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So Begins The Golden Age Of Consumer-Focused Startups

I’m reminded this week of my favorite musical duet of all-time: Curtis Mayfield and Taylor Dayne doing ‘People Get Ready’. The lyrics of that song kept ringing in my head as I read and listened to Ron Conway, Dave McClure, Brad Feld, Fred Wilson, Mike Arrington and others on the state of entrepreneurship. The quote goes: “People get ready, there’s a train a-comin’; you don’t need no baggage, you just get on board.” As usual, Silicon Valley is leading the way... But, guess what? Chasing the right boarding station or destination ain't the problem. The solution starts by knowing that train is you. That's right, take the red pill, as I'm about to show you how deep the rabbit hole goes...

No matter who says what, the winds of change are blowing. The seed stage environment is improving every day. Even the money guys are in on it. The advent of the $20-$50M M&A event has increased the batting average enough to draw more funding dollars into five key areas: the consumer Internet, mobile, real-time value, crowd-sourced data and gaming. And make no mistake the hockey stick growth of brands like Twitter, Facebook and Groupon contribute to this momentum. This manifests in better deal terms for entrepreneurs, more freedom to engineer exits and the chance to pair-up with an investor team 3-4 times during a startup career.

 

Welcome to The Best Game in Town


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This new funding model snapped fully into place following the Y Combinator Angel Conf, which featured Ron Conway among the guest speakers. Ron is easily the most prolific Web 2.0 investor of our generation (more than 500 over the last 12 years), and is a tireless proponent of entrepreneurs – a wickedly cool combination if you can be one of the 1-in-40 deals he funds. Also invited to speak was Mike Arrington from TechCrunch, who joked he must have been the ‘comic relief’, yet played the role of counter-point to the tee. Arrington's characterization (claimed not to be his own, but the views of more traditional VCs) that Y Combinator-style funding equals smaller deals, which spawns more ‘dipshit’ companies became the defining point of the entire debate. Ron led the charge by saying "bullshit...I radically disagree" then backing-up his argument with data that showed that investor's success rate with startups is improving with the increase of liquidity events. Just as importantly, Conway’s thoughts are stirring changes in the investment landscape that are very much pro-entrepreneur. Ron's simple point was he hopes “any entrepreneur that has 'the guts' to start a company gets funded.” You should absolutely watch the entire 33-minute follow-up panel session with Conway, Paul Graham of Y Combinator and Mike Arrington. What's clear is the status-quo rules of startup funding no longer apply. Short-necked giraffes beware.

One of the first guys to agree with Ron was Fred Wilson from NYC, who agreed 100% and took the next logical step in a July 30 post: this means give a small team a seed investment to determine whether the idea and the people have what it takes to be the next Google or Facebook. In making his point, Wilson also vehemently disagreed with Arrington’s ‘dipshit’ characterization. His quote was:

"I second Ron Conway's hope that "any entrepreneur that has “the guts” to start a company gets funded." That is my kind of thinking. We need more entrepreneurship, not less. So I'm with Ron 100% on this. Of course getting funded does not means 10s of millions of dollars of funding for every entrepreneur. It means enough funding to actually build something and see if the idea and the team has the right stuff to build a company. Then market forces should take over and determine what ideas and teams get more funding and which ones should close the doors and think about what is next for them.

Mike Arrington expressed the contrary opinion, apparently held by many VCs (not me), that this mini explosion in angel investing is creating a bunch of "dipshit companies." I don't know what a dipshit company is. I haven't seen one. If you listen to the chatter on the Techcrunch comment threads, you will see that people think Twitter and Foursquare are dipshit companies. Fine. Many great companies have been built on a wall of derision and I personally think those two are going to join that list of laughed at great companies (and maybe already have). My point is you just don't know what is a crazy idea and what is a brilliant idea. And you don't know what is a great team and what is a weak team. Of course, we have our opinions on that. We make those judgment calls every day. But we are often wrong. VCs are wrong more often than they are right. It is good for VCs if 10x or 100x companies get angel funding. That is more opportunity for us."

At the same moment in time, Dave McClure was laying out his (if you read anything this year make it this one) investment thesis that will serve as the basis for his new 500 Startups Fund. With a style that naturally endears him to co-founders and alienates him from traditional bankers (a stroke of genius in my way of thinking), Dave also contends the path to success involves smaller investments in pre-revenue products as a beginning point. His summary assertion and solution was this:

“Most VCs are Dinosaurs, and the World Wide Web is an Asteroid that hit the planet in a slow-motion cataclysmic explosion 15 years ago. It may take another 5 years for the ash clouds & nuclear winter of Browsers, Search Engines, Social Networks, & Mobile Devices to kill all the T-Rexes, but it's a done deal. The marsupials are taking over and in 2015 there will be a lot more investors that look like Jeff Clavier, First Round Capital, Y-Combinator, TechStars, Betaworks, & Founder Collective than any Sand Hill VC (funny how all the innovation is from non-valley investors, isn't it?).

