Friday, June 13, 2008

Wow...Talk About Disruption in the Payments World

It's early here but I (still) got Georgia on my mind... This from Jeff Haynie's "Introspection" Blog...

There has been quite a bit of debate in the past few days about the 2008 GRA/TAG Business Launch Competition here in Atlanta. Scott Burkett was spot on in my opinion and was one of the first to publicaly call this insanity out. There were some tweets by some local entrepreneurs and Lance Weatherby attempted to quell the crowd with his peacemaking around trying to turn this into a positive and looking for suggestions about how to improve it.

A little background for those just trying to get up to speed on what’s happened.

The 2008 GRA/TAG Business Launch Competition is a cool annual event that is intended to help provide funding and value-added services in-kind to the lucky startup that is launching a business here in Georgia and looking for help. We had quite a number of companies apply, that was widdledwhittled down to a much smaller group and then to a final set of four companies. I’m an advisor to one company, Skyblox, which I think is worthy of the top 4 status and one of the cooler startups here in town. I’m biased and I freely admit that. But, that’s not really the point here.

Where this all breaks down is that the winner was a company called ATMDirect. I freely admit I know jack about these guys, except that the hidden secret that’s come out since the win is that they’re not really a startup per se. Maybe to the letter of the law, but certainly not the intention of it. You can technically say they’re just launching the business, but really they’re reinventing a company that has had literally millions and millions invested in it and its IP and taking some smart advantages of a bad bankruptcy situation. (And good for them).

Here’s the stated purpose of the event (from their press release):
The purpose of the GRA/TAG Business Launch Competition is to support economic development in Georgia by encouraging and supporting the creation and growth of new companies that will strengthen and expand Georgia’s strategic high tech clusters. To accomplish this, the competition has two specific goals:
  • to motivate and support entrepreneurs in creating new high tech businesses in Georgia that will support and expand existing strategic clusters, and
  • to create greater awareness within the investment community that Georgia is a great place to launch and grow high tech businesses.

(SIDE NOTE: I have issues with the purpose, especially the clusters concept, but that’s an opinion for another day).

OK, here’s the rules:
Entrepreneurs interested in launching a new Georgia company within targeted technologies and industries are invited to compete for a $100K cash prize and a suite of related professional services (including priority consideration for ATDC membership) that is valued at more than $200K. The competition offers entrants the opportunity to be mentored by a successful high tech entrepreneur.

Entrants must legally reside in the State of Georgia. All awards will be conditioned on the company launching and/or maintaining its operations in Georgia. If the winning company moves a majority of the business outside Georgia within 3 years, the winning company must repay TAG for the $100K cash prize plus 8% annual interest. TAG will make a final determination as to whether a company “moves a majority of the business outside of Georgia” and will have discretion to negotiate a variety of forms of repayment of the cash prize plus interest.

Entrants can be existing companies under certain circumstances. The competition is aimed at “new” businesses, however the time and effort required to launch a successful business in the targeted areas may require that an entrepreneur form a company and begin certain limited functions before any meaningful business operations occur. These functions could include prototype or Intellectual Property development and for these or similar reasons up to $500K in external funding may be allowed. Market trials may also be required and for this or a similar reason some limited revenue may be allowed. The judging process will take all these factors into consideration when making a recommendation to TAG’s President and the decision made by the TAG President is final.

OK, that’s where it gets a little fun. I think the rules are fair. And, it’s their money and their rules - Tino can do what he wants here.

An interesting comment on Lance’s post from John B. Frank:

ATMDirect was neither founded, NOR funded by Nandon Seth. It was founded nearly a decade ago by an individual named Robert Ziegler who raised a couple million dollars. Pay By Touch paid $30.5 Million Dollars for it and sank another couple million into it before their unfortunate demise. Nandon Seth "simply acquired" ATMDirect for $600k during the Pay By Touch bankruptcy. Thus to state that he “founded” and “funded” ATMDirect is simply a misnomer. Just thought I’d set the record straight. FYI: You can visit or and do an ATMDirect search to learn more about ATMDirect’s history as well as PIN Debit for the Web…
Even on the ATMDirect website it states: ATM Direct was purchased by Accullink, LLC of Atlanta, Georgia in March 2008. See our press release for more details. (Side note: i can’t find the press release they mention specifically from their website which is terrible).

This is from the about page: ATM Direct is a privately held alternative payments provider offering a suite of products that enable PIN debit payments over the Internet. The technology underlying our products are backed by a suite of intellectual property that includes 10 patent families. Our technology leverages a revolutionary encryption and authentication framework which is easy to implement and integrates seamlessly with existing payment processing protocols and systems.

OK, a “business launch” for a “new startup” doesn’t have 10 patent families. Ten fully prosecuted patents families would be worth at least a million or more dollars alone most likely.

Also, they seem to have violated clearly the investment criteria of less than $500K (at a minimum, not including their post purchase investment if any).

