Mike Klein Online

Lack of Venture Capital Means Lost Jobs, Lost Opportunity

When Advanced Catheter Therapies announced a new technology patent in January the dateline was Chattanooga.  The press release noted, “The Company recently announced a name change from Atlanta Catheter Therapies.”  No longer located in Georgia, Advanced Catheter raised almost $3 million from Tennessee-based investors after it became frustrated with Georgia’s inadequate venture capital opportunities.  One of the investment requirements was relocation to Tennessee.

“Everybody I talked to in Tennessee, it was like, how can I help you?” said ACT founder Paul Fitzpatrick who commutes to Chattanooga from his home in Atlanta’s northern suburbs.  He recalled conversation after conversation that went something like, “What doors can I open to help you succeed?”

Advanced Catheter is one among many examples that illustrate Georgia is pretty darn good at creating attractive companies, but it has some real problems holding onto them at certain venture capital stages.   Governor Nathan Deal admitted as much when he spoke to an Atlanta Press Club audience this week, saying, “We know that one of the things that we are lacking is venture capital for start-up companies.”

The General Assembly passed no venture capital legislation this year, although it did consider two bills.  “One of the reasons that we are losing start-up companies is they are able to be siphoned off by Boston and they’re able to be siphoned off by the Silicon Valley,” Deal said.  “Having that capital available is important.  We are going to continue to work on it.”

The closest that Georgia came to venture capital legislation is a pension reform bill the Governor signed Monday.  This law will allow the Employee Retirement System to invest up to 5% (about $750 million) of its total assets (about $14.9 billion) in venture capital and other investments specifically named in the bill.  No more than 1% (about $150 million) could be invested in each of five consecutive years.

The legislation is so specific that it cannot be interpreted to make investments funds available to entrepreneurs trying to create the next big idea in Georgia.  For instance, something as big as Internet Security Systems – better known as ISS – that was incubated here by Chris Klaus and Tom Noonan.

ISS is among Georgia’s best technology success stories, not quite ranking up there with Ted Turner’s invention of CNN and other enormous technology platforms at Turner Broadcasting, but similar to the creation of internet service provider MindSpring by Charles Brewer back in 1994.

Klaus was a Georgia Tech undergrad in 1993 when he became intrigued by the development of software to help businesses defend themselves against computer hackers.  Fast forward a few years and you find Klaus, then in partnership with Noonan, out on the stump looking for Georgia venture capital investors to grow their business.  There simply weren’t any in Georgia with the resources that ISS needed.

Eventually, Klaus and Noonan secured millions of dollars in venture capital investment from two Boston firms that allowed ISS to remain in Atlanta.  ISS eventually employed more than 1,650.  Six years ago ISS was sold to IBM for about $1.3 billion.  Klaus and Noonan are Georgia entrepreneurial icons and home grown innovators who’ve moved onto other ventures.

ISS was able to stay and build its brand in Atlanta.  Regrettably, that is often not the case.

SolidFire left Atlanta for Boulder, Colorado, when the innovator of solid-state storage systems for cloud service providers secured $11 million in Colorado-based venture capital funds.  NightRaft moved to Austin, Texas, where the company is staking out a position in live entertainment event smart phone apps marketing which NightRaft says is a $1 billion per year industry.

It’s not just new businesses.  Georgia has also lost established, highly successful businesses.

A University of Georgia scientist founded AviGenics in 1996 after he developed a protein production technology.  Twelve years later AviGenics was rebadged Synageva Corp. when it closed $17 million in Massachusetts venture capital financing.  Today it focuses on rare diseases.   Some parts of Synageva remained in Georgia but major components of the company moved to Boston.

This year – and this week — we’ve seen announcements that thousands of new Georgia jobs will be created by major corporate expansions and relocations.  Thursday morning Governor Deal said Illinois-based pharmaceutical researcher Baxter International will bring 1,500 jobs to a new $1 billion facility near Social Circle about 40 miles east of Atlanta.  Baxter joins Caterpillar, Carter’s and Toyota who have announced similar decisions to expand in Georgia.

Georgia has demonstrated it can attract corporations.  But will it create the same sense of urgency around assistance to state-based entrepreneurs?  Venture capital is a first tier priority.   Georgia must foster supportive innovation so that our entrepreneurs keep 21^st Century keep jobs here.  Or, we can just continue to watch them leave Georgia for other states.

 (Mike Klein is Editor at the Georgia Public Policy Foundation)

April 20, 2012 Posted by mikekleinonline | Uncategorized | Georgia Public Policy Foundation, Mike Klein, Mike Klein Online, Venture Capital | Leave a comment