This is really the key to my investment thesis: Invest BEFORE product/market fit, measure/test to see if the team is finding it, and if so, then exercise your pro-rata follow-on investment opportunity AFTER they have achieved product/market fit.  It's sort of like counting cards at the blackjack table while betting low, then when you're more than halfway thru the deck and you see it's loaded with face cards & tens, then you start increasing your betting & doubling-down.”

So that’s three industry-leading voices beating the drum in favor of the entrepreneur. Pro small investments in small teams. In favor of allowing founders the choice to sell early (with the hopes they start something new again). Down with (that’s fancy for ‘proponents of’) investing dollars before the product/market equation has been completely hammered out. Smart angels helping smart entrepreneurs early. Hell yes, a proven model.

And now for the best news of all: any town with 'nerds and rich people' trying to replicate their success can just skip it all, pass go, collect $200 and move into this new world. It means losing the burden of trying to replicate something we never could. It means the world doesn’t need $250M funds to engineer real change in those five key growth areas: consumer Internet, mobile, real-time value, crowd-sourced data and gaming. (Sure, high-dollar industries like medical devices and green tech require a traditional view of capital infusion but that's a different beast altogether.)

Dave McClure lays out the stages of this new funding model incredibly well (including the investment amounts required):

1) Product: $0-100K, 3-6 months to develop basic MVP (minimally viable product) that's functional & useful for at least a few customers. Get to small product/market fit.

2) Market: $100K-$2M, 6-12 months to test marketing & distribution channels, understand scalability & customer acquisition cost, conversion to some non-zero revenue event. Get to large product/market fit.

3) Revenue: $1-5M, 6-24 months to optimize product/market fit and get to cash-flow positive.

By the way, each of these phases are completely linear and based on success milestones. If you fail one, you pivot or kill the idea. It’s a high-velocity game and one that supports the double-down strategy laid out by McClure. Plus it exposes more ideas and entrepreneurs to the market, which is good for the business of both startups and investors.

 

Alice, Wonderland is Where and What You Make It


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So the real question is: What does this mean for towns like Atlanta, Raleigh or Austin? How does this thinking become part of our reality? First of all, notice I never said this was The Golden Age of Angels. This is your time and responsibility as founders. To succeed, it's going to require more collaboration and elbow grease from the nerds (entrepreneurs). It’s not a mistake that Boulder is quickly becoming a booming town for startups. TechStars has just introduced their 11 latest funded companies, and the second Open Angel Forum Boulder event has just gone down. Catch a read on Brad Feld’s latest blog post to see what real momentum looks like. This wouldn’t be happening if there weren’t great fundable ideas around every corner. Notice how the outsiders took note: Jason Calacanis tweeted "I've been stopped three times in one block in Boulder... Does everyone here work at a startup!!?!? :-) and @Scobleizer is in scoble-heaven: @techstars! Boulder is killer startup ecosystem – it's nuts how smart these bastards are!" Make no mistake, investors will travel for real opportunity.

For emerging cities, this means coders, UI/UX and marketing people all need to get busy co-mingling and creating consumer web and mobile companies. The type of businesses that can be created with light capital and scale with automated resources. You have to do this NOW and OFTEN, not just once a year at Startup Weekend. Fundable ideas in the consumer space will draw investors from all over. The big names will attract a new crowd of angels both locally and abroad. Their seed money will attract more entrepreneurs to the game.

In my hometown of Atlanta, this has the added bonus of rinse and repeat sustainability with killer nerdy schools like Georgia Tech and SCAD. That's with why I have no doubt Sig's void will not only be filled, but improved upon. In fact, show me a $10M seed fund directed at the consumer space, and nature will do the rest... So if you're a bootstrapper who wants to be funded on your terms, wake-up and realize this new breed of angel is exactly what you've been rallying for! These new angels (rich people) look to be a minority shareholder, and want you to be the leader and decision-maker for the company (including when and where to exit). Under these terms, if you refuse to seek good money to scale, know that the shovel is in the corner of your parents' garage. If you still want to arm-wrestle me on the subject, I ask you read the wise words behind Jason Calacanis' recent advice to entrepreneurs:

"Today I’m sensing a bubble in angel investing... In fact, startup companies are being bought for what I would describe as “the high end of normal.” Over the next three years we will see an M&A bubble as large companies deploy mountains of cash to buy startups that are strong in some combination of revenue, brand and customers. When the bubble is expanding rational entrepreneurs should focus on three things: a) raise a lot of money at a large valuation, b) getting a lot of customers (who are willing to spend), and c) selling."

So, I offer this advice to entrepreneurs-in-the-making: dust-off your biggest ideas and get them formulated and modeled-out. Build a prototype and acquisition engine before a business plan. Thrash them hard with the smartest people you can find. Figure out exactly how much cash you need to get to a minimally viable product to market. Do everything possible to get the concept in front of potential customers for a first-level reality check. Give yourself a month at most to accomplish these tasks, and then start shopping the deal to this new breed of investor.