Comment from Malcolm
Time: June 9, 2008, 4:17 pm

I think the question here is a bit less of how “old” or “young” the company is. I think the other competitors wouldn’t complain about a stretch on $100K investment. The real question is, what motivated the judges to choose ATM Direct? “A good team that presents well”. By all other accounts in the transaction industry, their patents have been misrepresented and their solution doesn’t hold water.

I guess I’ll sell my failing cat waxing business to Arthur Blank and he can win next year.

Comment from Paul Freet
Time: June 9, 2008, 4:35 pm

First, I have no issue with the management team at ATM Direct and I sincerely wish them great success.

While I agree that “technically” they qualified as a new company, and the $600k was “technically” not an outside investment, I have also talked to a number of people in the Atlanta startup scene who are “technically” quite torqued off about this.

Comment from David Jones
Time: June 9, 2008, 7:52 pm

In all fairness TAG, ATDC and the GRA all have their own agendas and any entrepreneur in Atlanta that doesn’t understand that is doing themselves a disservice. These organizations are definitely not “one size fits all”. If your company is not a “fit” – and it’s likely you’re not - you have to learn what (if anything) you can glean from them and then go it on your own.

I think the biggest problem we as entrepreneurs can make is looking at TAG and ATDC as the center of the startup universe in Atlanta. They are significant and they do benefit some companies, but regardless of what many think, they are not the arbiter of success and their judgment on the viability of your venture should not always be taken to heart (except maybe for the cat wax dude…).

There is a vibrant startup community in Atlanta (and the surrounding area) and it’s just starting to get up on it’s wobbly legs. We’re busy people – this stuff isn’t easy you know – but we’re getting help with organizing and connecting, through the efforts of Scott (Startup Lounge, Capital Lounge, Pitchcamp), Sanjay Parekh (Startup Riot, Startup Drinks), David Ratajczak (YnR), Mike Schinkel (Atlanta Web Entrepreneurs), and a lot of others.

Regarding the Business Launch: Get real – yes, this is a promotional opportunity for the company that wins (for about a month or so), but it’s a bigger chest thumping exercise for the sponsors than anyone else. Is this really where you should devote your precious startup’s time? (I was told by one of the organizers that the semifinalists this year were sooooo much better that last year’s – I’m hoping they just forgot that I was a semifinalist last year… How much mileage did we get off of it? Not much. YMMV.)

Look, I’ve got nothing against ATM Direct – don’t know the guys, don’t understand what they do (they do seem to get good deals on blade servers…), but their backstory doesn’t paint a very pretty picture. The fact that their technology development is based in Dallas, TX and Bangalore as opposed to Atlanta seems to be squeaking by the rules a bit and I’m not sure how that plays into ATDC & TAG’s mission statements. Now I don’t know the founder’s financial situation (I assume after selling your company to American Express you’re probably not living off of ramen noodles any more), but nothing in the rules says you have to “need” the money to enter the competition. It’s a dog eat dog world guys and it’s rarely fair – suck it up and let’s beat them off the court.

Comment from Jeff Haynie
Time: June 9, 2008, 8:01 pm

I had the *same reaction* today when I heard of this company. Wow, i thought. Skyblox is a kick-ass startup pinching pennies and doing some really useful and valuable stuff. Of course, i’m helping skyblox so i’m biased big time.

Too bad, lots of other great companies out there in the competition that could have really used the money.

Comment from Sanjay Parekh
Time: June 9, 2008, 8:17 pm

Okay, so even though I’m currently on vacation I’ll chime in on this although I don’t have the bandwidth to do a blog post. I think the big issue here isn’t the $100k overage, but the fact that the technology has had WAY more than $500k spent on it in its various iterations - at least I assume so. Otherwise it would have never (I’d think) been bought once for $30m (regardless of if it was out of bankruptcy or not). Given that, even though it was later bought for $600k, the technology had much more *lifetime investment* in it than the $500k cap. That creates an uneven playing field for other companies that do adhere to this spending cap.

Beyond this, the company (or at least the technology) has been around for a long time in various forms. Not a startup by any stretch of any rules.

Finally, the management of the company already had a successful exit and have a large war chest to spend already. So is this money better invested in ATM Direct or elsewhere? I’d say elsewhere but then, I’m not GRA or TAG.

Comment from Sanjay Parekh
Time: June 9, 2008, 9:22 pm

Also, after reading David Jones’ comments above - I have to concur. It’s silly and we all know it’s silly. Go about your business and “win” a liquidity event since winning a launch competition isn’t (or shouldn’t be) your goal.

Comment from TerrenceT
Time: June 9, 2008, 9:27 pm

So since Delta Airlines stock has plummeted in value could I buy them for $600K and relaunch it as a new airline and win next years startup award?

Editor's Note: According to the logic used in the example above, if Microsoft would have bought Yahoo, Bill Gates would've been the "founder" of Yahoo! and Terrence T. has the potential to be the founder of Delta Airlines! On a side note, Did anyone else besides me notice that the CEO of Harbor Payments is on the Board of Directs of TAG? Why is that pertinent? Because the "founder" (sic) of ATMDirect is also the "founder" of Harbor Payments.

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