November 16, 2017



Atlanta and Southeast Getting More "At Bats" for VC Investments

(c) Trusted Counsel (Ashley) LLC. All Rights Reserved.

(c) Trusted Counsel (Ashley) LLC. All Rights Reserved.


Speaker 1:                           It's time for In Process, conversations about business in the 21st century, with Evelyn Ashley and John Monahon, presented by Trusted Counsel, a corporate and intellectual property law firm. For more information, visit trusted-counsel.com. And now, with In Process, here are Evelyn Ashley and John Monahon.

John:                                  Hello and welcome to In Process, conversations about business in the 21st century, presented by Trusted Counsel, a corporate and intellectual property law firm. I'm John Monahon.

Evelyn:                               And I'm Evelyn Ashley.

John:                                 We are partners in Trusted Counsel.

Evelyn:                              John, here we are to talk about investing. We've done a lot of these this year.

John:                                Yes, we have.

Evelyn:                             It's a big topic for most of the clients that we're working with.

John:                               Yeah. We represent both investors and, of course, a lot of technology companies bringing in investments. We've done one on term sheets, and so this is an area that we're really interested in.

Evelyn:                            Yeah, and our clients are absolutely interested in.

John:                               Yeah, and today we're particularly lucky, because we have Mark Buffington, CEO of BIP Capital, and he's written a very interesting report, the State of Startups in the Southeast. He's a venture capitalist, so he knows this and luckily he's in Atlanta, which is even better. And of course, Atlanta is the capital of the southeast, as we all know, so he's written a very ...

Evelyn:                             Well, that's what we know. Not everybody else does, so this is good.

John:                               Oh, that's right. Maybe Charlotte doesn't know it. But they've written a very interesting report, which actually I can't wait to ask him some questions about. But let me give him a quick introduction. Mark is the co-founder and CEO of BIP Capital, a leading investment firm in Atlanta, Georgia. He has brought experience as a successful entrepreneur and investor in venture companies. He is widely considered to be among the southeast's best venture investors. Notable deals as a lead investor include Vendormate, Ingenious Med, and PlayOn! Sports. Notable deals as an angel investor include Bright Whistle and Pindrop Security. Mark, welcome to the show.

Mark Buffington:              Thanks for having me.

Evelyn:                            Great to have you here. So Mark, tell us a little bit about BIP Capital.

Mark Buffington:             Yeah. We call it “B” “I” “P” Capital, but we are ...

Evelyn:                           Oh come on, you know everyone calls it "BIP."

Mark Buffington:             I bet a lot of people call it "BIP Capital." So we founded it in 2007, after I spent a decade out west in San Francisco. I was kind of an angel investor there. I could tell you this grand story about this plan we had to build this large venture capital in a kind of second-tier innovation city like Atlanta, but that wouldn't be true. We've had this amazing snowball effect and we've captured a lot of trends that we kind of only loosely understood 10 years ago, but today have put us in the position of being the most active venture capital firm in Atlanta and really in the southeast.

Evelyn:                           So were you from Atlanta originally? Is that how you ended up coming here?

Mark Buffington:             Yeah, from Atlanta originally. Went to Georgia Tech, played baseball there, figured out pretty quickly that wasn't gonna be a career, so my dad told me I better hit the books, that I'd seen what pro baseball players really look like. So I did. My background is through mathematics and through a couple twists and turns I wound up out west running a hedge fund and made a little money and just started making angel investments almost because you can't be in the Bay Area and not make angel investments, and fortunately a couple of them hit really big and I looked at my wife and said, "This is a way better way to make a living than staring at a computer screen all day." So I started making it more and more a part of what I did every day, and then when we moved back to Atlanta, we had a child and said, "San Francisco's a hard place to raise a child," and we had kind of the financial means to be where we wanted, so I transitioned my career then and it's been tremendous. The first two investments we made when we got to Atlanta were ... You mentioned some of the older investments, Vendormate and Ingenious Med, but those ended up being 18x and a 14x return respectively, so I kind of figured, "Whoa, wait a minute. It's a lot easier to make money in a city like Atlanta than it is in San Francisco and fighting it out for deals and quality deals." Kind of the rest just has snowballed from there.

Evelyn:                           So has that followed through for you, that whole idea of, it's easier to make investments here and get that returned?