As always, your best bet is to find someone who can engineer a warm intro to one of these 50 or so dealmakers who are leading the charge. If no one bites (either from a straight investment perspective or acceptance into a TechStars or Y Combinator style program), then pivot. The worst thing you can do in this new world is become entrenched on an idea or miss the boat as you bootstrap your startup into oblivion. Hell, if you can impress a guy like Paul Graham at Y Combinator your idea might not even matter. They’ve got plenty of good ones in need of startup ninjas.

Also know there are seed incubators in virtually every second-level startup town in America: Atlanta has Shotput Ventures; Austin has Capital Factory; Washington DC has LaunchBox Digital; etc. Your town may not have a Ron Conway or a Brad Feld yet, but there’s no doubt the model is coming – and it will affect the thinking of your local angel investors. And if all else fails, follow the lead of my LessConf buddy Jon Crawford of Austin-based Storenvy: get yourself into Y Combinator and shuffle off to San Fran Valley for a while. Or, get your groove on in Boulder. Then come back home if it makes sense. Go find your success and return as an angel-entrepreneur. Better yet, become a leader and make it happen here. My point is do what you have to do.

So entrepreneurs, the great news is it’s all in your court. The conditions are strong. Ron Conway’s data shared during the CrunchUp interview shows that game-changing companies are being formed every two years and his portfolio has shown strong growth over the last 10 years despite volatile economic conditions. There truly has not been a better time to build a startup inside one of the 'Hot-5' consumer categories. So get to it, and push for greatness. No one in this new world wants to see the sixth me-too copy of a mediocre company. As the old adage goes: Go big or go home.

I leave you with this... There is plenty of baggage to go around. Plenty of people will tell you it can't be done. To borrow a line from Dave McClure: "Fuck. That. Noise." There is a valid, profitable reason the best startup investors put their total faith in entrepreneurs. They place them on a pedestal-of-awe because that's where the source of innovation and future revenue begins and ends... Know I share the same belief that each of you are The One, but the question is... Do you?

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+2 # benweblin8438 2010-08-06 21:29
The trend in the consumer internet space is clearly towards fewer and fewer dollars required to launch and scale. Is the next step zero? And if it takes no money or minimal money, then who needs investors anymore? Which means you don't have to have an exit.

Building consumer internet startups will be your career. Build one, then the next, then the next. Keep them all. Create multiple lucrative income streams. As a parallel entrepreneur, I like that future.
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+2 # West Coast Loud Mout 2010-08-06 23:25
I was looking at timelines of founders and early employees of consumer internet startups today, and something struck me. A shocking number of them of them worked at Yahoo, where they learned how to make money on consumer internet. Just like a shocking number of successful Atlanta entrepreneurs worked at Mindspring.

What is the training ground of today for consumer internet in ATL?
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0 # GFRRTDEFF 2010-08-07 04:28
Having run in both corporate and agency circles (with Heath as a matter of fact), I'd agree the training ground of the last five years has been internal + agencies.

I'd also add the large contractor pool in town that graduates out of the day-to-day agency world, and joins on hourly with other agencies or corporate shops that enjoy the buy-as-you-need-them mentality of interactive folks. If you're a UX coder ninja or designer, why be an entrepreneur if there's more $75-$100/hr. work than anyone can shake a stick at? The answer: they don't really know how. It’s absolutely true of our pool of ninjas we work with on the occasional project. I'd put our favorite designer, illustrator, IA, solutions architect, and UI coder against any team on Earth.

This is where we need the entrepreneur’s version of Angel Lounge – a how-to place for startup newbies to come and talk to current players. Hell, they might even find some paid work as a precursor to joining forces with a startup team…
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0 # Legal Framework 2010-08-08 19:09
Unfortunately what you're suggesting hasn't happened. This is not a new idea. This is the status quo.

The reality is that at interactive agencies you don't learn to make money building things - you learn to build things for other people that promote their core business. Different skills, different culture. Very little transfer to startups happens.
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0 # Heath Wilkes 2010-08-07 00:46
Most of the big corporate consumer players in town have staffed internal web shops to run their web properties. Companies such as AT&T Mobile, Delta, Home Depot, Turner (CNN, Cartoon Network, TBS, etc.) The Weather Channel, Coca-Cola and UPS (much of UPS.com and UPS Store is focused on B2C).

Large quantities of seasoned web talent are behind these doors including engineers, developers, IAs, interactive designers, product mangers, online marketing, etc. Same goes for the interactive agencies that surround these Fortune 500s such as Razorfish, Moxie, Definition 6 and oodles more...

All these people have deep chops in the consumer web space, with the added bonus of knowing how to manage massive scale. So the training ground part of the equation is mostly covered. That said, some bad habits associated with managing larger budgets would need to be resized to become effective entrepreneurs, but having worked with Yahoo in their heyday, the same was true there :-) The harder issue is getting this immense talent to create or join a startup because of the golden handcuffs of a regular, sizable check -- all which points to the need for more funding in Atlanta's startup space combined with better education on the benefits of entrepreneurshi p. The raw resources are here in spades.
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+1 # Rob Kischuk 2010-08-07 04:01
@Heath - golden handcuffs indeed.

There's untold talent tied up in Fortune 500s and the agencies that serve them. Cost of living in Atlanta is low enough that you can live a comfortable life on those salaries, with little reason to aspire to more (in many people's eyes).

