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Where Will Technology Investors Put their Money in 2012?

Yesterday’s PDAs and camera phones have evolved into today’s smartphones. Yesterday’s storage servers are evolving into today’s cloud. Even as we experience the shift in technology, we can’t know for certain how quickly or how far new technology will evolve.

But we can ask the experts to look into their respective crystal balls.  Venture Atlanta asked investors familiar with Georgia’s start-up scene what is on their horizon and what they expect 2012 to bring. We talked with Spence McClelland, principal with Noro-Moseley Partners; Stephen Fleming, Georgia Tech vice president and executive director of the Georgia Tech Enterprise Innovation Institute; Mike Eckert, executive chairman of the Atlanta Technology Angels; John Glushik, general partner at Intersouth Partners; and Sean Banks, principal at TTV Capital.

 

Spence McClelland, principal at Noro-Moseley Partners

“Cloud computing, mobile, big data and social media are all continuing to spur innovation in many verticals. Collectively they enable more scalable, convenient and personalized delivery of information and services to consumers and businesses alike. Georgia start-ups are applying these new technologies to regional strengths in marketing, media, security, healthcare and financial technology,” says McClelland.

He adds, “On the technology side, we have seen and continue to see ‘cross-pollination’ of our region’s core strengths with new technologies creating exciting new local start-up ecosystems: mobile security, digital marketing, marketing automation, e-commerce and mobile payments. Despite the current economic challenges, the winners in these categories have great near-term prospects, and Georgia is well positioned to lead in each one.”

Healthcare IT

Stephen Fleming, Georgia Tech vice president and executive director, Georgia Tech Enterprise Innovation Institute

Fleming predicts that healthcare IT will grow rapidly in 2012. “Every healthcare system in the country needs new information technology, the government is going to mandate it, it’s a market that’s accessible to start-ups, Georgia has more health IT companies than anywhere else, and Georgia Tech is becoming one of the thought leaders,” he says. “Health IT is going to be a huge source of innovation. Companies will combine existing technologies to create new solutions that are desperately needed.”

 

Glushik notes that physicians are motivated to adopt new technology thanks to stimulus money. “The American Recovery and Reinvestment Act provides for incentives in the near term for adoption of electronic medical records (EMR) by physicians,” he says. “The legislation outlines a set of criteria commonly called ‘meaningful use’ criteria that a physician must meet to receive the incentive payments. In the long term, the act imposes penalties (via lower Medicaid and Medicare reimbursements) for physicians that do not adopt an EMR system within the next few years.”

John Glushik, general partner at Intersouth Partners

While Glushik says legislation is helping with the adoption of healthcare IT solutions by physicians, he says legislation alone will not create widespread adoption and utilization until the available EMR systems are actually useful in terms of helping the physicians become more efficient and productive. “Most current EMR systems force the physician to change the way they practice and they actually have to spend more time on entering and accessing patient data. We believe there is big opportunity in developing and delivering EMR systems that focus on physician productivity while still satisfying meaningful use requirements.

 

McClelland adds, “Regardless of the final outcome of healthcare reform, there is a national mandate for lower costs and more transparent clinical outcomes. This is consistent in our conversations with industry leaders like Atlanta-based Emory and Children’s Healthcare of Atlanta. Therefore, we see disruptive growth opportunities for healthcare technologies and service models that support efficiency, pay-for-performance and patient-centric delivery of care.”

In particular, McClelland recognizes three Georgia-based early-stage companies using technology to address patient and provider challenges in healthcare delivery: “Digital Assent, WellCentive and SoloHealth are all exciting,” he says.

Financial Technology

Sean Banks, principal at TTV Capital

Georgia continues to be a leader in the financial technology space, Banks says. He adds, “Regulatory uncertainty in this space will create big opportunities. For example, the Durbin Amendment caps debit interchange; banks will need to seek new sources of revenue and will look to the start-up community to help generate revenue creation opportunities.”

What will be big in 2012? “The convergence of security and financial technology,” Banks predicts. “Look for companies like ControlScan and CRE Secure to break out in 2012.”

Digital Marketing, Mobile & The Cloud

According to Eckert, the Atlanta Technology Angels (ATA) are seeing an increase in the number of start-up companies that are integrating newer technologies to provide solutions and services to both the business-to-business and business-to-consumer markets, as well as companies leveraging social media and mobile software applications to provide newer, more effective and more efficient ways for large and small or local businesses to reach their customers.

“These technologies enable customers to obtain product, service and pricing information more quickly and easily and enable customers (both B2B and B2C) to make their purchasing decisions more easily and more quickly on virtually any type of device,” he says.

He adds, “The explosion of tablet devices and of various mobile phone hardware heavily participates in this trend. These same technologies are enabling businesses to better service their customers.”

Mike Eckert

Eckert points to BrightWhistle (in which ATA has invested) and Vertical Acuity as Georgia-based companies poised to grow within the digital marketing space.

