COVERING THE I l G W SOUTH'S I l G W EC0N0M1 www.digitalsouth.cani A WARFIELD MEDIA PUBLICATION :~ / Cl ATLANTA VCS STEP EMING AND MICHAEL HENOS — BRING US YOUR DEALS man COVERING THE I l G W SOUTH'S I l G W ECONOMY A SUMMER Ç\n "The first two rounds of financing we raised were unbelievably easy - it must have been a fluke." RICHARD HDLCOMB, CEO, HAHTSoftware j) (pj\ "Keeping real focused on a limited number of things ... have served us very well so far." CHARLES BREWER, CEO, MindSpring i m New Enterprise J Associates: How to turn /¿ I Venture capital firms $3.9 million into $320 million poured $1.3 billion into in three years. 13 Southern states last year. SUMMER 1117 5 digitalsouth digitalsouth SUMMER by martin donsky 1 97 www.digitalsouth.cnn PUBLISHED BY WARFIELO MEDIA CHAIRMAN/PUBLISHER editor's notebook Edwin Warfield IV [email protected] EDITOR-IN-CHIEF be made even more compact to save Martin Donsky [email protected] newsprint. DIRECTOR OF ADVERTISING We're committed to devoting all John D'Onofrio [email protected] of our energies to the technology ART OIHECTOR companies, venture capitalists, Patricia Hall [email protected] bankers and industry people who are driving the digital economy DESIGN CONSULTANTS what we're Martin Venezky throughout our 13-state region. Greg Paul all ABOUT Many of the entrepreneurs we will write about already are building INTERACTIVE MEDIA Glenn Ferber [email protected] WE STARTED digitalsouth to chronicle successful companies; others are David Sotnick [email protected] the growth of the technology eco- just starting out; still others have tried and failed. ASSOCIATE EDITORS nomy in this region, for better or Kris McDowell [email protected] worse. We're here to inform, edu- There are dozens of success Wendy Maxey [email protected] cate, challenge, entertain and, from stories across the region. Yet for CONTRIBUTING EDITOR time to time, even provoke you. You every SAS Institute in Raleigh, Danialle Weaver may not agree with everything we MindSpring Enterprises in Atlanta, publish, but if we do our jobs right Digex in Beltsville, Md., or Citrix CONTRIBUTING WRITERS M.M. Cloutier, David Corder, Dale Gibson, you'll come back each issue. Systems in Fort Lauderdale, there Sheila Velazquez, Julie Waresh, Our publisher's roots in this busi- are dozens of tech wannabees that Richard Westlund ness go back more than 100 years. won't ever amount to much. (Case CONTRIBUTING PHOTOGRAPHERS The Warfield family is one of the in point: The Panda Project is a Louis Cahill, Michael Northrup, most well-known in the Mid- Boca Raton, Fla., one-time high- Karen Tarn Atlantic. The first Edwin Warfield flyer that has burned through $50 CHIEF FINANCIAL OFFICER was a banker, land surveyor, gover- million trying unsuccessfully to Elisabeth Corson [email protected] nor and legal publisher. My boss, reinvent the PC. The good news is that VCs steered clear of the com- CIRCULATION Edwin Warfield IV was the driving Laura Hauss [email protected] force behind Warfield's magazine in pany; the bad news is that the Jose Garcia [email protected] Baltimore in the 1980s. He's an investing public didn't.) ADVERTISING entrepreneur who caught the digi- My roots as a journalist go back Ryan Rose [email protected] tal vision a few years back and has to my high school days in the mid- Ted Harter [email protected] committed his time, energy and 1960s. I have spent 16 of the past Tiffnie Robertson [email protected] capital to creating a new media 24 years as a reporter and editor in Richard Rosen [email protected] company. North Carolina and Florida. My WARFIELD MEDIA CO. We launched this publication Florida years included five as editor 222 CLEMATIS STREET. SUITE 2 0 0 because the digital playing field of weekly business journals in WEST PALM BEACH. FLORIDA 33401 expanded greatly in the mid-1990s. Tampa Bay and South Florida. My 561 804 9505 There's a lot going on that has yet North Carolina years included 561 804 9050 fax to show up on the Silicon Valley three as senior editor of Business REVIEW.NET radar screen. As our cover story North Carolina, writing mostly WWW.tBviaw.aet — Review.Net Florida package points out, this region is a about banking and finance. ltlp://georgia.teview.net — Review.Net Georgia hotbed of technology and entrepre- http://carolinas.teview.aet —Review.Net Carolinas I welcome you to digitalsouth. I neurial efforts. know you'll be back each issue, and PUBLIC RELATIONS But there are no publications I expect to hear from you. Alexander Communications Inc. that focus on the intersection of STRATEGIC PARTNERS capital and technology in the South. Editor-in-chief Martin Donsky can Digex, Individual Inc., BackWeb Indeed, daily newspaper editors are Technologies, Quote.Com, Time Warner be reached at [email protected] Communications, NetDelivery still debating how stock listings can SUMMER ins? \\ digitalsouth digitalsouth coverstory technology startups are SPROUTING through- out the South. VCs are staking their