Mark Buffington:             It is. I think it's more complicated. I think you have to have different expectations. I think there are challenges in Atlanta or in investing in a market, we call them second-tier innovation cities. That doesn't mean they're second-class citizens. Really they're building world-class companies, it's just not the same volume, not the same number of investors. So the challenges are different. I think in Atlanta the big challenge is, for example, a difference between Atlanta and San Francisco would be that in Atlanta, finding follow-on capital, like maybe you invest in an early-stage deal, what we would call a seed or a traction-stage deal, you invest in that deal and you've got something, finding that 20 million dollar check to go build a global enterprise that maybe has a goal of exiting for seven or eight hundred million dollars, that is a tough check to find in Atlanta. We just have not matured enough as an ecosystem here to ...

Evelyn:                                 ... have that next level of funds.

Mark Buffington:             ... to have that next level check, exactly. On the other hand, there are plenty of solid deals here. Now, I say "solid deals," the one thing that's universal about San Francisco or Boston or Atlanta or any other city, everything in the venture space requires nurturing. It doesn't matter where it is. Some firms will claim that they can help compress time and accelerate these companies better and be more efficient with the capital, and that's probably true for some firms. We focus a lot on that. But all that said, no matter where you are, these are tough to build and you're gonna have to pivot multiple times and you're gonna have to work with management teams that are nimble, that can take the stress of the ups and downs, because you will get knocked down a lot in the space. But I think the difference is that getting quality swings of the bat in, let's say Silicon Valley or San Francisco, is, despite the much larger number of deals, there's also like four or five hundred venture funds and everybody there is an angel, and so ...

Evelyn:                            It's very very competitive to make an investment.

Mark Buffington:             It's extremely competitive to find the deals and you gotta be networked the right way. So I'd say that there are pros and cons on both sides. I think the net effect of that, in my mind is, in a city like Atlanta, your batting average as an investor is going to be higher, but maybe the magnitude of your wins is not going to be as large. We're just not trying to build those types of companies yet, or we don't have the infrastructure, the pieces that are necessary to do that. But it's coming, and we're building it and there's a lot of people focused on this challenge, so ...

Evelyn:                            So does BIP Capital focus on Atlanta as a geographic area, or is it more the southeast, or is it national?

Mark Buffington:             That's morphing as well, as we raise more and more capital and get larger and larger. At some point, you have to fish in more ponds. That said, historically, 93% of the deals we've done have been in Georgia. I think 78% of those have been in Atlanta, but we've actually done a deal in Savannah, one in Augusta, one in Columbus. Incidentally, those are all going to be successful, so that's a ...

Evelyn:                            You know already?

Mark Buffington:              Well, yeah, just where they are.

Evelyn:                            Okay.

Mark Buffington:              I mean, we're gonna make money. I can't tell you the magnitude of the win, but two of them are throwing off cash and still growing at a healthy rate. One of them we have in an M&A process right now, and that's gonna be a very successful outcome. So yeah, it's interesting, our willingness to look in places like that really has been a huge feather in our cap. It's delivered big time.

Evelyn:                            And so, are the companies that you're investing in, are they technology-based businesses primarily, or ... Talk to us a little bit about profile. What you're looking for as an investor.

Mark Buffington:             Yeah, absolutely. As we've matured and been at this for a while, we've gotten much more focused on this. When we first started this ... So a little background. I did four deals in San Francisco as kind of an angel, three of those were wildly successful. I always say the fourth one was kind of a lesson in everything you never wanna be involved in.

John:                              That's a good mix.

Mark Buffington:             It's painful. Yeah, it's a good batting average, right?

Evelyn:                            Yeah, it's a very good batting average.

Mark Buffington:             The first two deals I did when I came to Atlanta were huge home runs, not to be boastful at all, but then ... so you start thinking like, "Oh, I can make anything successful."

Evelyn:                           "This is easy."

Mark Buffington:             "This is easy," and so there was a little vintage there where we got knocked down a little bit because we had mindset that we could just go in and fix anything and make it a good business. I don't think it was conscious, it was more subconscious, but we did. But now that we're 10-12 years into this or so, we're much more conscious about being focused on what we do, so to answer the question, we are focused on technology-based businesses that have recurring revenue model businesses in industries that we know well, and where we can bring operating talent to the mix. So we have huge networks there.

John:                              What's the dollar amount of investments that you're usually targeting?

Mark Buffington:             Yeah, so if institutional investors are listening to this, they won't like this answer, but we are a multi-stage investor. What that means is we break the venture world if you will into three different sectors, or buckets, if you will: seed, traction and growth. And that is really a function of the maturity of the company, the amount of revenue it has, et cetera. Other metrics are things that we measure but ... So we'll invest as little as 100,000 to 500,000 down in the seed category and that's kind of mechanical for us, hence the mathematics background. Then between 500,000 and two million in the traction phase, and then up to 15 million in the growth stage, so we're really across the spectrum of life cycle for venture companies.

