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’99 vs. ’14 | An on the Field Perspective

by Tricia Whitlock

For every fledgling startup I come across is another that has just secured venture funding, expanded their workforce exponentially, or landed a major partner. Amid the chest bumps and high fives there has been rumblings of “this seems is too good to last” and “are we headed for a bust?”

Not sure if we should forge full-steam ahead or cash in our equity for gold, I sat down to talk it over with John Yates, the chair of the Technology Group at Atlanta-based Morris, Manning & Martin, LLP (a firm that represents entrepreneurs, private/public tech companies, and business services companies). Yates has been in the technology law field for 30 years and he knows this sector and region inside and out. I asked him for his perspective on Atlanta’s current technology ecosystem and how it compares and contrasts from the dot-com bubble of 15 years ago. Here’s his two cents:

1999- “The tech market was as dynamic as it has ever been.”

Yates describes the late 90’s dot-com boom as a “disequilibrium.” A time fueled in Atlanta by an amazing increase in the number of venture capital funds willing to invest in early stage companies with significant dollars. Those funds were modest in size and involved a lot of financial executives that didn’t have venture experience, but wanted to participate in the internet craze. There was also an increase in the number of investment bankers involved in technology investing. Alex. Brown, Robertson Stephens, Montgomery & Co., Hambrecht & Quist, or “the four horseman” as Yates refers to them, were focused on middle market tech IPOs and they each had an office in Atlanta at the time. At the peak there were 8 IPOs within a 16/18 month period.

The heavy emphasis on early stage tech companies led to an over inflated and hyper valued market. As a result you had a lot of companies that were closer to a plan than an actual business. “All of a sudden entrepreneurs believed that all they needed was a PowerPoint and an executive summary to raise money,” Yates adds. The companies needed more capital to scale then they had initially raised. So when the market tanked and the venture funds evaporated they didn’t have a chance at success.

2014- “A sane, civilized, and organized time.”

Today is a much more rational environment. What is missing from the ecosystem that was here in ’99 is the investment bankers. He describes the funders now as “boutique banks” with highly experienced venture funders and more stable funds to cut larger checks. Yates also stresses that the amount of innovative technology in Atlanta is attracting outside money here from Northern Virginia, New York & the Valley because “they see the southeast as a ripe territory to enter.”

The days of the all powerful PowerPoint are long gone and companies have to focus on being lean and bootstraping to make it to Series A. Yates adds that getting to Series A is harder now then ever, but once you’ve proven your model the funders “are drooling over the opportunity.”

I asked Yates for the secret sauce of success to thrive in our time and market. His advice…

  1. As quickly as you can get a solid customer base, focus on pilots, and consider giving away services and partnering with larger companies.
  2. Be prepared to round out your management team with some successful and seasoned entrepreneurs who have raised money before.
  3. Acknowledge that you can run out of capital. Be very careful and have a strong financial officer (possibly a fractional CFO) to make sure that there is always fuel in the tank to keep growing.

More on Yates: Mr. Yates co-founded and has been a Board member of leading tech organizations, including the Southeastern Medical Device Association, Southeastern Software Association, Technology Association of Georgia, Technology Executives Roundtable, and Atlanta CEO Council. He serves on the Board of the Metro Atlanta Chamber, co-chairs its Technology Leadership Group, and chairs its political action committee. He was inspired to practice technology law after visiting California in the early ’80’s to see his sister who started a tech company there. Knowing that he wanted to build something from the ground up he came to the southeast drawn in by the educational offerings and thriving business community.

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