisa Calhoun
Nashville.
William Leonard
Exactly. Grouping these factors together, I would say the critical impact on team morale and quality of life that it has for your people as you think about building an early-stage company, right? And then I think another factor, that’s pretty obvious, but I‘d be remiss if I didn’t touch on it, was why other companies are moving here. Some of the larger companies like Airbnb, Microsoft, Apple, those public entities are relocating here to this region where we’re seeing a lot of diverse talent. We’re seeing a lot of diverse individuals establishing themselves here. In even some smaller private companies are moving their headquarters here or building an office here and you know there’s a term that so synonymous with, I’d say Boston, New York, The Bay, and its network effects, right? You think about all these well-established centers of innovation, where the majority of venture dollars are flowing. People used to flock there for their network effects. But now people are flocking out of those cities. We’re seeing an exodus out of those cities to regions like the Midwest and the southeast and if you look around here in Atlanta, Lisa, you’re like a stone’s throw away from a number of household enterprises. When you think about valuations creeping up, when you think about companies moving here to this region, I think that is a huge reason as to why we’re seeing that shift.
Lisa Calhoun
It’s interesting, we see that in our numbers, and frankly, everyone, Valor is hyperlocal. We’re talking to 40-50 founders a week, all in our region, all at the same stage. We do our best to make sure that they’re gender and racially diverse. We have benchmarks. When we talk about our data, we’re talking about something that’s hyper-local, it’s like your local coffee shop, it’s not a pitch book. Nonetheless, when we bounce it up against what we’re seeing in national trends, I couldn’t agree more. To go with what you were saying there, Memorial Day weekend, Monday, what was I doing Monday morning is Memorial Day. A lot of people are heating up the green egg. But I was having coffee with Donald Knight who is the SVP of Global Talent and Transformational Growth at Edelman. It’s the largest agency in the world and we were talking about talent and why Atlanta is so compelling. He was sharing with me that the hybrid work model from their global perspective is really here to stay and that makes places like Atlanta if they’re intensely attractive to founders culturally, or you can build a team here, or maybe you just want your customers and team to use the phenomenal airport here, you’ve got a real leg up. It’s a trend we pick up hyper-locally, but it’s definitely got national legs. Is that it for the trends William or is there something else that’s keeping you awake at night as you sort through the data that we’re pulling in?
William Leonard
There’s another thing I’d like to point out, and I kind of briefly touched on it was that implied valuations in this region were up about 45%. I think that really speaks to some of the record numbers of funds that are inserting themselves into the equation here in Atlanta and in the southeast. There’s more capital than ever right now in this ecosystem. I think when you’re seeing valuations creep up like this, it is coming in tandem with the number of capital that’s flowing in. With valuations creeping up, I know we’re seeing this, right? I think you mentioned this a few days ago, but I guess we’re seeing companies, they have about 200k in recurring and seeking about $20 million valuations like you can get that, get it, but the valuations are certainly getting higher and higher. I think that’s a direct impact of more capital coming into the ecosystem. I’m curious to hear your thoughts on that, Lisa?
Lisa Calhoun
First, I want to pull back a little bit and implied valuation, William, in your role as an investor, this is the sort of thing we talk about weekly in a Monday meeting but for listeners who maybe are new founders, or who haven’t raised yet, to kind of put a pin in what an implied valuation is, and I don’t want to put words in your mouth, I think you define it pretty fabulously. I’d love to ask you and I will get back to your question, don’t worry, but what is an implied valuation? I think it’s a really elegant thought and you use it to put a lot of information in the numbers that we’re gathering.
William Leonard
When you think about implied valuation, you’re thinking about when you’re having conversations with founders, what they’re seeking to raise, oftentimes, some people are raising on safes, notes, price rounds, and you don’t want to assume. Oftentimes, they may not know the numbers. We’re kind of formulating those valuations internally in our head, and trying to apply those figures to see if okay, is this fitting within our thesis? It’s kind of like an understood number that the founder is raising or evaluation price point.