Evelyn:                           Interesting. We're gonna take a quick break, and when we come back, we'd like to continue to explore exactly how that happens, perhaps with co-investors or if this is BIP [inaudible 00:10:35] ... We'll be right back.

John:                             Welcome back to In Process. We are here with Mark Buffington, CEO of BIP Capital. Mark, you were telling us about your investment strategy. You were telling us how you have a seed, a traction and a growth, and sort of the dollar amounts that go with the various different phases that you're investing in. What's your investment strategy on that? Are you the sole investor? Do you co-invest? Do you usually lead the round? What's BIP Capital's position, typically?

Mark Buffington:             For better or worse, I don't know if this is like, we're control freaks or something, but we are best as a lead, so we've set out about building our business ... We're a platform company for accelerating venture companies, and so when you make those investments into, "What are the best ways to generate demand or sales process or customer success?" We run all sorts of seminars for our entrepreneurs on best practice in these areas and the like. When you make those investments, that doesn't really work if you're like the second or third person on the deal. You really need to be the lead, and so for whatever reason, we are always a lead. We have been in the past, we just don't do it anymore, we've been part of a syndicate but we just find it doesn't work very well.

                                      Our approach is, we say it's to be positively active, so we're not gonna be in the shorts of entrepreneurs, but on the other hand, we're there for them to help them solve challenges and problems that we've seen repeatedly, and having done now I think close to 70 investments and so they all kind of, in the oddest of ways, even if they have a slightly different business model or they're in a different sector, they kind of stumble and trip over the same things, and so we feel like if we can help them get through that more efficiently, that it's a great value add to them and they get to keep more of their company because they don't have to raise as much capital and we're happy because the capital we're putting to work is efficient. We're platform, so that means in general we're almost always a lead. You know, you never say "never" in this space, because you see different things.

                                      In terms of our approach, in 95% of the capital in any given fund we manage is invested into the traction and the growth stages. Traction's not particularly late-stage either, it's fairly early, so we see we're generally first institutional capital into a company, so series A, series B. We may have had a seed investment in that business, but we really look at the seed, so 5% of any fund that we invest goes into this kind of farm team, if you will. And we make roughly 15 to 18 bets out of any given fund, smaller bets, and it's a great chance for us to watch in diligence those companies over longer periods of time and really understand how that market will develop, and then frankly we cherry-pick the winners and then we unload on them once we think we have something special there.

                                     There's some tough nuance there. We have to avoid signaling risk, so one of the things we're really conscious of is, if we make those seed bets and then for whatever reason we decide not to follow on, it could potentially kill the company. In our last few funds, particularly the last one, we've started to cloak our investments in the seed stage, so we do it through other entities and other people. That seems to have worked well, but ironically some of our best investments have come out of the seed stage, so it's a big part of our program.

Evelyn:                          I continue to be fascinated by the concept that we're in, we're lead, we go forward. Does that ever create kind of a ... How will I put it? In the entrepreneur, in the CEO, an expectation that, "I don't actually have to go look for capital somewhere else because I can rely on ..."?

Mark Buffington:             Yeah, that's a great question. Again, we've done this a long time, and so we've gotten better at our craft as well. So in general, fundraising even for us is like an unnatural human act. Nobody likes to do it. But through time, we've learned that ... We say this kind of tongue-in-cheek, but we Mirandize our CEOs right up front, and we say ... If it's a seed stage investment and we're giving them $250,000, we say, "Look." We get on the same page about how long that capital's gonna last and what the goals are for that capital, including usually what the fundraising goals are at the end of that period of time. Nothing in this space ever pans out exactly like you think it will, but if you're reasonably close or we've uncovered some kind of unique angle so that we believe we can go build a big business, we will follow on, and we tend to be very clear, as clear as possible about that.

                                     So there's no guarantee that there will do follow-on investments, but we find like anything else in life, if we have really good communication about what we're collectively trying to achieve, that it makes for a very smooth transition. That's a great source of pipeline for us, and they don't have to get distracted going out on the road and raising capital, and I think as we've gotten older, we've kind of mellowed on this idea that we need to control all our best deals. I mean, we've kinda said, "Hey look, if you, Mr. and Mrs. Entrepreneur, wanna go out and you know we're here and we've got a check, but if you wanna find a partner that makes more sense because they have domain expertise or network, great, then we'll ride a little more coattails." So those are areas where we are more willing to kind of subordinate ourselves ...

