Atlanta Startups Seek Silicon Valley Cash

As someone who spends more time reading venture funding data than any human should, one trend that’s long stood out is the comparative paucity of capital going to companies in the Southeastern U.S., and in particular, Atlanta.

Last year, companies in the Atlanta metro area raised $374 million in venture funding, according to Thomson Reuters. On the face of it, that doesn’t sound like a bad chunk of change. However, it’s still less than 4% of the $11.6 billion that went into companies in Silicon Valley – a region that, setting borders generously, might have about 6 million people, compared to about 5.3 million for the Atlanta metro area.

That’s one reason I was interested in attending the West Coast business demo this weekby Flashpoint, a startup accelerator program launched last fall by Georgia Tech. With the first class of 17 Atlanta metro area companies close to wrapping up an intensive few months of training, the group flew out to Silicon Valley, where they put on highly practiced 4-minute presentations before a gathering of venture professionals in the Sand Hill Road offices of Andreessen Horowitz.

At least one of the companies – Pindrop Security – has already scored some Silicon Valley funding, with an investment from Andreessen Horowitz. CEO Vijay Balasubramaniyan, joking that the company should appeal to investors who base their decisions on the length of the founders’ last name, said Pindrop is seeking a $1 million seed round, and is about halfway there. Another, cloud security provider Social Fortress, has a $2 million term sheet in progress.

Most of the companies presenting – which included Trimensional, a 3D scanning technology developer, CollectorDash, a collectibles marketplace platform provider, and Soket, a developer of tools for managing local business services, were seeking sums ranging from a few hundred grand to a million dollars. In addition to the money they hope to raise in Silicon Valley, they also have access to a fund backed by Atlanta area angels that will invest exclusively in Flashpoint companies.

It’s hard to pick out a trend for companies, as they’re from all different sectors. However, one contrast that struck me about Atlanta-sourced deal flow, compared to Silicon Valley, is that there’s a bit heavier representation of what one might call the “accidental entrepreneur.’ That is – someone who developed a technology and then saw a market, rather than they the other way around.

For instance Grant Schindler, Trimensional’s founder, is a research scientist in the computational perception lab at Georgia Tech who developed an iPhone app for scanning images in 3D. At 99 cents, it turned out to be a popular app for face scans and other uses, and generated around 50,000 downloads, as well as a stream of inquiries for Schindler from people in industries ranging from entertainment to healthcare interested in discussing potential applications for the technology. At Flashpoint, Schindler has worked out a business model around the technology and is planning to target first the entertainment industry, which he believes could use his technology in film marketing.

Overall, trekking out to Silicon Valley isn’t an essential for Atlanta startups to secure funding, say people working with the program. But it does help. Companies in Atlanta region have a bit of a challenge finding early-stage funding, says Keith McGreggor, director of Georgia Tech’s Venture Lab. The supply of angel funding is a bit more robust, he says, but that’s not exactly flowing in the streets either.

For those who develop into growth-stage companies, there’s evidence that investors will travel to back companies that stay stay local. The largest Atlanta area venture-backed deals of 2011, for instance, all attracted investors from the Northeast, and sometimes farther. Sunviva, a maker of silicon solar cells, raised $94 million in a March round backed by New Enterprise Associates, Quercus Equity and Warburg Pincus. Cardylytics, a provider of banking rewards systems, raised $33 million in a September round backed by Canaan Partners, ITC Holdings, Kinetic Ventures, Polaris Venture Partners and TTV Capital. JouleX, a provider of enterprise energy management systems, raised $17 million in a June round backed by Flybridge Capital Partnes, Intel Capital, Sigma Partners, Target Partners and TechOperators.