Lisa Calhoun
Let’s help the founders out there who haven’t gone through this exercise. It was just kind of VC Wiki, here’s how to do it. Easy numbers. If a team wants to raise a million dollars, and it’s their first professional raise, maybe they have little friends and family money, but it’s negligible and it really is friends and family but now they’re going to go for it, and they’re going to raise a million. What implied valuation are you interpolating from that reality? Say, you know, based in Greenville, South Carolina,
William Leonard
I’d say probably a $10 million valuation.
Lisa Calhoun
And how do you get to that?
William Leonard
When you think about the ownership requirement that your fund has, sometimes if it’s 10% or 20%. But when you think about a simple $1 million raise, 10% ownership, you come to that valuation.
Lisa Calhoun
It’s such a great point, it’s up to the funds’ ownership threshold, and this gets into the weeds in a good way, I think, for founders raising capital. Every VC you encounter, including Valor, has a certain approach to the market. Generally speaking, every professional VC is looking for double-digit equity for their check. If you want one company, essentially, to write you a term sheet for a bucket of money, like a million dollars, then knowing what is standard for them is going to make a big contribution to where they’re putting your valuation. And William, I think he said it just right. It sort of arranged if someone’s raising a million, Greenville, South Carolina, considered by the VC industry a third or fourth tier emerging city, that valuation range is probably going to be on the lower side. And so the lower side, VC probably wants 20% of your company. If they want 20% of your company, you’re looking at a valuation that’s more around the $5 million marks. Some VCs will settle for as little as 10%. Well, that puts you around the $10 million marks. Now you’re in a range. Does that mean anything to you, the founder about the value of your business? O paper? Yes. But what it really means is, that you’re raising numbers signals to the VCs who are out there templating a process on you, as you put a number out there, there may be information you’re sharing that you didn’t intend. There are founders who have raised 500k at a $3 million valuation, not realizing perhaps that they could have gone differently with that race structure and kept more equities if they could have. It’s an interesting point. Probably, you know, equally, you could have a whole other podcast discussion on that. William, what else? Is that the last point you wanted to make on the kind of summer roll-up of numbers or anything else that we should discuss?
William Leonard
I think it’s interesting where we’re kind of showing the back end of this data. But I think you and I should really talk about the front end of the data and what we’re managing, how we’re gathering this data through our CRM. I think that’s really interesting. I’ll kick it off, you know, personally, I’ve used a CRM from literally that was a Google spreadsheet. I’ve used Affinity before recently, shipping all of our operations to Salesforce. I don’t know about you, Lisa, but I will resolutely label Salesforce as the strongest, most customizable, most robust CRM out there that has given us the ability to truly process, to speak with more companies, and to really build an efficient vetting process. We’re able to do this more consistently and find new ways to look at the data consistently.
Lisa Calhoun
Couldn’t agree more. One of the things we kicked off with Fund 2 which we closed in February this year, was really investing in the technology behind Valor so that we can help founders more so that we really know what there is when we believe we have a fair valuation. We believe we have a great recruit when we believe we have a trend in an industry that’s grounded right here in the southeast. Honestly, we found that a lot of the national numbers from places like Pitchbook were not tuned to the needs of this region. This is a huge region. The southeast has 40% of the US population. And in my mind, that means we have at least 40% of the founders because we’re very get-it-done here. So when we weren’t getting served well, at our stage, which is a challenging stage, you know, the first institutional round is a challenging stage. I get it, it’s not your D round, it’s not your C round, we decided to build it from the ground. A few of my very smart friends were like, “You’re kidding. You’re not investing in Salesforce at this stage.” But the transparency of being able to see in a report-like form integrated with tableaus and charts is very accessible. It makes a huge difference. I’m looking forward to what we’ll do with it in the years to come. Because it really gives us confidence and we put out term sheets, that it’s grounded, not only in the national averages that everyone has access to but the local reality, is that we build our model of every day.
William Leonard
I’ll add to that. From my standpoint, I think the capabilities that we now have to do custom queries really makes pulling these reports, analyzing trends within our pipeline within the region, I think it brings enhanced efficiency to our lives as investors because it now gives us the flexibility to just focus on the data interpretation instead of the data pulling and the data organization, right? Because we’re able to organize, categorize, and manipulate this data literally with the press of a button which is enabling us to focus on the more important task at hand here.