Evelyn:                           Be flexible.

Mark Buffington:             ... in terms of not being the lead, if you will. A great example of that is, we were a big investor early in QASymphony, and then Insight Venture Partners came in, which are really more of a growth equity firm but they have "venture" in their name, but these guys have built huge globally-dominant companies in a number of asset classes and sectors and we thought, "What a great partner, so we'd be happy to subordinate ourselves." They've been a great partner.

Evelyn:                          There's nothing wrong with having a partner that actually helps you feel like, "Yeah, I am gonna get my return on investment, because we're willing to ..."

Mark Buffington:             And we're getting real bang for the buck or lift if you will. One plus one equals five in our mind, so that's a great thing and we're happy to participate in that. You bring up a really good point, and that is the delineating criteria for us is, money for good solid companies, even if they're venture bets is not that hard to find if you tell the story the right way, et cetera. So when we go into a syndicate or when we're willing to subordinate ourselves and kind of in the lead status, it is always about, "What quality do they bring? What network do they bring? What access?" If it's just money, we can solve that problem.

Evelyn:                          Right, that makes sense. So Mark, you mentioned a little earlier that you focus on certain industry areas that you feel like you have the most knowledge in, or your team does, so what are those industries specifically?

Mark Buffington:            Yeah, so we're well-known for being one of the better healthcare and healthcare IT investors, particularly in the east coast, but I think as much as the Bay Area kind of claims domain over everything, they're really not these dominant B-to-B players, particularly in healthcare and the like. So we're well-known for that. I didn't have a background in healthcare, but just through the first three or four investments I found, I realized ...

Evelyn:                           You learn it pretty quickly.

Mark Buffington:             You learn it really quickly, and we built this massive network of hospital executives and the like that invest in our fund. We just hired the head of strategy for Tenet to kind of augment our healthcare portfolio at BIP Capital, so he's moving from Nashville to Atlanta, so you build this network and all of a sudden you're like, in the thorniest of problems that our healthcare industry's faced, and so we're pretty well-versed after 10 to 12 years of this.

Evelyn:                           The ups and the downs, yes.

Mark Buffington:             We can do a whole segment on my opinion on the Affordable Care Act, but there's a lot of good and a lot of bad, by the way. So healthcare IT, enterprise, software as a service. We brought in Paul Laffaldano, who was one of the more prominent angels in town. We merged with his firm, Accelerant, because we loved his deal flow. Paul was an ex-executive at the Weather Channel, at Travel. He's been in a number of media plays, so again, we like to match up ... When we are in a city, we like to kind of invest in what the city does well, because we can find operating talent to help us run these. Atlanta's a huge media town, you had all those media ... You know, CNN ...

Evelyn:                              CNN, Turner, yep.

Mark Buffington:             ... Weather, Travel, Food Network, et cetera. So Paul's a perfect fit for that, and so he leads our media practice. We've started getting into more of the DevOps space, which is a software tools space. That's really a play on what we think Georgia Tech is producing in terms of quality of technologists, and our first bet in the space was QASymphony, so can't go wrong there. I don't know if you know, that's one of the top 10 fastest-growing software companies in the country, so lucky or good instinct, I don't know, but we found the right one. And we have another one that is much smaller and just getting started, called Cyprus, that is in that space, that we think is going to really really revolutionize the way software testing is done. They're focused on the automated testing space, so in other words, in continuous testing, so it essentially tests code in real time as the developer is writing the software, so highly efficient [inaudible 00:20:55]

Evelyn:                                 Wow.

Mark Buffington:                   Yeah, it's really cool software. Gotta figure out how to get it to market and create awareness, but ... So anyway, those are the spaces. We wanna do what Atlanta does well or the cities where we wanna operate do well. Nashville, Atlanta, et cetera.

Evelyn:                                 So when you find a company that you feel like ... Well, maybe let me ask my question a little differently. Do you find the entrepreneur or the CEO that you engage with first, or are you typically engaging through the company model? Or is it a combination of the two?

Mark Buffington:                   Yeah. All of these questions require long answers, so ...

Evelyn:                                 Okay, well, you're right.

Mark Buffington:                   It's a great question, because we've asked the same questions. It's a mix. What we've found by being so active in the marketplace is that we've built this loyal network of entrepreneurs that we've partnered with and backed and struggled with and problem-solved and whiteboarded, all those things. So a lot of times, if that's a good experience, and almost all of those had, even if you fail, hey we worked well together, we're gonna try it again. So they're a great source of leads and they tend to introduce you to the person. On the other hand, we've built a really large end user, end market network let's say, in healthcare enterprise and we'll just ask them point blank, "What are your problems? What do you need solving?" They'll tell us and then we kinda go on the hunt for it, so then in many cases we find the idea.

