Atlanta entrepreneurs have an advantage as investors pull back from startups, said longtime entrepreneur and investor Paul Judge, because that’s their natural habitat.
In the past few months, investors have traded a typical growth mindset for a focus on profitability. That's caused startups to raise less venture capital, prioritize revenue and cut operating costs. Valuations have also fallen.
Atlanta entrepreneurs are used to smaller funding rounds or none at all, Judge said. A lack of locally available capital is often cited as a weakness to the city's growth as a startup hub. Most of the large funding rounds of last year — a record time for capital infusion in Atlanta and nationally — came from out-of-state firms.
“Compared to New York or Silicon Valley … we’re in an environment that Atlanta entrepreneurs have been in for decades, which is a capital-constrained environment," Judge said.
Atlanta has just over 30 venture capital firms headquartered in the city, according to data from VC research firm Different. That's compared to the hundreds found in San Fransisco, New York, Boston or Los Angeles. Plus, Atlanta fund sizes are lower than its peers, including Austin and Miami.
Benefits of bootstrapping
For the right type of startup, capital constrictions can fuel powerful growth, Judge said.
There won’t be as many competitors, talent will be easier to acquire and companies will be able to do more consolidations, he said.
For example, email marketing giant Mailchimp, founded in the dot-com crash in 2001, grew to 1,200 employees without ever raising money. Last fall, Intuit bought the company for $12 billion.
Scheduling startup Calendly, founded in 2013 with a $550,000 seed round, grew to $70 million in revenue with no other funding. Last year, it raised $350 million and hit a $3 billion valuation.
For people feeling anxious about the current economic slump, Judge advises not to get back into growth mode too early.
“We need to make sure we can endure and strengthen our reserves," Judge said. "We need to focus on not coming out as a victim of the environment. Never celebrate too early. Let’s take that momentum but keep our heads down.”
'Fuel to get to your destination'
Judge, a partner and co-founder of local venture capital firm Panoramic Ventures, helps his portfolio companies navigate uncertain conditions by setting up conversations on what adjustments need to be made in order to have enough money to stay in business.
While valuations have founders worried about their future, Judge says companies should take the long-term view.
“The exact valuation of a round is not an ultimate measure of success, it’s about if you have the fuel to get to your destination,” said Judge. “Now, it's the opposite where we say, ‘Don’t be too concerned with the current valuation for a fundraise, it's just filling up the tank.’”
Panoramic Ventures aims to fund underrepresented founders and regions. The firm has invested in Atlanta companies including mobile testing platform Kobiton Inc. and cybersecurity risk management platform FortifyData.
Judge started his career right before the dot-com crash and has become a mainstay in the Atlanta tech ecosystem. He served as chief technology officer for multiple companies that sold to larger entities. He's also the co-founder of incubator and venture capital firm TechSquare Labs and global computer security company Pindrop Security.