Marketing automation is a rapidly growing market, says McClelland. “Pardot and SalesFUSION here in Atlanta are positioned very well to ride that wave. Vocalocity has expanded its platform in 2011 with the acquisition of Aptela and is seeing exceptional demand for Voice-Over-Internet-Protocol (VOIP) in this environment.”

The Year of Big Data?

Eckert is also seeing continued evolution in bandwidth, storage and software technologies that enable cloud- and SaaS-based big data, analytics and business intelligence solutions to help businesses manage, understand and leverage the vast amount of data they receive from “smart” technologies and via various software advancements.

Banks agrees: “Big data will become a hot space. Georgia start-ups like Cardlytics will be on the forefront of using this data to create offers for consumers.” Cardlytics helps companies place online or mobile ads that are seen when consumers check their bank accounts. Ads are targeted against actual card purchases made by the account holder.

Managing Energy Consumption

The energy management sector is also leveraging the use of the cloud and mass data collection. Verdeeco (in which ATA has invested) offers a cloud-based platform for data aggregation and analytics for utility companies. Eckert says the company is poised for growth in 2012 as this space continues to grow across the nation.

Similarly, JouleX offers a Web-based system to help companies track energy use —and the information can be used to achieve 30 to 60 percent energy savings annually. Urjanet’s SaaS platform allows companies with major power consumption across multiple properties to track their energy use. The data is used to reduce costs and carbon footprint; negotiate contract terms with energy suppliers; and evaluate power investments, including options like solar and wind.

The Next New Wave

While many entrepreneurial ventures seek to use existing technology in new ways, “there are a lot of genuinely new technologies that are going to start getting to market in 2012,” Fleming says. “Near-field communications (NFC) chips to turn cellphones into mobile wallets will start to gain widespread traction. New low-power sensors are going to appear in all sorts of devices, leading to ‘the Internet of things.’”

“The Internet of things” concept grew out of radio frequency identification (RFID) research, which uses radio waves to track items, such as inventory or computers and electronics assigned to employees. Now people are thinking about what it means to add sensors to other things.

Fleming cites Atlanta-based CardioMEMS’s EndoSure® Wireless AAA Pressure Sensor as an example. This device is a fraction the size of a dime and it has minimal power requirements. It is implanted during surgery to repair abdominal aortic aneurysms (AAA) and the device continuously measures and communicates pressure information from the site of the repaired aneurysm. The company is adapting the technology to develop heart failure and hypertension sensors as well.

“There are endless opportunities in medical devices, especially in the application of new materials and new low-power electronics,” Fleming says.

A more common example of ‘the Internet of things’ is cheap GPS, which opens the door for tremendous possibilities for mobile apps. “And, of course, the relentless move towards mobile apps creates great opportunities for even the smallest companies to be successful,” Fleming notes.

And the Term Sheet Goes to…

With all these great companies poised for growth, what are the challenges facing Georgia’s start-up scene? Inadequate early-stage capital, Fleming says. “We’ve had this problem in Georgia for years. Some companies won’t get started at all. Others get started with inadequate financing. And some get started with out-of-state money, so they wind up relocating out of Georgia.”

However, there’s reason for optimism.

“We’re seeing a positive impact of the Angel Investment Tax Credit on early-stage investing activity in Georgia,” Eckert says.

Governor Perdue signed the tax credit into law in 2010; it provides a tax credit of 35 percent of the amount invested in start-up companies up to $50,000 annually and is available for investments made in 2011, 2012 and 2013, provided the investments are made in the form of cash in exchange for stock by an accredited investor that manages $5 million or less in capital.

“The percentage of deals that ATA has done in 2011 compared to 2010 is up 600 percent,” Eckert says. “This is very important, as Georgia does not lack for deal flow or for entrepreneurialism. Georgia’s challenge during these recessionary times is to get funding off the sidelines and to entrepreneurs. The Angel Tax Credit is greatly helping here. We expect this to have a continued positive impact on Georgia’s early stage eco-system. We’re also seeing greater preponderance of angel groups syndicating an investment among one another, which brings more capital into the system.”

McClelland adds, “Recently introduced federal legislation easing IPO restrictions should help open that market back up for venture-backed companies. Here in Georgia, the recently proposed Georgia Venture Capital Program legislation would be a positive development for the state’s start-up community. The program would provide nearly $200 million through state tax credits and private investment for direct investment into Georgia early and growth stage companies. If approved, this will make Georgia more competitive for entrepreneurial talent with states like North Carolina, Tennessee and Florida who already have similar programs.”

Either way, Glushik predicts, “There will be more venture capital and more angel investing in 2012. We saw it in the enthusiasm at the Venture Atlanta conference. Investors chose to come here, to see what opportunities are available.”

He adds, “Today’s businesses need to achieve productivity goals — sometimes at the expense of hiring or retaining employees. This is good news for start-ups that can help companies meet their productivity goals. CIOs and other buyers of technology have continued to spend more on technology, even in a down economy. We’ve seen it across our portfolio and across Georgia. And where technology companies can show customers are spending money, investors will invest money.”

January 2012 Newsletter