I think this has its roots in a dearth of fundable ideas or teams, though we could probably use a bit more funding to shift the needle of what is considered "fundable". Get fundable companies, get them funded, put that money to work building a company and pulling more talent out of limbo, get a good exit, give other entrepreneurs something to aspire to, repeat.

Many in this town push the unfunded entrepreneur on a death march that can lead to either financial ruin or success. There's little room for a "safe failure" in Atlanta if you haven't already had a good exit, and that's a real problem.
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0 # GFRRTDEFF 2010-08-07 04:45
Spot on, Rob. The interesting thing for me is I think a couple good funding events would begin to turn the tide – and an exit or two would send us straight to cooking-with-gas.

And I couldn’t agree more about the high-wire act that’s too-often preached. It’s incredibly interesting to hear Ron Conway define a ‘win’ for the entrepreneur if they effectively close down a startup. That’s probably the far end of the same spectrum, but it makes an important point: no startup founder is going to win every time out. If someone tells you they’ve never started a business that’s failed miserably, run away very quickly!

Hell, I once bought a 48’ drop deck trailer for a motorcycle transport business that earned me less than $5,000 ever! I sold all the equipment off at a small profit once it became obvious I couldn’t scale the business fast enough while still working full-time. But you better believe I learned some great lessons – ones that made every business after that smarter. Our entrepreneurs need the environment to bring huge ideas to fruition, and know that one failure isn’t a death sentence.
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0 # Rob Kischuk 2010-08-07 05:17
I think shutting down a startup _can_ be a win. It looks like a win if you had a small payout from the last startup you worked on, used that money to live on while you prototyped a new startup to the point where it was fundable and could pay a salary. If you can shut it down and join another startup to pay the bills and perhaps create more seed money, failure works.

Going broke working on a startup nobody cares about, and then taking a job with AT&T to pay off the credit cards isn't the same game.

I've been working in funded Atlanta startups for almost 10 years (minus an 18 month corporate job). I am fairly certain that none of my peers from any of these startups have made even enough money from those startups or any subsequent one to even pay their bills for 6 months while they started something new, much less generated a large enough exit that allowed them to angel invest. (A few people I worked with had prior successes that paid out nicely, but nothing since.)

Odds like that aren't exactly going to entice someone to take a big pay cut to leave the agency world.
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+1 # Mike Schinkel 2010-08-07 22:10
Rob, I couldn't agree with you more on this. People in the agency world are getting paid too well to consider pursuing a startup and having to live through a ramen-noodle phase for an unknown period of time.

I also think the culture of (most) agency people is contrary to the culture of startup people. The former are about being fiercely competitive with their rivals for slices of a fixed sized pie while startup people are trying to create abundance by building a new pie. Agency people learn to produce solutions that generate billings, not ones that change the world. Agency people learn how to play politics, both internally and with their clients, and not how to create a product/market fit. And agency people socialize with other agency people so the two worlds rarely even meet. If you'd been to an AiMA meeting you probably know what I mean.

Much like you would be foolish to expect IP attorneys to advocate for open-source en masse, pursing agency people to join the startup world, at least in Atlanta and at least with today's culture is likely to be a fools errand.

I will say there are the outliers. I met the former CTO of SpunLogic/Engauge Danny Davis the other day and he is trying to launch something called "Providing Ground" which would be (in my words) an incubator of sorts that provides infrastructure development support for teams of startup entrepreneurs that have seasoned industry experience. Maybe Dave Walters needs to interview this guy?
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+1 # benweblin8438 2010-08-07 11:55
Want to kill off startups in Atlanta that spin out of bigger companies? Kill them dead? Pass the constitutional amendment on the November ballot in Georgia.

http://www.dlapiper.com/proposed-georgia-constitutional-amendment-could-strengthen-enforcement-of-non-competes-and-other-restrictive-covenants/

If this passes and companies can enforce non compete clauses, then it will be near impossible to leave and start a company in the same field. Bye, bye startups.
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+1 # benweblin8438 2010-08-07 11:58
Unfortunately, organizations such as TAG are endorsing this startup-killing amendment and campaigning for its passage. It makes sense though. Why would AT&T want small nimble competitors made up of their former employees?
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0 # Feb0zdou1 2010-08-07 15:16
Paul, why is TAG endorsing this, and why don't we form a PAC to lobby for the interests of entrepreneurs?
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+1 # Rob Kischuk 2010-08-07 15:34
I suspect TAG is endorsing it because it serves the interests of the majority of their membership. TAG events I've been to have been more represented by the technology arms of larger companies rather than startups.

If you're AT&T, Turner, IBM, etc, you *think* such a law would be really good for you. You have your corporate lawyers rope all new hires into stringent non-competes and sue them if they try and leave and do anything competitive, you have more lawyers and money than they do.

