You don’t want to underestimate Atlanta.
The southern city has historically been known as “Transaction Alley” because an estimated 70 percent of all payments transactions are handled there. It’s also known for being home to 16 Fortune 500 companies, including The Home Depot, United Parcel Service (UPS), and The Coca-Cola Co., among others.
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But these days, Atlanta is working on being known for something else. The city is quietly building up a startup environment that local industry players hope will one day rival those of other metro areas when it comes to funding (and exits).
Let’s Take A Look
The startup scene is growing, as evidenced by the increasing number of companies working out of Atlanta Tech Village. The self-described “tech hub” has led to the creation of more than 6,500 jobs and has helped raise over $900 million in funding since its inception in 2013, according to vice president Karen Houghton. The village ranks among the top five largest tech hubs in the nation, housing over 1,100 people and more than 300 startups, she said, based on its own research.
“At Atlanta Tech Village, one of our big goals is to make Atlanta into a top five tech city. A few years ago that seemed almost impossible,” Houghton said. “Today, it is a reachable and achievable goal. We think the Atlanta ecosystem is on fire.”
Georgia Tech, a steady source of potential talent for the startup community, is located in downtown Atlanta. The city is home to dozens of funds and accelerators, according to Startup Atlanta. Plus, it hosts two major VC conferences a year including Venture Atlanta, a gathering of more than 1,000 entrepreneurs, investors, leaders, and students and Pitch Atlanta, an exclusive, invite-only event connecting entrepreneurs and investors.
And venture funding is flowing into the area; however, Atlanta is rarely mentioned when you hear people talking about up-and-coming startup communities.
So far in 2019, venture capital funding in Atlanta totaled an impressive $1.1 billion, thanks in part to OneTrust’s massive $200 million Series A round during the third quarter, according to Crunchbase News’s analysis of known and reported deals. (The company claims to have seen 22,000 percent revenue growth in 2018.) Other notable deals closed during the year include SalesLoft’s $70 million Series D and a $54 million Series B by Greenlight Financial Technology, which markets a smart debit card for kids that parents manage from their phones.
The sum is notably already higher than what was raised in the city during all of 2018 ($932.5 million), according to Crunchbase. The $811 million raised in the first half of 2019 is a record in terms of dollars raised by Atlanta startups in the first half of a year, according to Crunchbase. And, relatively speaking, over a $1 billion in funding raised by one city alone is legit.
This week, Atlanta-based Valor Ventures, which describes itself as “the first woman-led venture capital firm in Georgia,” announced the first close on its second fund in which it has raised just over one-third of the planned target capital amount of $25 million.
So what’s it going to take to boost Atlanta’s profile as an emerging tech hub? We spoke with some tech folks in the city to get their perspective on what’s driving innovation and growth in the area, and what may be holding it back.
The presence of Georgia Tech likely has something to do with the startup funding growth the city is seeing. (Did we mention that the institution’s computing college has a number of on-campus startup programs?) But it’s not the only factor at play.
Twenty-six companies headquartered in metro Atlanta are among the 2019 Fortune 1000, of which 16 companies ranked in the elite Fortune 500. In fiscal year 2018, these 26 companies generated aggregate revenues of $415 billion, according to the Metro Atlanta Chamber.
What does this mean for startups? More dollars and potential customers.
Atlanta-based Engage Ventures, for example, describes itself as “the largest grouping of strategic corporations in a venture fund.” Limited Partners (LPs) include AT&T, Cox Enterprises, Delta Air Lines, Goldman Sachs, The Home Depot, Invesco, and UPS, among others.
According to its website, Engage’s portfolio companies have access to the fund’s growth program, which it offers twice a year in Atlanta. “Founders work closely with the Engage team and executives within its LP/partner corporations to refine their go-to-market strategies and focus on building strategic relationships leading to distribution and scale,” the fund said.
In particular, it backs companies that “have already found product-market fit, have raised seed funding, and have existing revenue traction.” Engage describes itself as “early-stage agnostic,” with incoming startups having had anywhere from $500,000 to $25 million in prior funding.
In an email, the firm told me that in two years, Engage has helped its portfolio companies sign 55 enterprise contracts. “And since joining Engage, our portfolio has now raised over $300 million in additional funding, with co-investors like Revolution’s Rise of the Rest, Susa Ventures, Kleiner Perkins, and others,” said spokeswoman Holly Beilin.
“Five years ago, it was a much less organized ecosystem,” he told Crunchbase News. “But it’s gotten tighter these days. Anyone who wants to startup in the city knows where to go.”
Rise of the Rest made a stop in Atlanta in 2015 for its third road trip. The winning company of the pitch competition held that day was Atlanta-based PartPic, which had its technology acquired by Amazon. Co-founded by Jewel Burks, a black female entrepreneur, the acquired company is an example of the diversity of the city’s founders, Hall noted.
Other Atlanta-based startups that Rise of the Rest has backed include Stackfolio, an online marketplace for loan trading, Stord, which aims to “unlock” warehouse capacity and pricing to improve retailer supply chains, and Hermeus, which engineers and manufacturing Mach 5 aircraft for defense, private, and commercial markets.
The talent pool comes from the higher education institutions close by including Georgia Tech, Emory University and Morehouse College in addition to the number of people who decide they want to take a leap from the corporate world into the startup scene. Hall credits this availability of talent with Atlanta’s appeal.
“There’s no greater success metric than a company, and city, getting on the radar of these coastal funds,” Hall told Crunchbase News. “As much as we consider them competition, it’s still so great to have them as part of the ecosystem. And really, that’s how the flywheel starts. They come in and start recognizing other opportunities in a city.”
Steve Chamberlain is an Atlanta-based entrepreneur and early-stage investor. In addition to co-founding Turner Home Entertainment, he’s invested in about 30 companies (90 percent of which were Atlanta-based) including WebMD, Vitrue, Insightpool and Springbot, over the past two decades.
To Chamberlain, Atlanta is the tech hub of the South.
“We have superior educational institutions that supply cutting-edge technology talent,” he said. “Plus, the substantial lower cost of living is a big advantage. And Atlanta has long been a place that embraces diverse cultures.”
These days, Chamberlain believes that the early-stage investing scene in the city is often more crowded and as such, he’s moving to later-stage ventures where “the risk is not as intense.”
Jamie “James” Hamilton, managing partner of Atlanta Seed Company, acknowledges that Atlanta has always had a robust angel community but was lacking in firms that could invest just past those angel/family and friends rounds. His firm looks for opportunities where it can “take an early bite of the apple” through a fundless sponsor model. It works with about 100 high net worth individuals as LPs and rather than asking them to pledge to a blanket fund, Atlanta Seed gives each investor the option of coming in on, or passing on, individual rounds.
“The great thing about Atlanta is there are a lot of different smaller hubs forming (within the city) and they’re not competitive with each other,” Hamilton told Crunchbase News. “Each have their own identity and are actually very complimentary.”
And this is where I’m left. The scene is rich, the community is diverse and the data backs up the fact that Atlanta is growing. But it’s not perfect and in our part two (which will publish on October 3), we will look at some of those challenges.
Illustration: Dom Guzman