claims, and the money is flowing. by danialle weaver and martin donsky critical mass LAST YEAR. Stephen Fleming and investors since mid-1995. North Carolina, South Michael Henos reviewed more than These are but three Carolina, Tennessee and 400 technology business plans sub- pieces of anecdotal evidence West Virginia. Include mitted by entrepreneurs in Georgia that have prompted many Arkansas, Kentucky, Loui- and the Southeast. The two men, observers to conclude that siana, Maryland and partners in Alliance Technology the South, once the nation's Virginia — states tradition- Ventures, an Atlanta venture capital economic backwater, has ally considered part of the firm, did only four deals, but each over the past few years South — and the region's was good enough to include syndi- evolved into a hotbed of Charles Moseley: stature grows even more. cate partners from Silicon Valley and entrepreneurial activity, Bets on past In fact, last year, the South Boston's Route 128. much of it involving infor- winners would rank second, above In North Carolina at least eight mation technology, tele- New England, in VC home-grown venture capital firms communications and new media. dollars. are soliciting money from investors Surveys confirm these trends. For to start new funds. Some of these the past two years, according to the The 13 statesiin the firms already have closed their first annual Price Waterhouse national region drew $1.3 billion in venture funds and have begun raising more survey of venture capital invest- capital investment last year from money. ments, the South has ranked third in 150 different funds, according to our And in Florida, two new media VC investments, just under New analysis of the Price Waterhouse startups — America's Health Network England. numbers. in Orlando and SportsLineUSA in Price Waterhouse included eight Nobody is suggesting that this Fort Lauderdale — have drawn more states in its regional analysis: Ala- region will replace Silicon Valley, than $100 million from venture bama, Florida, Georgia, Mississippi, which still gets the lion's share of VC SUMMER i a ) ; 33 digitalsouth cover story non-traditional geographic areas," Southern Deal Flow - 1996 says Kurt Waiden, national director SI.33 BILLION invested in com- of the Price Waterhouse survey. panies based in 13 Southern "There's every indication that this states "they say that on trend will continue into 1997," says 150 DIFFERENT venture capital James D. Atwell, director of Cooper's the INTERNET no one funds Money Tree Report. FLORIDA was leading recipient, knows you're In fact, it already has. In the first with $388.7 million quarter of 1997, five venture firms a dog. Well, no one VIRGINIA ranked second, with invested in Alabama companies, $222.8 million knows you're according to Price Waterhouse. One NEARLY 200 COMPANIES based in 13 a SOUTHERNER, either!" was from Alabama, one was from Southern states received Chicago, one was from Virginia and start-up or additional round dollars — 25 percent of the approxi- two were from Boston. And firms in financing mately $10 billion invested last year, North Carolina, Georgia and Flo- ABOUT 85 PERCENT of the deals according to the PW survey and rida, too, saw most of their first- were technology, communica- Coopers & Lybrand's annual Money quarter VC money come from out- tions or health care-related. Tree Report. Silicon Valley's technol- side the state. LEADING CATEGORIES were com- ogy culture and lifestyle — spawned puter hardware, software, by 40 years of technological innova- some of t h e money telecommunications and tion and still growing — is unlikely is coming from firms that tradition- network equipment to be duplicated in any other part of ally invest in the Southeast and Mid- MOST ACTIVE INVESTORS included this country, despite the hopes of Atlantic. Some is coming from home- Edison Venture Fund, Cor- Chamber of Commerce types grown VCs that have raised their dova Capital Partners, TL through the South who, regardless of first $10 million or $15 million. But Ventures, NEPA Venture location, have begun calling their capital requirements can overwhelm Fund, Intersouth Partners, markets "Silicon Beach," "Silicon the resources of regional VCs, most New Enterprise Associates, Bay," or "Silicon anything." of which are relatively small. Almost Massey Burch and But venture capitalists and others by definition, that means Southern OneLiberty Ventures say the South is reaching critical companies must find outside Source: Price Waterhou** National Venture Caprtal Survey mass. It has taken 20 or more years, investors. It is increasingly common, but the ingredients needed to seed in fact, for a deal to involve a syndi- and start a technology business — cate of VC investors from within the money, ideas, infrastructure and region supported by larger, national the deal fl0W aiso management — are increasingly VC firms based in Silicon Valley, shows that many of the high-profile available in this region.