Of course the idea that these companies would have a better labor pool and business ecosystem if there were "competitive" companies in town is entirely lost on them, in the usual corporate myopia.
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0 # Feb0zdou1 2010-08-07 15:39
Good point. I know TAG is full of big tech corporate members but I perhaps naively thought they were better friends of the entrepreneurs than to support something like this. "Tino!?" "Melanie!?" :-)
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-1 # Melanie Brandt 2010-08-07 17:12
Celia, TAG has posted two articles on the Restrictive Covenant Act on www.TAGthink.com (http://tagthink.com/myblog/georgias-new-restrictive-covenant-act.html and http://tagthink.com/myblog/georgias-restrictive-covenant-act.html) to help educate the community in preparation for their opportunity to vote on this issue. I have also previously commented on why TAG chose to support the ammendment:

The Technology Association of Georgia joined TechAmerica and other organizations that include the Georgia, Gwinnett, and Metro Atlanta Chambers in supporting this HB 173 and HR 178. Georgia is one of two states in the nation that contains statutory barriers which strictly prevent judges from enforcing employment agreements that are entered voluntarily by both employer and employee. Without the capability to amend disputed provisions, Georgia’s judges are left with no option but to completely enforce or completely nullify the contract. In the case of the former, valid disputes can be disregarded by a judge who does not want to void the entire contract. In the case of the latter, as these contracts define the protections of both the company as well as the employee, both sides become vulnerable. Companies may be less reluctant to relocate here if they were aware of the issue, and companies who grow here may feel compelled to leave if this proprietary issue was really critical to their efforts. As a member organization comprised of individuals and technology companies of all stages and sizes, TAG is committed to protecting and honoring intellectual property. At the end of the day, we believe the citizens of Georgia should have the opportunity to weigh in, which is what the resolution will provide.
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0 # Feb0zdou1 2010-08-07 18:04
I respect John Yates and Jason D'Cruz whose trip to India we covered on TechDrawl. However, the first glaring problem I see is the biased wording on the ballot. For all those voters who don't know the pros and cons of the bill, the wording is very leading and violates everything I've studied in market research and statistics about writing unbiased questions:

What is the wording of the amendment that Georgia voters will be asked to approve or reject?

Answer: Georgia voters will be asked this question: “Shall the Constitution of Georgia be amended so as to make Georgia more economically competitive by authorizing legislation to uphold reasonable competitive agreements?”
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0 # Feb0zdou1 2010-08-07 18:12
In part 2 by Yates and D'Cruz, I see obvious reasons lawyers support the bill -- more business for lawyers litigating and rewording non-compete agreements.

...Under the new Act, disputes will focus on much more fact intensive issues, making litigation a more expensive proposition.


and

Employers should begin preparing to implement new contracts with employees...

It still sounds anti-competition and anti-entrepreneur to me. But, thanks for the links, Melanie!
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0 # Mike Schinkel 2010-08-07 22:13
Wow. Talk about spin-doctoring!
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0 # Feb0zdou1 2010-08-07 18:23
This comment on the 2nd TAG post from attorney Michael Cross:


Why HB 173 Is a Very Bad Idea
written by Michael Cross, August 02, 2010

I'm an attorney who practices in this area, largely on behalf of employers, as well as on behalf of start-up companies. HB 173 is a HORRIBLE idea.

Contrary to what some would argue, Georgia's non-compete and non-solicitation law is pretty clear and well understood by attorneys who regularly practice in this area. Nearly every instance where courts have declared a non-compete or non-solicitation of customers provision to be invalid arises because (i) the employer did not have a Georgia lawyer prepare the document or (ii) the employer did not have ANY lawyer prepare the document.

What's even more frustrating is the currently proposed law will make non-competes MORE confusing, not less. Here's why --

Under current law, if the employer drafts a restriction that is too broad, the court simply invalidates the provision. This is a simple remedy and is similarly applied by judges throughout the 159 counties of Georgia.

Under the proposed law, the court will have to REWRITE the restriction. Think about that. The many judges throughout our 159 counties (and the federal courts located in Georgia as well) will have to REWRITE the restriction. Before, whether the judge was located in Atlanta or Waycross, the remedy was the same. Now, it's possible for a multitude of "re-writings".

It gets even worse if an employer has bad intentions from the start. Suppose for a moment that "John Doe", while working from home on something not related to his job or in any way using employer resources, develops a great idea. Suppose also that the employer previously required John to execute a non-compete precluding him from competing in any way, anywhere in the world, with the employer.

That type of provision is unenforceable under current law, and the court would find the restriction unenforceable. Worst likely case scenario, the employee may have to spend around $10K to prevail.
It's likely the judge will make this decision in response to a motion, and it is unlikely there will even be a trial. (Not a great result, but a manageable one.)

Under the proposed law, however, a frightening set of circumstances could arise. The employer could sue John for violation of the restrictive covenant knowing:
-- The judge will re-write the restriction so that SOMETHING is enforceable;
-- John CANNOT win on a motion; the case will have to go to trial; and
-- John will probably spend $75K or more.

As a result, John's idea will never see the light of day unless John, somehow, is able to take a job for another company, wait for years until the term of his unreasonable non-compete agreement expires, and then hope no one else independently thought of the idea in the interim.

In other words, employers will be motivated to draft the most onerous, unreasonable provisions they can conceive, knowing that SOMETHING will be enforced.

