Sigh. I read this story and again, I got excited. Until I dug into the details. Don’t get me wrong, I think more investment is a great thing. I just wish this didn’t have and funding restrictions.
The gist of the story is that the Georgia Research Alliance is going to set up a venture fund to provide early stage financing to startups. The state will provide $10 million and be matched by $30 million by the private sector. So a total of $40 million available for investment.
The problem (for me) is this caveat:
“The intent of the fund is to grow sustainable Georgia-based companies,” said Mike Cassidy, GRA’s president. “The technology has to have been originated in one of Georgia’s research universities.”
Gah! The reasoning behind this?
“Georgia starts with a very limited amount of venture capital capacity,” Cooper said. “Our reason for doing this is to encourage research and let the universities and their researchers know that there will be financing for their innovations. That will help create jobs.”
Really? Researchers at our colleges won’t do research if they aren’t sure their ideas won’t get funded? Is that really the reason that researchers do research at colleges - to build funded companies? I mean, the title you’ve given them is “researcher”. What will they do otherwise? I just don’t get it. The first part of the quote is right on track but then everything just derails after that.
The other thing I learned was this tidbit:
This is not the first time the GRA has backed a venture capital fund. In 1994, Alliance Technology Ventures was launched to invest in new Georgia technology companies.
In case you missed it, I recently wrote a post on ATV. I had no idea the GRA was involved in ATV’s formation. What doesn’t make sense is why ATV was allowed to fold when the GRA knew that they were advancing this initiative. That is pretty puzzling. Perhaps the GRA doesn’t want a traditional VC structure around this fund. There aren’t any details in the article so it’s hard to tell.
Scott Burkett is a bit more positive than me. Maybe I’m just being grumpy and should be happy for whatever we can get. My belief is that by artificially restricting access to funding like this will inevitably lead to less than stellar returns and give folks a reason to point and say that you need harsher terms in Georgia and/or there aren’t any good deals in Georgia. Both of which we know aren’t true.
I think this will continue the local trend of creating companies that are a) enterprise-focused, and b) tied into some sort of hardware (vs. pure-play software/SaaS).
Whether this is good or bad is a matter of debate. If Atlanta develops a leadership position in research-based startups, it could be better than jockeying with the Valley for reputation.
It is worrisome that it is not getting any easier for local entrepreneurs to independently cook up ideas, bootstrap or seed fund them, and find local VC backing. We need to do more to spur innovation and hope in the minds of prospective entrepreneurs who are already away from academia.
Hi Sanjay. Good post. I definitely agree with your point regarding researchers, though. I have personal relationships with many of the researchers down at Georgia Tech. Our CTO is one of them (PhD candidate there). They research because they are passionate, smart, curious, and have a desire to advance science. Not because they are necessarily trying to create jobs or add to the economy. If that is a byproduct of their efforts, then great - but that isn’t what drives them.
I don’t think I was more positive than you … perhaps more subtle. :) Any additional venture capital capacity is a good thing, in my view. I just think that there are other ways that they could/should approach the larger problem.
Cheers.
Scott
Heh. Thanks for the notes guys. As I wrote this post I felt like I was being a wet blanket over everything. I suppose my biggest concern is that the focus on this investment will be too narrow (only college originated research) which will lead to poor financial results which will inevitably lead to the comment “there aren’t good companies in Georgia”. We all know that isn’t true (BTW - congrats on the recent financial results Scott!) but people make that leap with results from faulty attempts.