Evelyn:                                 Interesting. We're gonna take a quick break, and when we come back, we need to talk about the State of Startups in the Southeast.

Mark Buffington:                   Yeah, cool.

John:                                   Yeah, it's great. I read it, I thought it was really really cool. It had some great information in it. Just to tell people about it a little bit, it's a comprehensive overview of the venture capital and startup ecosystem in the southeast, and you guys really examined it over an interesting period, from 2012 to 2017, so that's pretty unique. I liked the length that you guys brought this over. Tell us about, what brought this about? What are some of the cool findings that you've had out of it?

Mark Buffington:                  Yeah, it started really more as a strategic exercise. We were trying to understand where opportunity was in the southeast, various cities, what was going on. If you're in the space long enough, you hear things that you believe to be true or not to be true and so we were kind of just saying to ourselves, "Let's explore some of that." Here, I'll tell you one anecdotal story. Somehow, in our third fund pitch, we were wound up in ... I won't name the name of the firm, but it's one of the largest financial firms in the world. Their minimum check size to invest is 50 million dollars, so our fund was gonna be 100 million. We're like, "We'll be half the fund, that's not gonna work." I saw it on the schedule, we were in New York and we were bouncing around all these offices. I was like, "Why are we going there? Well, maybe they have some emerging manager fund or something."

                                           So anyway, we show up there and literally the first question, the guy comes in and you could tell he's been doing it a while, he's disheveled ... and he comes in and he has our investor deck and he says, "Guys, great returns, but I have one question. Why the eff would I invest in Atlanta?" And so, I kind of paused. I was like, "Gosh, you know, I didn't come here to defend Atlanta, but we can tell you what we're doing." But it just ... Atlanta had not come of age. It really is, it's starting to get a national reputation now. I think we were three years ahead of our time there, or he was three years behind the times.

                                           But yeah, we wanted to kind of understand ... Really after that, I wanted to understand, "Okay, how much volume is happening in Atlanta versus in the Bay Area or versus in a Los Angeles or an Austin, Texas or what-have-you?" So we committed to do that exercise and the more we dug, the more we realized that like most things, institutional investors don't have it right. I'm sur I'm losing opportunity to take the funds from them, but I don't think they fully understand that-

Evelyn:                                 No, you're telling them about the opportunity that's here.

Mark Buffington:                   Yeah, there you go. Thank you. Yes. But that said, I think that for them, it's a safe bet to go with ... They're more concerned with not losing money as opposed to really finding opportunity. We are more interested in finding uncovered opportunities, so that was the exercise. So the deeper we got into it, the deeper we started to add dimensions to it like, "Well what's happening in the seed stage versus the traction versus the growth? And how much capital? What's the average valuation? Who's actually doing the investing in given cities? Who are the top entrepreneurs?" So there's a lot more behind the report that we just felt like people's eyes would roll back in their head if we put in the report. It was an amazing exercise, but it was strategic. That's how it started, and then we kind of said to ourselves, "Wait a minute. Some of this, we believe, is proprietary and people can go do their own homework, but we should share some of this and I think it tells a story about what's happening in various states across the region."

John:                                    And here in Atlanta, we think of Atlanta being the southeast ... Obviously it's in it, but we are not necessarily the whole southeast. You highlight some other cities that you think are great opportunities, or at least you highlight what activity is happening in there. What are the other cities of interest in the southeast for investing?

Mark Buffington:                   Nashville for sure, there's an interesting story there. Miami. Charlotte. Fairfax, Virginia. Birmingham is small but there's some high-quality companies coming out of there, surprisingly. If you look at the volume there's not a lot of them, but the quality is fairly high, given what we're seeing. Anyway, those are some of the cities in the southeast. Incidentally, we did the report across the country, so we did it region by region. We found some neat ... like Indianapolis is a great story. Columbus, Ohio is a great story. Detroit of all places is an interesting story, so there's really been a resurgence. I think like anything, with kind of the downturn of the auto sector, it took them 10 to 15 to maybe 20 years to get back on their feet, but there's a lot of cool stuff going on there, so that was an interesting finding as well.

John:                                   Yeah. What was the most surprising finding to you in the report?