By contrast, under current law, employers are motivated only to protect what they absolutely need to protect.

Do not be mislead by the title. This bill is not intended to protect or promote jobs. The intent is to protect large employers (to the detriment of employees and entrepreneurs).


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0 # Legal Framework 2010-08-07 20:41
Melanie - if you want to improve Georgia's technology economy, fight to supplement those amendments with this one:

http://www.leginfo.ca.gov/cgi-bin/displaycode?section=lab&group=02001-03000&file=2870-2872
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0 # Rob Kischuk 2010-08-08 00:05
Melanie:

here's the problem. Look at Russ' chart of Atlanta security startups: http://makestartup.com/startupwiki/images/1/1d/Atlsec.png Now imagine all of those companies flowing out of ISS and SecureIT don't exist. That's the threat of this amendment.

Non-competes will not be "voluntary" in Georgia. Lawyers will write them into almost every job in the city. Want a job? Yeah, you're gonna sign a non-compete. As it stands, almost every job I've had has had a non-compete in the contract, and I've only been able to sign them knowing the unenforceable state of non-competes in Georgia.

Suppose that ISS had entangled its employees in a non-compete agreement that precluded them from competing in the internet security field for several years, it was enforceable and actively enforced by IBM after their acquisition. You no longer HAVE an Atlanta security cluster of consequence.

Then consider the state's stated goal of building clusters in digital entertainment. How am I supposed to build a gaming company if I get sued any time I try and hire game development staff from another Georgia company that forced them all into non-competes to get a job? We can train staff in industry knowledge from scratch every time, while sending people out of gaming for a couple of years while their non-competes expire, but that's all MADNESS. Clusters require founders that are legally unencumbered, and relatively free flow of employees.

The language of the amendment is just shameful in its cheerleaderish persuasiveness. We won't allow candidates to campaign for themselves within 500 feet of a polling place, but this amendment is sitting there campaigning for itself right there at the ballot box. To the average voter who hasn't studied the issue, who wouldn't want to "make Georgia more economically competitive?" Never mind that whether or not it makes Georgia more economically competitive is HIGHLY debatable. It's not a fair referendum.
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0 # Jay Morgan 2010-10-21 01:04
I'm voting against this, as I think it's too vague and can have the ability to make it harder for a person to take a job in some cases. Especially in these days of high unemployment, signing a non-compete often isn't even an option. If you want to work, you have to sign.
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0 # Feb0zdou1 2010-08-07 16:03
Is this a #fail? Atlanta's own Coca-Cola invests $70M in 2 clean tech funds located in PA and CT. Any cleantech funds in GA or the south?

RT @Urvaksh Coca-Cola pours $70M into two cleantech funds, seeking returns and access to early technologies: http://j.mp/bvTsSQ
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+1 # Mike Schinkel 2010-08-07 22:15
It's things like this which have confirmed to my why my efforts towards helping startups in Atlanta are probably a lost cause and why I've back away from my efforts.

Sheesh.
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+1 # Andrew M Watson 2010-08-07 18:21
I left Cox partly (mostly) because of their insistence on me signing an "IP agreement" and the HR committee investigating my work with OtherNum. An anonymous committee of executives deciding my fate with no chance of appeal! It sounds like fun!
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+1 # benweblin8438 2010-08-07 12:00
If this passes, California will be about the only state left where people can quit their day job and set up shop down the street and not worry about a lawsuit over a non-compete clause.
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0 # Heath Wilkes 2010-08-07 13:16
Non-competes are the Devil, Bobby Boucher! Most professionals are going to better themselves (many times the only option) within a chosen profession. These types of agreements prevent you from making more money on a specific career track, as external employers will most always pay you more to leave your current job than what you will receive via an annual raise. These type of agreements claim to protect IP, but the reality is they are a new form of indentured servitude taking much of the worry away from corporations having to pay their best employees more money to retain them. Ask yourself this: if companies are truly worried about their $$$ IP, why do they not favor a fixed-term contract for all their critical employees? This would equal a guaranteed monetary payment (for say three years) that courts would be much more willing to enforce as the employee would be getting paid until the end of the term. Let me answer: they don't want to be restricted by a contract agreement. Why should you? If large companies truly feared the lack of non-competes, why have so many Fortune 500s chosen Georgia for their headquarters? Brother, please!

Specific to a startup ecosystem, Paul is correct that non-competes are the enemy of innovation -- preventing smart entrepreneurs-in-the-making from creating a new company within the field they have the most expertise. In CA, companies like Google have spawned countless entrepreneurs that have improved that state's economy. This type of law would have prevented (or severely slowed) such growth. Capitalism at its best, Georgia is a proud right-to-work state that sides with your right to navigate a free market. Let's keep it that way...
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+2 # Paul Freet 2010-08-07 20:49
Want to protect your IP? Simple. Don't put un-enforcable non-compete provisions into your employee covenant agreements.

