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Cover Story: Atlanta chases its Silicon Valley dreams

Hundreds of new companies and dozens of co-working spaces are making Atlanta a Southern startup hot spot

Atlanta's startup community has come a long way since David Cummings moved to the city 11 years ago. The Buckhead serial entrepreneur, considered one of the most important leaders in the city's tech scene today, struggled to find a community of like-minded businesspeople back in 2002. Most events were limited to established startup founders in an "old boys' network," he says. "There really wasn't a whole lot that was easy to get into as a newbie."

Last October, Cummings sold Pardot, his business-to-business marketing automation firm, for approximately $95 million and decided help the city's burgeoning startup community. He purchased a five-story building off of Piedmont Road for $12.5 million and opened Atlanta Tech Village, a massive co-working space that's currently home to more than 300 tech entrepreneurs. Less than a year after opening, it's become the Southeast's largest entrepreneurship center.

Cummings' facility represents one of numerous efforts that have united Atlanta's startup scene, which has slowly started to garner national attention. Between 2007-2011, on average metro businesses registered more than 1,500 patents a year — 16th highest in the nation. The Kauffman Foundation, a major entrepreneur-focused nonprofit, ranked Atlanta as one of the country's top 10 cities for entrepreneurial activity in 2012. Forbes recently included Atlanta in its list of the country's "best cities for female founders" and PCWorld called it one of "America's most tech-friendly cities."

Following the economic recession and the rise of social media, the demand for co-working facilities in Atlanta has exploded. The possibility of being one's own boss or a leader in a small company became appealing to a growing number of ex-corporate hotshots, either burned-out or laid off, and ambitious twentysomethings unable to find jobs after graduation. While there's often substantial risk involved, the possible rewards of founding the next Facebook, Google, or Amazon are even greater. Atlanta's low living, office, and transportation costs make it easier to start a company here than in other major cities. And so does the abundance of students from more than 50 metro academic institutions that provide startup companies with plenty of prospective interns and future employees.

Over the past five years, many entrepreneurs have flocked from their home offices and coffee shop headquarters to co-working spaces. Access to most of these facilities is cheap or free. The workspaces are scattered throughout the city's neighborhoods. There's Strongbox West in northwest Atlanta's Underwood Hills and NEX Atlanta in Grant Park. Two major spaces, Georgia Tech-affiliated incubator Advanced Technology Development Center and energetic newcomer Hypepotamus, feed off of Tech's energy and resources. Westside arts epicenter the Goat Farm recently opened its doors to several tech startups. Each one includes a mix of first-time business owners and tech scene vets who want to become mentors and invest cash in an emerging scene.

As Atlanta's tech scene has galvanized, City Hall has rallied behind it. Mayor Kasim Reed has promoted major efforts such as the Govathon, a City Hall-themed hackathon; partnered with Georgia Tech on major developments; and says he's devoted time out of his schedule to shine a light on the startup scene. Invest Atlanta, the city's economic development arm, and Startup Atlanta, an independent nonprofit with the mission to bridge the gap between the city and startups, are also working to help spread the word, raise funding, and give individual entrepreneurs a boost.

"In the next five years, I think Atlanta is going to be the dominant IT city in the Southeast," Reed says. "What you're going to see is a constant stream of investment between Atlanta and Silicon Valley."

While Atlanta has its signature startups — including email-marketing provider MailChimp and online deals service Scoutmob — not everyone's convinced that the city's startup scene can rival the nation's best startup communities. Scoutmob co-founder Michael Tavani questions whether Atlanta can develop the vibrancy seen in cities like San Francisco, New York City, and Austin.

"You realize very quickly when you're in San Francisco that Atlanta is in the minor leagues," Tavani says. "It's just small ball what's happening here. We don't have a ton of successful companies."

According to Tavani, Atlanta needs far more consumer-facing companies — it's own Twitter, Instagram, or Foursquare. Hypepotamus Executive Director Scott Henderson thinks the city could benefit from more social media and app-based startups — the "sexy stuff," he says — but he also points to the city's current strengths in health care technology, B2B, marketing automation, e-security, and mobile technology.

Rob Kischuk, founder of social marketing company Badgy, which received a high-profile $600,000 angel investment from Dallas Mavericks owner Mark Cuban, thinks the city's startups benefit from Atlanta's high concentration of large corporations. With 16 Fortune 500 companies and other major corporate offices located in the metro area, local entrepreneurs have helped larger international firms become more innovative and efficient. This past summer, AT&T opened up one of its $3 million Foundry innovation centers to harness the capabilities of many Atlanta developers, investors, and startups under one roof.

"Atlanta startups are very good at facilitating those transitions in technology that affect corporate America," Kischuk says.

There's hardly a consensus of what defines Atlanta's startup scene, as Tavani's, Henderson's, and Kischuk's various takes reveal. Not having a cohesive identity can impact how much venture capital funding and angel investments are available to Atlanta startups. In the last year, Silicon Valley-based companies raised more than nine times more cash than the entire South.

The situation has prompted some companies to leave Atlanta. Morehouse College alum Gerard Cannon moved Ballers Bridge, his tech startup focused on helping high school prospects connect with colleges, to the Bay Area. He and his partners struggled to raise cash and find mentors in their hometown after founding the company in 2011. So they headed West.

"I was constantly told that I should move to Silicon Valley if I wanted to raise money," he says. "The culture really needs to change."

Other Atlanta entrepreneurs think fundraising struggles have slowly faded. Reed says more than 50 local startups have received VC funding. That includes Internet security startup Ionic Security. In April, it turned heads with a $10 million raise from big-time Silicon Valley VC fund firm Kleiner Perkins Caufield & Byers and Google Ventures, the Internet titan's VC fund. Sam Zebarjadi, co-founder and CEO of Medicast, thinks the pressure to relocate out West to raise cash has significantly died down.

"Five years ago, it was Silicon Valley or bust," he says.

"It used to be said that you couldn't raise money and stay here. I think that's been proven false in the last year," says Jen Bonnett, founder of the female-focused business accelerator StartupChicks and an ATDC community leader.

One idea that's becoming increasingly popular with Atlanta tech leaders is for the city to follow its own path instead of imitating other successful cities. How does that happen? Startup Atlanta Executive Director Bess Weyandt thinks the city needs to "throw the Silicon Valley comparisons out the window." Meanwhile, Cummings wants to help more startups reach the $1 million annual revenue mark. It's a concrete goal, he says, that leads to more jobs and funding opportunities. At that point, companies have a higher chance of attracting potential buyers who'll pay entrepreneurs money, which can be reinvested locally.

Henderson and Tavani think the road to a stronger local startup scene is all about giving back upon cashing out: create new companies, hire more employees, and found co-working spaces. That means more people like Cummings or National Builder Supply co-founders Heath Hyneman and Kevin Wallace, who along with Marcus Morgan last year launched Hypepotamus with their own cash, taking initiative.

"People who make money off companies they built need to reinvest back into up-and-comers," Henderson says.

Whether that happens could determine where Atlanta's startups head next. To a degree, it requires individual founders to buy into the community's larger mission, which may require sacrifices for the community's improvement.

Mark Feinberg, who co-founded the crowdfunding platform Uruut, wants a lot of things for his company that Atlanta doesn't offer. As he tries to convince investors to pump approximately $1.5 million into his startup, he acknowledges that Atlanta may pale in comparison right now to resources in Denver, Austin, or Silicon Valley.

But he insists that Uruut will stay put as he helps build something bigger. "I'm all in on Atlanta," Feinberg says.



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