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Southeast region has intellectual capital, needs investment pool growth

Southeast region has intellectual capital, needs investment pool growth

36/86 2016 Panel Investing in SE Intellectual Capital

Through the third quarter of 2016, startups got investments of more than $55 billion in venture capital. That’s down almost ten percent from the same period in 2015, reflecting a still-strong market, but one where competition is sharpening. At the same time, Southeast-area investment through the third quarter was around $3.35 billion, up five percent from early 2015.

So, can the Southeast continue to compete with the ground zero of investment and innovation that is Silicon Valley, or more entrenched areas such as New York? Entrepreneurs and market watchers say yes, and for multiple reasons.

One asset is the area’s talent. Pindrop Security’s Vijay Balasubramaniyan, a Georgia Tech grad, had banks calling him once the idea for Pindrop became public through his final paper. He was able to build a company in Atlanta because there are 3,600 students graduating in computing fields every year, which is more than MIT, Stanford and CMU put together, he says.

One obstacle the Southeast is overcoming, but that will take time, is that it’s unfamiliar terrain to most venture capitalists, says GV’s (formally Google Ventures) Tyson Clark.

“There are smart people everywhere, and we have to make a concerted effort to get outside our zone,” Clark says. “I met Vijay at a conference which highlighted the local ecosystem of entrepreneurs, as well as the local venture capital community. Getting to events like 36|86 is one of the best ways for us to learn about a new ecosystem we’re not familiar with.”

Clark says that GV takes a data-driven approach when it’s sourcing deals, something it has to do given the volume of pitches he sees. The Southeast isn’t huge for GV right now, with only four or five companies out of a portfolio that numbers more than 300, most of which GV came into during later-stage development with investments of between $5 million and $20 million.

“The funding environment is different in Silicon Valley than anywhere else, and that affects entrepreneurs there and outside as well,” he explains. “Those outside the valley know how to make a dollar stretch, and they need to be more scrappy. They know how to network hard.”

Both Clark and Balasubramaniyan agree that Tennessee and the Southeast don’t lack intellectual capital, referencing Oak Ridge and the clean technology coming out of there as one example, but that it has catching up to do in terms of seed capital. Once that’s more in place, especially given the strong healthcare vertical in Nashville, then the area could rival larger tech areas such as New York, Boston or Los Angeles.

To that point, Balasubramaniyan points to Pindrop to show that a successful tech business can be located anywhere.

“Having an ecosystem like Georgia Tech has been wonderful for us. I can get on a plane and get money from anywhere, so we figured out really early that we didn’t really need to restrict ourselves to fund-raising in our ecosystem. And because we are not in Silicon Valley, we can get into bidding wars for talent and get top people for far less money than they have to pay. We can really stretch that dollar.”

See more of Clark and Balasubramaniyan’s thoughts on the Southeast investment picture from their 36|86 Conference panel discussion, moderated by Jonathan Shieber.

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