Mark Buffington:                  Some of these I'm probably not gonna say for proprietary reasons, because I think there's certain things [crosstalk 00:28:11] Yeah, I'm trying to think, "What is the most interesting one that I wanna talk about?" These things kind of shift through time and it's unclear to us ... What we found as we went and looked at how investment is being made as a function of stage, is that money is now shifting to the later stages, at least in terms of aggregate dollars, and away from earlier stages. I don't have a scientific or an empirical reason for why, but what I could say is that in our interviews with people, it seems like people are saying that, "Hey, we're nine years into an economic expansion cycle. We are anticipating a recession at some point. Companies that are early and vulnerable, if they can't raise cash, are highly likely to experience losses, so therefore we're trimming our sales or our investments in the earlier stages and we're starting to rotate more towards later-stage investments."

                                           But again, to really prove that, we would have to do deeper empirical study, but it seems like that's happening. I guess the other trend is that there are more and more people claiming to be angels. In general there are more people, individuals, making investments in the asset class, so we think ... We are kind of at the cutting edge of that, because historically, most of the capital we've raised has been from individuals so we know a lot about kind of what drives their behavior and the like. So absolutely, the venture asset class is in the process of democratizing, so more people are coming into the space, but they're cutting smaller checks. So on aggregate, smaller dollars going in but more people are involved, so we sense that that's a big opportunity

Evelyn:                                 That's interesting, because the way that more people are calling themselves angels, and I guess, even just the construction of that sentence does raise for me ... There's lot of people that we have come across through the years that call themselves angels, and yet you don't really see them writing a check.

Mark Buffington:                   Yeah.

Evelyn:                                Which, you know, I'm not sure if that's a geographic thing, or if that's a national thing or an international thing. It's a curious way for people to actually provide access to themselves and notoriety in a way, but we've had that discussion of, "When are they gonna write the check?"

Mark Buffington:                  Yeah. I think what's most disappointing is how much time it takes for the entrepreneur to engage that angel who's not going to ever write a check. I think that's probably the most disappointing thing of it. It's very exhausting to raise capital, so you hope that the people that you're talking to will actually be cutting a check at some time.

Evelyn:                                Right. Or at least saying, "No, it's not for me. I'm moving on. You should move on too."

Mark Buffington:                 Right. I have two opinions on that. One, I totally agree, if you kind of took a static snapshot and you went to any angel group, particularly some of the larger one, they're doing their job. They're recruiting people to kind of learn about the asset class, and like anything else, if you're taking risks that you've never taken before, sometimes people will be cautious in the beginning and then they'll dip their toe in and then eventually they get accustomed it and they'll take more risks. So we've seen an evolution process but clearly if you were to go to one of these ... I won't name them, but if you were to go to some of the larger angel group meetings, you'll see people there that appear like they're voyeuring, but in our mind they're probably just figuring out how to dip their toe in and deciding whether they wanna do this. So we've converted a lot of those through our own exercises, but it's a process.

                                         I think, back to your point on ... and I get it, if you're on the other side of that, it probably seems like, "Why are these guys wasting our time? They're not gonna write a check." I think that there's a two-way street there. It's on the entrepreneur if they're not savvy enough to figure out, "Is this person I'm talking to really gonna write a check?" Because there's plenty of people that'll write a check, but they're wasting their time with people that won't? It says a lot about the entrepreneur. How are they gonna be in the sales process when they go to sell something? So I always ask, "Who are you talking to?" And sometimes they tell you, sometimes they won't, but you can tell those that are being strung along, that they probably ... that says something about them as well.

Evelyn:                              Right. That's actually really interesting, because I think an entrepreneur, one who needs to have passion and the drive, and yet is fearful of the answer that comes from, "So is this gonna happen or not?" Well, why didn't it happen? A lot of times too, they'll come back and say, "I'm moving on, or I have to move on because they said no." And we'll say, "Why did they say no?" "Well, I never asked." The fear, I guess.

Mark Buffington:              Yeah, I mean what was it, right? But that tells you a lot if they don't learn from that, pivot. It'll be the exact same experience if you were to give them money, and then they start trying to sell to customers, or they get return or what-have-you, and what's really going on? How do I really nail that product market bit? I think the same general idea applies to raising capital. Something's wrong there. Most good ideas get funded, so something's wrong there. You gotta figure that out.

Evelyn:                             Right. So we're gonna take a quick break, and we'll be right back.

John:                               Welcome back to In Process. We are here with Mark Buffington of BIP Capital. Mark, we were discussing the State of Startups, the interesting report that you wrote, and of course it's about the southeast, at least the particular one we're talking about today, but let's focus on Georgia. What portion of the investment really is coming out of Atlanta in Georgia?

