Accelerated technology adoption and record levels of investments after the coronavirus pandemic have fueled the growth of Southeast innovation hubs, according to Panoramic Ventures State of Startups in the Southeast 2021 report.
In the first half of 2021, the Southeast saw just over 900 deals at a value of more than $8 billion. That's on pace to surpass 2020's deals — about 1,600 transactions valued at $10 billion.
"Atlanta is the tip of the spear," Panoramic Ventures General Partner Mark Flickinger said. "It's leading the Southeast, not benefiting from the Southeast's growth."
The report covers five-and-a-half years and includes data from primary and secondary research as well as interviews with investment firms, professional service providers for startups and entrepreneurs.
Here are three major trends emerging in Atlanta.
'Decades in the making'
The capital that Atlanta companies are raising is a testament to a maturing innovation ecosystem.
The city is a prime location for technology companies. It has a diverse pool of talent from the university system and Fortune 500 companies, a network of incubators and accelerators, strong logistics and travel infrastructure and a low cost of living.
The Georgia Institute of Technology has notably driven much of this development. The university created Tech Square, an innovation district in Midtown that's the heart of the city's technology development. It hosts the state's Advanced Technology Development Center incubator, which has spent the last 40 years coaching and growing startups and many other tech entrepreneurship programs.
"The foundation of what is going on in Atlanta is decades in the making," Flickinger said. "Atlanta now is certainly in the top 10 — possible top five — of innovation cities."
Mega deals
Georgia trailed Florida and North Carolina for the total number and value of deals between 2016 and the first half of 2021. But the state saw the most "mega deals," which are $80 million or more.
Calendly, SalesLoft, Flock Safety, FullStory and Stord all raised mega deals this year, bringing their valuations up to above $1 billion.
The increase in mega deals demonstrates the success of early-stage resources available in the city. Companies usually start raising these types of rounds after years of sustained high growth. An exception is local restaurant QR code startup Sunday, which raised $100 million five months after its launch.
Georgia also has the most $1 billion companies in the Southeast at eight. Florida and North Carolina follow with six and five, respectively.
The pandemic also shifted investor preferences, according to the report. More deals are going into tech-enabled services, which include cybersecurity, financial technology, healthcare information technology and software-as-a-service.
Those industries are prevalent within Atlanta's tech ecosystem. The city is a nationally recognized fintech leader and has a strong reputation in cybersecurity as well.
High valuations
Valuations of Southeast startups have risen over the past four years, according to the report, which reflect a national trend.
But Southeast startups have seen a nearly 50% increase, more than changes in the Bay Area, New York and Boston. Part of that growth is the Southeast trying to catch up to already established innovation hubs.
"The valuations that we're now seeing in the Southeast are your average valuations," Flickinger said. "It's still maturing as an ecosystem."
Flickinger says those valuations may retract some, but he doesn't see them returning to the level they were five or 10 years ago.
The private market has more investors than ever before, so venture capital and private equity firms need to deploy that capital. The supply of promising companies has remained relatively stable, Flickinger said, meaning the companies have more leverage over investors, raising their valuations.