Suggesting we need a constitutional amendment to protect IP is completely disingenuous. It's an attempt to distract people from the real issue - big businesses want to restrict employees from competing with them.
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0 # Rob Kischuk 2010-08-07 12:40
But the amendment says it's going to make Georgia more economically competitive? ;)
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+1 # Legal Framework 2010-08-08 18:06
It will. Georgia's economy is based on large companies moving offices there - for the weather, cost of living, and pool of young professionals. Startups are at odds with that model - they are a nuisance that should be destroyed and left to California hippiedom.
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0 # Feb0zdou1 2010-08-08 19:47
Great point, Russ. Commercial office vacancy rates in Atlanta continue to rise (now at 22.6%) despite the first positive absorption numbers since 2008 (first quarter of 2010).

Georgia wants more big relocations like NCR, First Data Corp. and Sony Ericsson to lower the vacancy rate so we can overbuild again. Grub & Ellis' Dan Wagner says, "To reach a vacancy rate of even just 15%, though, Atlanta would need to absorb more than 10 million sq. ft. of office space, requiring the addition of 70,000 new office jobs."

Startups are indeed at odds with that model.
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+1 # Mike Schinkel 2010-08-07 22:11
WOW! That is HORRIBLE. What do you suggest we do?
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0 # Feb0zdou1 2010-08-07 15:15
Storenvy's team relocated from Kansas City, Orlando and San Diego to Austin for a reason. Progressive cities have better startup cultures, just sayin'...
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0 # Feb0zdou1 2010-08-07 15:34
As I retweeted @andrewwatson a week ago, McClure is right about most VCs being dinosaurs:

(Yeow, contains some truth!) RT @andrewwatson: most VCs are Dinosaurs,Web is asteroid hit the planet 15 years ago http://bit.ly/cHDPuz

Not to rain on your parade, Dave, but Atlanta is a conservative city of late adopters which means a crummy culture for consumer internet startups. "Your startup does WHAT?" Deer in headlights. You're preaching to the choir here. The late adopter angels and VCs in Atlanta aren't reading your posts because they aren't online. Ask Ben about the"venture seance" crowd.

Paul's idea is interesting. Build things that don't need investors, period.

And, we really need to form a PAC to oppose bills that hurt entrepreneurs in Georgia, and it needs to have the right people on the advisory board -- choir members.
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+1 # Mike Schinkel 2010-08-07 22:17
+1 on the PAC.
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+1 # Heath Wilkes 2010-08-08 15:52
Digital Entertainment, or specifically gaming, is the perfect example for why this amendment is bad for Georgia. With our existing 30% tax credit, growing cluster of highly-specialized talent, globally-sought feeder schools for game design such as SCAD and (per Dave's post) the modern investor world now looking at video gaming as one of the 'Hot-5' consumer-focused startups, Georgia has a significant, obtainable opportunity to be a leading community within this category. Rob is also spot-on that a seasoned game development staff is the preferred path for market success, and not easily replicated from resources outside this industry cluster.

Now imagine these 'scarce natural resources' prevented from forming or joining new gaming startups simply because they are tied to non-competes for 1+ year(s). We'd immediately stump the growth of new gaming companies because the best talent would be side-lined for the terms of their non-compete agreement. For most people this is not a valid option given their monthly bills -- so they simply stay at their current employer or move to another state with less limiting laws (aka California) to start their gaming business.

Sure, this amendment might (in theory) help attract a large corporate player like Activision to set-up shop within our state, but our emerging digital entertainment startup cluster would die-out within three years. Because given the limited size of our gaming talent pool, everyone would eventually end-up being indentured servants, I mean employees, of Activision. Of course, this is all hypothetical because Activision will end-up passing on Georgia in 2011 given their lawyers will discover that all our existing gaming talent is locked in messy non-compete contracts :-) IMHO, these agreements are viscous circles that keep reducing in size until all innovation and economic growth are strangled lifeless. (One more thing: Activision, EA and plenty other of largest players in gaming are currently headquartered in California where no such non-sense exists.)

Across all industries, non-competes are tools desired and designed by large, wealthy companies of yesteryear to control salary costs, limit competition, stifle market innovation and prevent/curb entrepreneurshi p. The best tech companies know exactly how to retain talent and protect IP without resulting to restrictive contracts that harm the tech ecosystem they live within... Don't remove Georgia's chance at becoming one of the great gaming, startup and tech ecosystems of tomorrow. Educate the masses who will not understand the nuance behind the flowery language on the ballot. And please vote no in November. Thank you.
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+1 # Keith McGreggor 2010-08-08 18:21
I urge you to (re)read John Yates' two posts on HB 173 on TagThink.com, then Mike Cross' reply.

Reflect especially thoroughly on this section from Yates' article:

However, such covenants may only be enforced against employees who meet one or more of the following tests:

(a) customarily and regularly solicit customers or prospects;
(b) customarily and regularly engage in making sales;
(c) have a primary duty of managing the enterprise (or a department or subdivision), direct the work of two or more other employees, and have the authority to hire or fire other employees (or have particular weight given to recommendations as to the change of status of other employees); or
(d) perform the duties of a “key employee” or of a “professional.”