Mark Buffington:              That's a good question. I would say the majority of it. What we see from kind of the way the ecosystem is built, is almost all of the early-stage, so the seed stage and traction stage, those dollars are coming from Georgia. The game that kind of the Boston and the Silicon Valley, Bay Area firms kind of play is that if we have something that they deem to be special, they'll come in in the growth stage and write a big check and try to build it up. Companies like Ionic Security or Yik Yak or what-have-you. But in general, we don't see outside money in those early stages.

                                       Every blue moon there's like a bluebird deal that gets done, but for the most part, the early stage dollars are all coming from people in the region or in Atlanta. And by the way, that's a great thing. If you really wanna build a world-class innovation ecosystem, the capital base has to be local. I mean, that's why San Francisco and the Bay Area is what it is. They're all right on top of this and they're sharing best practices, they're competing against each other, which causes them to continue to raise their game. I think the same is true in Boston, and so we're starting to see the early effects of that same thing here in Atlanta as well.

John:                               What do you think the future, the next five years of venture capital here in Georgia looks like?

Mark Buffington:              Really bright. These things are not built overnight. If you look at the evolution of ... I had the good fortune of being in the Valley during the dot-com craze, which was just like ... It was hard to explain kind of the craze and the energy and everything. I saw the crash as well, so that was a whole nother set of life lessons. But I think, as I look at what's happening here, I think investors learned from that, and so we're not gonna repeat, I don't think, this kind of euphoric craziness here in Atlanta, but there is a big ground swell around innovation and leveraging technology, and I think that a lot of that is kind of the culmination of a number of big investments in areas of focus for people who are kind of in this market. So if you think about the state allocated money a couple decades for ATDC. That's been a tremendous catalyst and now has matured, and so we're putting out companies annually there.

                                       You're starting to see capital aggregation with programs like Engage and so we're looking at a number of the Engage deals, which is great. It just gives us more swings of the bat. You're starting to see focus by all of our academic institutions. We've poured money as a state into the college of computing at Georgia Tech, so we're turning out world class technology talent. So you bring all these factors together and eventually you're going to have some positive success, so I think credit to the leaders of our state and academic leaders many decades ago, we're starting to see the fruits of those investments, and so I hope we'll continue to do that. It's hard for me as kind of a free marketeer and a libertarian, to say, "Oh, government needs to play a role in stoking markets," but I can't deny what the impact of those investments have been.

Evelyn:                             They can provide a benefit. Yeah.

Mark Buffington:              They provide a benefit, and it seems to me like it's been a thoughtful balance here in Atlanta and so people like myself and other funds and entrepreneurs are the beneficiary of that, so I guess to answer your question on the next five years, I think every year it continues to get better. If we see a macroeconomic issue or a recession, it'll take us a step back, but look, the groundwork is being laid for Atlanta to be one of the top innovation centers in the country. I won't say globally yet, but this is a great place to be an innovator, either an entrepreneur or an investor.

John:                               One of the things that we talked about during the break was, as much as you are in competition with other venture capitalists, you're also ... I guess, need each other or also are building something together as well. Can you expand on that a little?

Mark Buffington:             Yeah. You know, we at BIP Capital, when I got to Atlanta, my wife and I had done well on the west coast, but I still had the mentality of scrapping it out. Three or four years before that I was still eating ramen noodles in an apartment, so we still had that kind of sharp-elbowed street kid kind of quality when we got here, and we wanted to hold onto every good deal we possibly could, and that's probably how a lot of people get started, but we have evolved our thinking on all of this. The more we've thought about it ... I like this idea of "co-opetition." The competition makes us stronger, it makes them stronger, so ultimately it makes the region stronger, but the fact of the matter is, having the right capital base and the right balance sheet, investing the right amount of money into these companies to build much bigger companies, rather than kind of bailing out early and taking a smaller exit, that benefits us, our investors. It benefits other funds. It benefits society. There's more jobs, so on and so forth. There's more concentration of talent here ...

Evelyn:                                 It also supports the community itself, building that technology framework.

Mark Buffington:             Absolutely, so over the last two or three years, we at BIP ... I won't claim to be the leader, but we and another firm or two in town and some other people who are close to the sector, I think Hala at the Chamber has done a tremendous job of kind of harnessing some of this, but we've taken a leadership role in saying, "We've gotta work together more, especially on our best companies so that we can build kind of world-class exits here." So I'm not gonna sit here and tell you that we won't compete on a deal for some of our competitors, and frankly it's kind of fun. Can't help myself, I was a college athlete. And I'm sure they feel the same way, but at the end of the day, I think there's been a maturation of thought amongst most of the big firms here in town, or the larger firms here in town about how we work together. So we did a deal like QASymphony did, we did with Fulcrum. That was a great partnership, and I think they would argue that we added value and they added value, and so we'll probably do more together with those guys.

