Georgia on My Mind (or at Least Atlanta)

By John Cambier, Managing Partner

As we discussed in a recent post, IDEA Fund Partners’ geographic thesis is built around finding those key metro areas in the United States that have the right mix of ingredients, outcomes and competition. At the top of the list is our neighbor to the South, Atlanta.

With a population of just over 6 million in 2020, the metro Atlanta region is the second largest in the Southeast — just behind Miami-Ft. Lauderdale — and the 9th largest in the country. As importantly, it is the 4th fastest growing over the past decade among the 10 major metros in the country, having expanded its population by nearly 14% during that time. Atlanta has become a hub for TV, film, and music production, and continues to attract young, educated professionals looking for a dynamic and affordable city in which to put down roots.

Viewed through the lens of our proprietary “Talent Score”, Atlanta trails only 2 other cities — one of which is also on our target list — out of the 33 emerging venture hubs in North America that we track (#1 is Toronto). Our Talent Score looks at educational attainment, tech talent and job creation to determine those metros that have the right “raw material” to work with in forming and building great companies. Part of what attracts, develops, and retains this talent is the world-class education (Georgia Tech is the #8 engineering school in the US with 11 specialties in the top 10 and Emory University is ranked #21 nationally overall), and the plethora of large corporations headquartered in the region (16 Fortune 500 companies including Coca-Cola, Home Depot, Delta Airlines and UPS to name a few).

How about its “entrepreneurial spirit”? Well, of the 33 major metro areas that we analyzed from around the U.S. — including San Francisco, NYC and Boston — Atlanta ranked fifth in terms of the number of Inc. 5000 companies and 10th in terms of company formation generally over the last 5 and 10-year periods. In terms of momentum, Georgia has that going for it as well as business formation grew 7.1% between 2018–2019 as compared to California, where the number went down slightly. Initiatives such as Engage, which is backed by 13 of the Fortune 500 companies of the region, and ATDC, the technology incubator of Georgia Tech, have provided fertile ground for entrepreneurs to find mentors, partners and other founders to launch new businesses with.

Company formation is great but, as investors, we are ultimately interested in the outcomes attained by the universe of businesses in a region. Despite recent exits like Kabbage and unicorn funding rounds for Calendly, Rubicon Global and OneTrust, this is where Atlanta can do better. When looking at the numbers around aggregate exit values, average exit values and MOIC over the six-year period from 2013–2019, Atlanta falls just out of the top half among the 33 metro areas we’ve researched. If you look more deeply into the numbers though, one thing stands out: greater Atlanta has almost no Life Science activity and this sector delivers outsized outcomes to many of the regions analyzed, but WE DON’T INVEST IN THAT SECTOR.

Working in our favor is the relative dearth of local, early-stage capital. While Atlanta has seen some noticeable fund launches (Overline VC) and firm growth (BIP Capital ) over the last couple of years, the area has less early stage $AUM than Raleigh-Durham, an area less than one third its size. If one compares the early stage $ per capita with Seattle, for instance, you will see that Seattle has 10x the amount of resident capital going after deals. We would rather fish where we’re less likely to tangle our lines.

There are several additional factors that make Atlanta a relevant focus area for the firm, starting with the fact that we’ve been investing in the market for 7 years and have developed some meaningful connections in doing so. Second, as mentioned a couple of times in this post, the city of Atlanta has seen (and continues to see) strong growth in its business opportunities and population and is a hub for young professionals in the Southeast. Lastly, Atlanta has a vibrant and growing community of black artists, entrepreneurs and professionals, presenting our firm with a great opportunity to find and fund founders from a group that is often ignored.

IDEA Fund Partners is one of the oldest and most active early stage VCs headquartered in the Southeast United States.