With coronavirus news currently roiling financial markets, some might guess that recently launched venture capital funds would hold off on whatever they were planning a few months ago. But that’s not what Michael Cohn and Sean O’Brien, founder-operators of Atlanta-based early stage venture capital firm Overline, have decided to do.
Overline is a generalist fund that intends to make capital commitments between $1 million and $1.5 million across a variety of industries, focusing its seed-stage business investments on companies based in Atlanta and the Southeastern U.S.
Having launched in 2019, Overline recently announced the initial closing of its Overline Seed Fund I LP, with $17.5 million in commitments toward a target of $25 million, which it expects to reach this summer. Atlanta-based Mailchimp is an anchor investor, with additional investment from Cox Enterprises, Hallett Capital, Atlanta Tech Village founder David Cummings, and Techstars co-founder David Cohen.
Cohn is an Atlanta startup scene veteran who founded Cloud Sherpas and served as managing director at Techstars Atlanta for its first three years. O’Brien, who transitioned from equity research and hedge fund management on Wall Street to M&A for a local technology company, is a highly successful investor with advisory roles at a slew of companies, including BigTeam, Vital4 and others.
The two founder-operators expect to make most of the fund’s investments in Atlanta and the Southeast.
“If we could deploy 100 percent of our fund in our backyard of Atlanta, we’d love to do that,” Cohn says. “We’ve heard it from startups in Charleston, Nashville, Chattanooga, Birmingham, Tampa and so forth. Our plan is to deploy half the fund in Atlanta, and a quarter of the fund in the region. We have the flexibility to chase great deals wherever they may be, so long as it doesn’t exceed that last quarter of the fund.”
“We know there is a steady stream of phenomenal founders and great businesses coming out of Atlanta and the Southeast,” O’Brien says. “We want to create an institutional source of capital for them at the earliest stage of development. In addition, the experience Michael and I have had personally, of leaning in and helping founders with their success, is going to be a big part of how we operate in support of our companies.”
Like other venture capital funds, Overline looks first to founders as a way to determine investment opportunities. “This isn’t something you’re not going to hear from other VCs,” Cohn admits. “We’re looking for great, exceptional founders — somebody who is gritty, and who has an authentic connection to the problem they’re trying to solve.”
Cohn mentions Atticus LeBlanc, CEO of PadSplit, as one such exception. He says LeBlanc passion about solving the affordable housing crisis keeps him up at night and borders on obsession. PadSplit is one of Overline’s portfolio companies, along with Boston-based UptimeHealth, which tracks medical device compliance.
Cohn also says Overline is also looking for nearly complete founding teams who can execute due to the existence of strong business and technical acumen. He also looks at progress made by founders between each time Overline meets with them.
He references the famous blog post “Invest in Lines, Not Dots” by Mark Suster, and says that he expects that upon each follow-up meeting he takes with portfolio companies, there has been “steep slope” progress. It’s important that these companies are performing well before Overline makes an investment, he says, because Overline is looking for tenfold returns.
“In order for that to happen, we’ve gotta be in really big markets,” he says. “We’re not looking for niche opportunities.”
“We’re straightforward guys,” O’Brien says. “We’re not trying to trick anybody. We like founders who can have honest conversations, and ones that are open to the feedback we want to provide them. Everything else would be just making sure the fundamentals are well, even moreso than before this whole COVID situation, and the impact on the economy and what will surely be a capital slowdown.”
Yes, O”Brien and Cohn are aware that spring 2020 is different. But they also feel well-positioned to not simply get through nervous economic times, but to succeed and help portfolio companies do the same.
Just over a week ago, while being interviewed over Zoom, O’Brien cautioned that he didn’t want to be dismissive of the actual pain that people across the planet are experiencing with coronavirus and its economic ramifications. Yet, he also stated that it was not something that negatively affects Overline’s potential for success.
“As it relates to our fund, we think that this is literally the best time for launch,” O’Brien said. “Historically, if you look, the best time to start a business is in a recession … We think that having fresh capital, in addition to everything else we bring that’s differentiated at Overline, is going to be a great combination. We think it’s a great time to have a fresh fund with a fresh perspective.”
Despite the COVID-19 crisis, Overline has also already announced the completion of its first investment, in Spaceship, an Atlanta-based software delivery platform for early-stage SaaS companies.
O’Brien says he and Cohn will also leverage their “massive” networks to introduce Overline-affiliated companies to talent, customers, partners and future funding sources. Overline will have an Operating Partner Network resembling Techstars’ volunteer mentor program, where founders were guided by established tech leaders.
“We’ve seen some magical things happen, but a lot of times those relationships would fizzle out,” Cohn says of Techstars’ mentor-founder connections. “So we’re taking a page out of that playbook and adapting it a bit.”
Cohn says he wants to recruit the very best operators in Atlanta, from engineering to product, go-to-market leaders, CEOs and founders. These advisors will have the opportunity to earn equity through their efforts to help startups find proper direction and success. This, he says, will help create more effective advisory boards at companies in which Overline invests.
“Even something as contrarian as having them avoid the same pitfalls that they themselves stepped into because they had an unsuccessful business, the ability to have a sounding board of experienced professionals that have done it before, we think will help them create an unfair advantage, avoid sideways energy, hurdles and missteps, and accelerate the time and success probability for the business.”
O’Brien says this approach is very common on the West Coast, but will be a big differentiator for Overline when it comes to portfolio companies in Atlanta and the Southeast.
“It’s important to us that the model supports good, fundamental, free cash flow conversion in the definable future,” O’Brien says. “We’re not interested in these voracious consumers of capital that have defined the last decade of venture. We’re looking for good business models that provide deep value to customers. And ultimately, high margins that are capital-efficient.”
“We’ve seen companies leave Atlanta and go to the Valley or other markets where their investors are. We don’t want to see that happen. But worse, when a company from out of town invests in a company in Atlanta, and is successful, all the exit proceeds leave town.
“We’re really trying to change the narrative here,” Cohn says. “We want to see everything coming out of Atlanta and the Southeast.”
Visit Overline at Overline.vc.
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