Many folks around town wax poetic about the good old days when the security cluster was in full boom. It was led by the ISS crew, and spawned lots of companies that otherwise probably wouldn’t have seen the light of day – or had the attention of early stage investors. Among the most vocal proponents of the security cluster is our own Russell Jurney. He’s written on the cluster, and even diagrammed the cluster in his article. The number of people and companies included are a testament to how important this industry segment has been – and continues to be – to Atlanta. Look no further than Purewire or Starpound as examples of companies who are thriving either by acquisition or deep customer traction, respectively.
Well, guess what nasty little Election Day issue would absolutely ‘top kill’ the cluster concept? Yep, the Georgia Restrictive Covenant Act (HB173) seeks to massively tighten the non-compete laws in Georgia. Let's look at a hypothetical exmaple with a real-life guy. (Thanks in advance for the indulgence Paul.)
Imagine being a guy like Dr. Paul Judge (who we interviewed at the ATDC Startup Showcase) in this future world. Having been a C-level executive at CipherTrust, there surely would have been a non-compete in place that could limit him for up to five years based on the merger with Secure Computing. Given that merger happened in 2006, it’s perfectly reasonable to think Purewire wouldn’t have been founded in 2008. And fast forward to Q4 2009 when Barracuda Networks acquired Purewire. Yep, you guessed it: this ugly new HB173 world would have had a brand new non-compete on Paul that could lock him out for another five years.
So there’s one simple example of a brilliant technical guy who’s been an innovator inside the security cluster for at least 10 years. Under the new HB173 world, Paul would have been seriously slowed down – if not stopped – from continuing to create great companies and jobs. Oh, and tax revenue.
The other example that should scare the wiz out of Atlanta is the emerging cluster of video game companies. And the complete irony is this cluster enjoys more State of Georgia support than most industries via the Georgia Entertainment Industry Investment Act. So what the Georgia Legislature giveth, they also taketh away? If you have any doubt about the density of this cluster, check out this map. And can’t you just imagine the IP arguments wrapped around a field as utterly creative as video game designers? The reality is the litigation would be so complex that the average designer or developer could never expect to afford to assert their employment rights without footing huge legal bills.
For what it’s worth, I’m not a fully sold proponent of the cluster mentality given my theory that investors love them because it further drives down risk by leveraging experienced entrepreneurs and – at least to some degree – incremental businesses. But clusters do serve one very critical function: they draw a strong peer group of employees and executives – both from our own educational institutions and transplants from across the country. There are more than enough firms to support a vibrant and thriving gaming industry – even if Rob Kischuk is the only one I ever see around town :-) But imagine how quickly the ability to move between firms would evaporate if HB173 becomes law.
So if my logic holds, then no angel or VC should support HB173 given it puts a huge chill on additional companies in similar industries, correct? I’d love to hear some investor feedback on the topic…