Lisa Calhoun
If you are a startup, get in touch with us. But one of the things that I was thinking about is, as an example of how we use Salesforce for the longest time for five years, we ran the Startup Runaway program, which is presented by Cox Enterprises, and backed by some amazing founding partners, including Truist, American Family Insurance, Innovators Legal, and Georgia Power. We ran that from a platform that’s used by a number of accelerators and incubators. It’s really a global standard but it’s not a local standard. In this most recent Startup Runaway, we used some custom Salesforce development and actually created an application process within our system so that all of our team could help screen and give feedback. We were able to expand our jury of who is doing the selection, and run a very efficient process. That’s just an example of the power of Salesforce, really kind of integrating with what we’re doing. And if in a year or in a month, one of those finalists is ready for a seed round, our long relationship with them will be visible back in time, because our input, our intake was actually through the system. I love where we can go. We seem to be able to come up with new things we want to do with it all the time. But speaking of Startup Runway, William, it’s really growing as a kind of an on-ramp for founders who are women and founders of color, which is really getting back to some of the themes and trends. I don’t believe we talked about trends around founders of color, did you notice anything? I mean, maybe nothing really caught your eye over the summer?
William Leonard
I think founders of color were more in line with where we saw that general cohort of females raising. They were raising around a level that was similar to the male counterparts, the white male counterparts that we had benchmark as well. I think these founders that are underrepresented are now out in the market to raise more capital. I think that’s just the trend that we’re seeing. Simply put, but I think it’s an excellent trend that we’re starting to see. Hopefully, it continues to sustain itself.
Lisa Calhoun
From your data and your read of the data, is it worse to be female, is it worse to be of color, is it really bad to be bold? What do you think is the hardest combination for today’s investor to process appropriately just looking at this summer?
William Leonard
Just looking at this summer, I think being a female in general has been very difficult. When we look at that 76% difference that we observed in gene and capital that was raised at the angel increased seed round, that was comprised of African-American women, Hispanic women, other underrepresented women, members of the LGBTQ+community as well. I think all-encompassing those figures there, signals a path that has been traditionally difficult for women to raise capital. But I think, and I strongly believe now that more so really, the status quo is shifting here. I would encourage women founders, who have under-raised as their first angel in pre-seed rounds to ask for more sooner. I think you mentioned this last week, Lisa, it creates a deficit against the more well-funded founders in the ecosystem at that early stage. Now we’re going to see the shift where women will be raising consistently, on the level that male founders have been raising at, essentially, since the beginning of venture capital.
Lisa Calhoun
I think that’s a great point, William. I really appreciate you pulling that out of the data. What I love is, we’ll continue through your blog post every month to report on reality. To some extent with your blog, you’re bringing out information and helping people understand what’s the time. The interpretation they put on that to some extent, they can put on that some of these numbers, especially around female founders are just startlingly clear. I really think the onus is on the investor community to understand how to work with women. The call that I had just before this one, and the reason that I was a couple of minutes late to our podcast recording, was because I was on the phone with a female founder who just raised an amazing Series B. It has a valuation of over 60 million. Jennifer Silverberg of SmartCommerce from Valor’s Fund 1. was talking about how everything fabulous happened after 50 and literally, she had her 50th birthday party. I was there. The next year, she was raising her seed round. Valor was the only Atlanta investor in the round. And if that’s you, and you’re out there, thinking, the South just doesn’t get it. There is a new sheriff in town, Valor does get it. That doesn’t mean we necessarily will invest because it’s not saying we’re easy, per se. We only know what we know. We’re not going to lead a round we don’t understand. However, there are investors here and I’m so excited about some of the investors that have come after us to collab. Zane Venture Fund, Outlander Labs, there are a lot more options for aggressive founders of all types to get that first round done. 2021 is ending on a high note with FullStory, Greenlight, OneTrust, Calendly, SalesLoft, all of the unicorn corners, and we’ll see 2022 to set a new record yet.
