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Atlanta Tries To Carve Out A Niche In Tech

On the 18th floor of the Atlanta Financial Center, tech entrepreneurs recently pitched to potential investors over wine and brie.

John Duisberg, co-founder of Cooleaf, which makes a mobile app for employee engagement, tells the crowd he needs $500,000 to double the size of his company. It's got most of that money secured.

Two years ago, it was a different story.

"We went to San Francisco and met with a few different firms out there. People were much more interested in the idea itself, how large it can be," Duisberg says. "Here in Atlanta, it's much more about the balance sheet and the income statement."

But that's changing in Atlanta. More wealthy individuals, or "angel investors," are placing big bets on local startups and investing in incubator programs. The city is earning the nickname Silicon Valley of the South.

John Yates, a technology lawyer in Atlanta, has watched Silicon Valley grow since the 1970s when his sister started a tech company there. Back then, "people didn't know if I was from Atlanta or Atlantic City," he says.

Yates says Atlanta has come a long way since the '70s. But Silicon Valley has several key advantages: easy access to capital and a network of seasoned entrepreneurs. And, Yates says: "Maybe this is a cultural difference in the rest of the world versus the Valley, but it's the idea that in the Valley, it's OK to fail. And as a matter of fact, if you haven't failed once or twice, you probably haven't earned your stripes to become one of the key leaders there."

But investors in Silicon Valley, like Somesh Dash, are looking at Atlanta more seriously.

"The DNA of the city for me has always been one of disruption, one of kind of questioning the status quo. You feel it when you walk around and you visit the historic sites and you're on campuses like Georgia Tech and others," he says.

Dash was named to the board of directors of Atlanta-based fraud detection company Pindrop Security earlier this year. His firm, Institutional Venture Partners, helped Pindrop raise $35 million so it can operate globally.

Dash says going back to business fundamentals is crucial, like paying attention to the boring stuff: gross margins and free cash flow.

"We're at a stage where a lot of companies are being funded by unsophisticated investors at really high valuations, and once the music stops and that part of the financing market dries up, there's going to be lot of down rounds, lots of layoffs and there's going to be a lot of broken glass everywhere," he says.

This is where a city like Atlanta shines. Having less money makes you more risk averse. It forces startups to focus on great ideas and solid business plans.

Everett Steele is the founder of a delivery startup in Atlanta called Kanga. Steele says, sure, there's more money on the West Coast, but startups that make it through the hunger games of Atlanta are more likely to be home runs. He says he's seeing more companies move back to Atlanta because of the high cost of living in Silicon Valley.

"It's always frustrating when I feel like I hear sometimes people say Atlanta doesn't have a good investment scene, there's not money flowing here," Steele says. "And this sounds harsh to say, but I think the answer is, there is money, maybe just not for the idea you have right now."

The city is getting a lot better at taking risks. Last year, firms invested about $500 million in Atlanta companies — the most in a decade. And the mayor says he's launching a fund so when tech startups need cash, they're not immediately buying tickets for the next flight to San Francisco.

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Tasnim Shamma joined WABE 90.1 FM as a reporter in November 2014. She comes to Atlanta from Charlotte, where she spent more than two years at the NPR member station WFAE.
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