A Window Into the Tech Industry in the Southeast: An Interview with Doug Johns

Doug Johns is a senior advisor to Doug Johns headshotFourBridges Capital Advisors with many years of executive experience in the technology and telecommunication sectors. He also currently serves as the Chairman of the Board of Directors for NIVIS, LLC, the world’s leading developer and integrator of wireless network technologies.

Key Takeaways:

  • Overall, the technology market in the Southeast is very robust, particularly in Atlanta.
  • From a tech standpoint, the Southeast is underserved in terms of access to capital, investment bankers and advisors.
  • The tech industry in the Southeast needs increased visibility to become comparable to other major tech hubs.
  • Developing incubators and accelerator programs are critical to the growth of tech startups.

Q. In your position as senior advisor, you’re based in Atlanta but work with companies across the Southeast. Tell us about the current tech market in the Southeast and how it’s changed over the years.

A. In Atlanta, the tech market is very robust, and it’s growing faster than any other time besides the tech bubble of 1999 and 2000. There’s been significant success in the area, particularly the security, payment processing and mobile transaction verticals. Investors who are not familiar with tech companies are more inclined to invest when they see these successes.

In the rest of the Southeast we see a focus on other fields in the tech industry. For example, the medical sector is important in Nashville, and disaster recovery is big in Florida, due to the prevalence of tropical storms and hurricanes.

Q. What are the differences between Southeastern tech hubs and the major tech markets like Silicon Valley and Boston?

A. The Southeastern technology industry needs more access to capital and capital advisors. For example, both Atlanta and Boston are home to roughly 5 million people, but a Google search for tech companies, advisors and venture capital in the two cities reveals a serious inequality. The tech infrastructure in Atlanta is only about 8 or 10 percent as large as Boston’s.

Success breeds success, especially in the tech sector. For example, when I was at IBM, one of my responsibilities was competitive analysis. The minicomputer caught IBM by surprise, which gave Boston-based Digital Equipment Corporation (DEC) a foothold in the area and created huge wealth. Other tech industries spawned from that success, creating an infrastructure and helping to establish Boston as the tech hub it is today.

Q. What is needed for the Southeast to become comparable to those markets?

A. Aside from some major successes, there is a need for increased visibility and communication. The industry is going to grow very slowly if it’s just successful tech entrepreneurs investing in other tech companies. But once those outside the industry who are looking to buy tech companies hear about the success, the momentum will really build.

Also, tech companies in the early stages need to know where to go and where not to go for resources. Advisors can be very effective in pointing these companies in the right direction. Companies can waste a lot of time chasing after resources that ultimately won’t come through. A great example here is commercial banks. They require so much collateral, but assets in the technology sector tend to be intangible. If it’s not land, rolling stock or something you can count and resell on the open market, a bank is not likely to be interested. What’s worse is that they’re not going to tell you “no” upfront, so tech companies may spend a lot of time working on a bank loan that is ultimately going nowhere.

Q. What makes a tech company attractive to an investor?

A. First, investors want to see growth potential. In tech, getting the prototype and getting the product into production is a challenge, but once that’s done it’s often easier to make a million units than to make 150. Unlike other industries, almost everything in tech is software based, so it lends itself to very rapid production.

Investors in the Southeast are looking for tech companies that have two things: top line revenue and EBITDA. For many funds, they are looking for companies with revenue of at least $5 million and some level of EBITDA. Almost without exception, investors are not looking for pre-revenue companies. They want companies with a proven business model and paying customers. In the tech sector, if your company has a gross margin of 80 percent or more and some level of EBITDA, getting capital won’t be a problem.

Q, What are successful ways accelerators and incubators are nurturing startups to develop into high-growth, middle market companies?

A. In cities across the Southeast like Atlanta, there’s an infrastructure that didn’t exist 10 to 15 years ago. Programs like Tech Village in Buckhead provide startups with things like office space, Internet and phone service, which allow these companies to focus on developing their product and growing their business. These incubators and accelerator programs also provide startups with ample opportunities for mentorship and networking.

Connecting these startups with individuals who have raised their own capital and have gone through similar experiences is invaluable to the growth of their business. One of the best lessons you can teach an entrepreneur is, “If you’re going to fail, fail on paper.” Essentially, that means you need a business plan and advisors to spot any potential weaknesses. It’s much less painful to fail on paper than to fail for real.

Brought to you by the team at FourBridges.

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