A “key employee” is broadly defined as an employee who, by reason of the employer’s investment of time, training, money, or other factors, has gained a high level of notoriety or reputation as the employer’s representative, or has gained a “high level of influence or credibility” with customers, vendors, or other business relationships. The definition also includes employees “intimately involved in the planning for or direction of the business” and those with “selective or specialized skills, learning, or abilities or customer contacts or customer information” acquired as a result of working for the employer.

A “professional” is an employee whose primary duty involves performing work requiring advanced knowledge “customarily acquired by a prolonged course of specialized intellectual instruction” or requiring talent “in a recognized field of artistic or creative endeavor.” The term specifically excludes technicians performing work using knowledge acquired through on-the-job or classroom training, such as a mechanic.

Of the entrepreneurs you know, how many would be considered "key" or "professional" if found in an existing company? Thought so.

I'm voting NO in November.
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+2 # Wayt King 2010-08-09 01:32
Re the non-compete ballot provision: it's a shame how misleadingly-worded the provision is. And it's a shame that TAG and BigTechCoAtlant a are supporting it.

Re the golden age of web services startups: I was on that bandwagon from 2007 thru 2009. During that time, I wrote checks totaling almost $1M to fund ATL startups (LastMinuteTeeT imes, Pardot, Sentrinsic, and eight Shotput Ventures companies). But the quality of startup deals that I ran across was disappointing. So I basically "gave up" at the end of 2009. Where are (were) the fundable ATL-based web services startups, and why couldn't they figure out that I was writing checks? IMHO, there is angel money available in Atlanta for consumer web deals (though not via ATA); it's the scrappy entrepreneurs who are in short supply. Stop complaining, quit your day job, burn the ships, and "make something people want." Fail quickly, and do it again. And again. Just Do It.
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0 # Feb0zdou1 2010-08-09 14:10
Wayt, I know we listed you as a Shotput investor when we covered SV on TechDrawl, and you've been a faithful mascot to StartupChicks, too. Thanks for that.

However, I don't think the startup community knew you were "writing checks" as an angel investor outside of Shotput -- but maybe they need to revisit the Shotput investor list and approach them individually.

As for the supply of scrappy entrepreneurs, we've lost 2 bright ones to Silicon Valley in the past year, Russell Jurney and Paul Stamatiou.

I've always thought investors should be sniffing around at Lance's amazing Atlanta Startup Weekends http://atlanta.startupweekend.org/ but I've never seen any there...

Ideas?
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+1 # arthsur5 2010-08-09 15:04
I usually stay out of the fray, but I will say that if there were more people doing things that matter, more creative and ultimately useful, people that didn't give up when things didn't work out the way they thought... things would be very different around here. This applies to both Consumer-based and B2B web startups.

What's needed? Less talking. More doing.

I often have a chuckle reading this stuff, as we get lumped into the "consumer" startup space like we're some dopey lepers. The irony is that the consumer space is just part of what we do, and very few people have figured that out, admittedly partly because we actively don't talk about our model... we've been around for over 2 years and in that time we've seen basically the start up scene here in the ATL completely cycle through and most players move on.

I'm not sure of many start ups who were around back then that are still alive and kicking hard today. That's really the problem here, people want it easy... this is not easy, in fact it is beyond hard. They want money up front. They want immediate success. I'm sorry but you just don't get that, you need to prove yourself over and over again. Money and funding is one thing, but its not the most important thing. I think everyone gets so obsessed with the money part that they lose focus on the relentless passion and creativity required to make something useful and brilliant, long-term.

I think Wayt is spot on. There is money here, and everywhere for that matter, for good companies and developed ideas that show real promise. The misguided way of thinking here is that it's the local angels/investment community that suck. I'm sorry to be so blunt, but the ball is in the startups' court. The challenge is not for investors (they already have the money), it's for entrepreneurs and startups to be better, dream bigger, be more creative, be smarter, aggressively enter and develop markets (Go Scoutmob!) and demonstrate that they DESERVE to be funded.

Here ends my very rare rant. Hope y'all have a great day and pleasant tomorrow.
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0 # Feb0zdou1 2010-08-09 19:38
Scott, I'm with you about ScoutMob. Both TechDrawl and Regator are still around...
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0 # Knox Massey 2010-08-11 17:12
Nice post, Scott.
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+1 # startupangel 2010-08-12 15:06
In my continuing quest to find great startups and energetic entrepreneurs, I will be starting an informal gathering called Waffle Wednesdays. (if you have to ask what day and where, don't bother showing up). If you are at the idea stage, or maybe have a prototype or wireframe developed, drop by and chat. Maybe you're not looking for capital (yet) but need to find talent, beta customers, or perhaps investors who have experience in your space. We'll see if we can't point you in the right direction. I'm extending an invitation to other angels in the community who want to hear what's going on in the trenches of startup land to join me. Remember: no pitches or powerpoints, just "winging it over waffles". If you show up by 8:30 am (at 5th St) you might get a plateful, after that, it's just coffee until about 10.
(I will also be dropping in at Roam Alpharetta, and 151 Locust St, but those visits start in September and I'll send out a heads up)
Let's see if there are any fundable companies in ATL!
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