William Leonard
I’m excited, Lisa. It’s gonna be an amazing time here to continue to build Valor with you and the team. I’m just so elated to do it.
Lisa Calhoun
Absolutely. Having you on the team is game-changing because your perspective as a young investor is such an amazing offset to perspectives like mine and Gary’s, a little bit older. I think the truth is always in the middle. People who don’t recognize that, they’re not living. I’m just wanting to end on a note for founders who are perhaps of color, maybe Hispanic, female but they are feeling that this is the right place to build their business here in Atlanta. They’ve got an incredible business building but they’re not sure where to get started on their fundraising journey. I think Valor has a couple of programs for founders like that. I was hoping we might end with you sharing a little bit about your experience with those and what you would suggest, William?
William Leonard
At the early stages, at that Angel and pre-seed round we spoke about, I think Startup Runway is an excellent place to get your feet wet in terms of pitching investors and really establishing a business. Getting feedback from angels, getting feedback from mentors, getting feedback from VCs that are not only here in the southeast, but really across the country as well. It’s not just your regular pitch competition where you are participating for a week, and then it’s over, no connections. Startup Runway is a relationship that’s built. That’s how I would label it. It’s such a unique program and one of my favorite things, and one of the aspects of the program that I get a lot of positive feedback around is the mock board meeting dynamic where the founders are really immersed into the inner workings of what it takes to run a board meeting. And many pitch competitions aren’t doing things like that. It’s helpful to really prepare founders for that and we get a lot of positive feedback around that.
Lisa Calhoun
We sure do. Startup Runway, in a nutshell, y’all, is a free investor connection platform. It is a 501(c)(3) nonprofit, organized by Valor five years ago at the time of this recording and led by Mecca Tartt, our executive director. She is amazing. She is running a best-in-class program to connect underrepresented founders to their first investors. Somehow that’s Valor, we did start for that reason. We love to invest in Startup Runway founders. We’ve invested in three so far. But that said, we open it up to the world of other investors eager to invest in emerging leaders of all types. I think this most recent Startup Runway, William, you brought SoftBank to the table, one of the VCs who’s giving feedback to each of our founders.
William Leonard
We’re able to put those founders in front of companies like SoftBank and Valor and Steel sky Ventures and others that we have brought to the table as well. Really excited for De’Havia to be joining the judges’ cohort this year.
Lisa Calhoun
So am I. Thanks for running down some of the numbers when people want to really level set with what is a market reality in the southeast. William, could you tell our listeners how to get to your blog post, what to look for, just so that they can stay in touch?
William Leonard
The blog post is put out, usually the first week of every month at valor.vc on our website. You can go to the Perspective tab, as well as Twitter and LinkedIn. There’s ample opportunity to catch the numbers, the latest data coming out of the southeast. I just wanted to say, Lisa, that this blog is something that has transformed over the few months that we’ve been writing it. I’m really excited to accept feedback from all readers and to discover more ways to include various data points into research and just to continually speak with more founders to get more perspective and share all this information.
Lisa Calhoun
Well said, and if you’re a founder out there building a software startup, please let us know how you’re doing. Let us know what you’re doing. Let us know how we can help. It’s been great talking with you on the podcast. I look forward to our next weekly episode. William, have an awesome rest of your day.
William Leonard
Thanks, Lisa. Cheers.
Lisa
Thank you for listening to the Atlanta Startup Podcast. You know, we’re not just a podcast, we’re a community, and we’d love to see you at one of our digital or physical events, go to valor.VC and sign up for an event that makes sense for you. We have events for founders and the investors who back them. Another event you might enjoy is Startup Runway. The Startup Runway Foundation is a Valor organization that provides $10,000 grants to founders who are women or people of color building next-generation software products. Applications are free and we’d love to hear from you at startuprunway.org. And as always, thank you so much to the organizations that make this podcast possible. Not only Valor Ventures, but also Write2Market, a tech marketing and PR agency in Atlanta, Georgia, and the Startup Runway Foundation and Atlanta Tech Park Valley’s headquarters, and also headquarters for over 100 local entrepreneurs, building global businesses. See you next week. Please bookmark the podcast and join us.
