What Steve Case looks for from entrepreneurs seeking his backing:
— Is it a big, bold, interesting idea?
— Is the business already showing some traction, such as interest from potential big customers?
— Do the company’s key players have strong backgrounds for the business they are going into?
— Is it unique enough?
What he sees coming for the Internet:
— What he calls the third wave: seamlessly integrating the Internet into our daily lives, including appliances that adjust our living conditions based on our needs. The first wave was about building the technology and services that allow us to get and use the Internet. The second wave was building online products, from Facebook to Snapchat.
— Companies will be less able to go it alone. They will need to find partners.
— There will be fewer overnight successes.
How he said established businesses can help entrepreneurs:
— The culture of a community matters: Be less skeptical with entrepreneurial ideas.
— Introduce entrepreneurs to others in the community.
— Mentor new entrepreneurs.
— Do business with them.
AOL co-founder Steve Case recently spent a long day hanging out with Atlanta entrepreneurs, touring local tech hot spots and hearing business pitches — including one he agreed to invest $100,000 in.
It was the first Atlanta startup Case can remember funding. That’s ironic because Case, who leads an investment firm with $1.5 billion under management, was in town for his Rise of the Rest tour to convince other investors to give more money and attention to worthy entrepreneurs in cities like Atlanta that are far from Silicon Valley, New York and Boston.
Maybe more important than Case putting some money where his mouth is was his read that Atlanta has become less skeptical of entrepreneurs in the last few years and that it has the foundation to become a model for other metro areas.
Atlanta can position itself as “being the best example in the country of large companies partnering with small ones,” said Case, who has visited 14 cities from Detroit to New Orleans as part of his Rise of the Rest tour in the last year.
If that seems like a minor accolade, it helps to know that Case predicts that the next great wave of the Internet will depend on such partnerships to integrate online connections into every aspect of our lives, from connected homes where our appliances anticipate our needs to health diagnostics that help keep us upright.
“Atlanta is quite well positioned,” said Case, 56, who lived in Atlanta for three months in the early ’80s while a sales trainee for Proctor & Gamble.
Chamber types are happy to hear such praise. Boosters cite the wave of large companies — from Home Depot to AT&T that have established research arms near Georgia Tech in recent years, hoping to collaborate more with students and faculty, potential hires and young entrepreneurs primed to innovate.
Ross Baird is surprised by the changes. Five years ago he started a firm called Village Capital in Atlanta to train and fund entrepreneurs. He soon moved it to what he considered a more welcoming area around Washington D.C.
“The Atlanta business community was skeptical of the value of entrepreneurs,” Baird said.
The real estate industry and Fortune 500 companies often saw startups as competition, not potential collaborators, he said. He found few locals willing to invest in startups with him.
“I heard a lot of reasons why it wouldn’t work,” said Baird, whose firm has since invested in 49 companies, three of which are in metro Atlanta.
More openness
Now, Baird said, he’s seeing far more openness to entrepreneurs from both local investors and Atlanta corporate players.
Stephen Fleming of Georgia Tech’s Enterprise Innovation Institute likes someone with Case’s national reputation pushing investors to realize the places like Atlanta have lots of entrepreneurial firepower.
“If I say ‘Atlanta is great,” people say, ‘that’s your job,’” Fleming said. “If he says it, people say, ‘Maybe that’s something to look at.’”
But Atlanta and other cities have a big gap to make up.
Three quarters of U.S. venture capital money — the mother’s milk of many young businesses — is spent in Silicon Valley, New York or Massachusetts, according to Case.Georgia grabbed just on percent of last year’s $48 billion in U.S. venture capital investing, landing only 60 of the 4,356 total deals, according to the National Venture Capital Association.
Case knows what it’s like to run a small startup scrounging for money. BellSouth, the Atlanta-based regional phone company, invested enough to keep it alive.The business shifted into what eventually became Internet giant America Online, which was based in the D.C. suburbs and guided millions of Americans into the new online world.
Fifteen years ago, in what became a sign of the overheated dot.com boom, Case championed plans for AOL’s blockbuster merger with Time Warner, one of the biggest powers in the music, movies, magazines and cable TV industries. Time Warner’s holdings included Atlanta-based Turner Broadcasting and networks such as CNN, TBS and Cartoon Network.
But dot.coms lost their luster, fewer customers wanted AOL’s overall Internet guidance, the company was accused of improperly inflating its reported advertising take and there was friction between leaders of the two former companies. The company’s stock price plummeted. Ted Turner, who launched CNN, lost much of his fortune and bitterly criticized Case and the merger, which has come to be described as perhaps the worst in U.S. history.
On Tuesday, Verizon said it would buy AOL for $4.4 billion. The company Case helped build now includes advanced advertising technology and is one of the nation's largest online properties, with holdings such as The Huffington Post and TechCrunch.
Case still says his deal with Time Warner made strategic and financial sense. But he said he was disappointed with execution. It wasn’t long before he left the chairman’s post. Now, he said, he has relatively little company stock.
Lost edge
AOL lost some of its entrepreneurial edge as it grew bigger, Case said. “We started as an attacker and ended up as a defender.”
That’s one reason why big companies should build partnerships with entrepreneurs outside their walls, Case said. Corporate leaders “have to recognize that most of the innovation is going to happen around them. Most of the smart people are not going to work for them.”
On his recent stop in Atlanta, Case held a competition among local startups seeking investment. Eight entrepreneurs took to the stage in a local club. Each had four sweaty minutes to pitch their ideas to Case and other judges and then a few minutes to answer the panel’s questions.
During a quick backstage huddle the judges quickly narrowed their favorites to two: Groundfloor, which allows small investors to band together to make micro-loans for real estate, and Partpic, which is building the ability to use images to search for and purchase replacement parts. Case, who put up $100,000 of his own money as the top prize, broke the tie for Partpic.
“This is just amazing. Thank you, thank you, thank you,” said Partpic co-founder and chief executive Jewel Burks, who has pitched her young business to potential investors more than 100 times.
Said Case later, “any time you bet on startups, there’s a risk.”
Case said his firm has made lots of investments in places like Washington D.C. and Austin.
“We’ve talked to a couple companies in Atlanta. We just haven’t gotten to the finish line,” he said.
“Atlanta is rising,” Case added. “Hopefully we’ll find a great company to work with.”
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