Evelyn:                                 Well I think also that that makes perfect sense, because one of the issues that Atlanta technology has had, is that because the capital hasn't been here, a lot of times companies actually have to pull themselves out and relocate to where the capital actually has been. There's a lot more capital sources that are willing to come into Atlanta and invest now, and they'll do the flying, but we certainly went through a period where, if it wasn't here, they had to go, and that's an unfortunate outcome for everybody really.

Mark Buffington:                  Absolutely, but it's economically rational, so you can't blame them for leaving.

Evelyn:                                Absolutely.

Mark Buffington:                  But I think the city as a whole and the participants in the market are now able to provide a value proposition to companies that are at that stage where, "Hey, gosh, I need a 10 million dollar check or I need some kind of technological expertise that may or may not exist here, so I need to pick up and move." I think those holes have been plugged in the marketplace, and maybe we need to get a little more capital aggregation around that kind of 20 million dollar check, but all that said, I think a lot of those holes have been plugged. Now, we're in a pretty interesting position. The tables have been shifted. I promise you, I can attest to this personally, it's about half the cost to build a business here in Atlanta as it is in the Bay Area, and also it's easier to access enterprises. It's easier to access hospital systems. A lot of those industries are concentrated here. I think I might have this right. Hala has the stat, she says it's great, but if I'm not mistaken we're the fourth largest city in terms of Fortune 500 companies being ...

Evelyn:                                Third. We're actually third.

Mark Buffington:                  Third, yeah.

Evelyn:                                It's funny because we actually had group of lawyers from 20 companies here just last week, and we were down at the Metro Chamber, so we all got to see the Metro Chamber's report on Atlanta, which put in our heads a lot of information we had no idea about our own city.

Mark Buffington:                  It's fabulous, and I gotta tell you, having worked both places, what I find about California was so neat, was just the atmosphere, the weather, the food, all that, but kind of the community and the way people interact, it's a little aloof and it's a little distant and there's all these kind of silos. Atlanta is ... I don't know if it's a southern thing or what it is, but even when nobody knew who Mark Buffington or BIP Capital was, I found myself getting into offices that, there's just no way you would ever get into on the west coast.

Evelyn:                                 Very open, yeah.

Mark Buffington:                  And so, many times I was sitting in the waiting room saying, "Alright, how did I ... like, really?" Getting ready to go have this pitch with the CEO of a Fortune 500 company or what-have-you. So I think Atlanta has a lot of both quantitative assets in that it's lower cost to build a business here, but it also has all these really nice qualitative assets and intangibles that, it's much easier to manage your family and get access to enterprise, et cetera, et cetera.

Evelyn:                                It also has a great airport.

Mark Buffington:                  It has a great airport. Yeah.

Evelyn:                                Easy to get in and out, and come in all directions.

Mark Buffington:                 You know, the other thing I find, having lived in multiple places, politics are pretty good here. I'm sure if you're on one side or the other you don't think that, but we have a Democratic mayor of the city and a Republican governor. For the most part, they collaborate around big initiatives for the state, so that's a good thing.

Evelyn:                               That's a positive thing, absolutely.

Mark Buffington:                 That's a positive thing, so yeah, Atlanta has a lot going for it, not just maybe the metrics but all these intangible things as well.

John:                                 Well, Mark, this has been fantastic. Really enjoyed it. It was great to hear your experiences, and of course, the report, the State of Startups in the Southeast is fantastic too. You guys really got some hard numbers and normally it is anecdotal evidence that people are listening to, so this one puts some real data behind it, which was nice. So thank you for joining us.

Mark Buffington:                Yeah, and thank you guys for having me.

Evelyn:                              Thank you for your time.

John:                                If you'd like to learn more about Mark and connect with him, please visit BIP-capital.com. Also there on the homepage, you will find a link to download the new report called the State of Startups in the Southeast. We hope you enjoyed In Process today. If you would like to download this episode, you can find our show on iTunes as In Process Podcast. If you have any questions on this topic or would like to be a featured guest on our show, please email us at inprocess@trusted-counsel.com. Thank you for joining us.

Evelyn:                                 See you next time.

Speaker 1:                           This has been In Process, conversations about business in the 21st century, with Evelyn Ashley and John Monahon, presented by Trusted Counsel, a corporate and intellectual property law firm. For more information, visit trusted-counsel.com.