By Karen Hill
Atlanta's high technology growth is rooted in Georgia Tech
Atlanta's march toward a high-tech economy began more than a century ago, in the ashes of Sherman's march to the sea. "Some of the stories that we tell today are remarkably similar to what Atlanta newspaper editor Henry Grady was talking about with such passion and eloquence in the 1880s," says William J. "Bill" Todd, IM '71 (right), president of the Georgia Research Alliance, a private nonprofit group that funnels high-tech investment funds to university researchers.
"The cornerstones of his 'New South' philosophy were industrialization, racial reconciliation and reconciliation with the North and the key to industrializing was developing a pool of engineers," Todd says. "Georgia Tech was founded in 1885 for that purpose to create a pool of talented engineers to move us from an agrarian to an industrial society."
It's taken about a century, but the seeds Grady planted are flourishing now in a hothouse of university incubators where entrepreneurs are hatching start-up companies by the hundreds. West Peachtree Road near the Tech campus has become a high-tech corridor, packed with start-ups wanting to stay close to Tech researchers and each other. Private investors are putting their money where the word-of-mouth is staking millions on fledgling companies, even just good ideas.
Bill Todd of the Georgia Research Alliance: The cornerstones of New South growth have been "industrialization, racial reconciliation and reconciliation with the North."
The surge of start-ups is even amazing some of those who made it happen. "I'm real pleased with it, but I must confess some surprise that it happened as quickly as it has," says former Gov. George Busbee, who wouldn't let state legislators laugh off the idea of "incubating" fledgling companies at Tech. Todd produces the statistics:
The strides have come by focusing on two niche markets within high-tech: telecommunications and small start-ups. That sets it apart from other Southeast competitors. For example, North Carolina's Research Triangle focuses on high-tech manufacturing for industry giants such as IBM. Huntsville, Ala., lures defense technologies. Orlando, Fla., concentrates on laser-based technologies. Internet-based companies cluster around Richmond, Va.although several Atlanta companies now are making inroads on that turf.
The latest, and largest, burst of activity came in the wake of the 1996 Summer Olympics, which left Atlanta wired with more fiberoptic cable than any other city in the world. The Metro Atlanta Chamber of Commerce began luring companies here to take advantage of that.
But the Chamber's success in that campaign, still ongoing, was really the cherry on top for decades of slow, often unrewarding spade work much of it done by groups and individuals affiliated with Tech.
"Basically, we help companies to be more profitable and find solutions to their problems."
The Georgia Tech-affiliated Economic Development Institute (EDI) opened its first regional office about 40 years ago in Rome, Ga. Since then, it has opened 18 more field offices around the state, all offering the expertise of staff engineers to companies and entrepreneurs in their region.
"Basically, we help companies to be more profitable and find solutions to their problems," says Director Wayne Hodges, who also serves as a liaison to the Georgia Research Alliance. "We may be able to resolve it at the field level; we may send it on up to Georgia Tech to experts there, or we may be able to bring in another agency or group in the state with a particular capability to help."
Much of EDI's work is, and was, high-tech, Hodges pointed out - but in industries where that phrase isn't used much. State-of-the-art, high-tech manufacturing processes roll out miles of cable at Southwire Corp. in Carrollton, Ga., for example but that's not considered a high-tech company because its end-product is simply wire, not computers or software. The same holds true for the textile industry.
So regional offices help low-tech companies adopt technology to compete in the world including information technology, quality and international standards, and lean manufacturing techniques.
"Their production processes are high-tech," Hodges says. "That's how they compete."
EDI, which also manages Tech's technology-transfer activities and economic development programs, was created in 1992. The regional offices got their start under the industrial extension service of the Engineering Experiment Station, which became the Georgia Tech Research Institute in 1985.
"EDI was spun out of GTRI because what we do is outreach and not applied research," Hodges explains. "Although we are separate, we work very closely with GTRI."
In 1951, the state's landmark high-tech company, Scientific-Atlanta, opened its doors founded by seven Georgia Tech professors: Glen R. Robinson Jr., James E. Boyd, Robert E. Honer, Vernon Widerquist, Lamar Whittle, and Charles and Gerald Rosselott. A small manufacturer of electronic test equipment for antennas used in the space and defense industries, chairman Robinson, Phys '48, MS Phys '50, and colleagues traveled up and down the highways of the East Coast selling their equipment to military bases.
As the company grew into a world leader of satellite-based communications networks, cable-television electronics and telecommunications applications, it hired more and more Tech graduates many of whom ultimately followed Robinson's entrepreneurial example and set out on their own. About 100 of Atlanta's high-tech companies can trace their roots to Scientific-Atlanta.
Television cameras never captured Atlanta policemen with riot batons and German shepherds wading into crowds of civil rights marchers unlike what happened in Birmingham, the Alabama city that was Atlanta's rival for southeastern dominance at the time.
"There's no doubt that peaceful social change, led by a number of people, including then-Mayor Ivan Allen Jr. [Com '33], played into Atlanta's development," Todd said. "When I was growing up, Atlanta and Birmingham were considered about the same real competitors."
The civil rights movement coincided with the decision of many Fortune 500 companies to establish regional offices around the nation, Todd said. Many northern executives, shocked by the violence, simply refused to move their families to some southern cities, including Birmingham.
Atlanta's skyscrapers dwarf the Tech tower, but it's been the Institute's development of intellectual and entrepreneurial ventures that has spawned much of the city's success.
Dr. Joseph Mayo Pettit, president of Georgia Tech from 1972 to 1986, brought to Atlanta both familiarity with Silicon Valley and a wealth of personal experience.
"They said, 'We'll go to Atlanta, but not to these other places that have suffered daily newspaper coverage of terror and unrest,'" Todd said. "That's how Atlanta got the very strong presence of AT&T and IBM, many of whose executives are the backbone of the technology industry.
"Doing the right thing paid off handsome dividends, royally."
Four Tech graduates founded Atlanta's first software company, Management Science Atlanta (MSA) in 1963. A few years later, MSA would change its name, substituting "America" for "Atlanta." As happened at Scientific-Atlanta, many MSA employees went on to create their own companies. Two MSA founders, Jim Edenfield, IE '57, and Tom Newberry, IE '54, MS IE '58, Ph.D. '61, later left to start another Atlanta company, American Software.
When MSA fell on some hard times in the late '60s, another Tech grad, John Imlay, IM '59, took the company through bankruptcy proceedings and a painful reorganization. And in 1972, the firm was showing a profit. Imlay emerged as a congenial leader and high-tech spokesman who cultivated an esprit de corps at MSA, empowering managers and avoiding a rigid bureaucracy.
Observing the numerous companies founded by former MSA employees, Imlay once quipped that MSA was like "the Harvard Business School," since so many employees learned the skills of successfully operating a business.
"That family tree was home to a large portion of the software entrepreneurs in the city," said Ben Dyer, IE '70, co-founder of Peachtree Software, which was acquired by MSA in 1981. "It's just been in the past few years, really, because the city is growing so rapidly, that you can go to events and realize that not everybody there worked for MSA."
Also, Electromagnetic Sciences, a manufacturer of wireless communications and transmission equipment, was founded in 1968 by John E. Pippin, EE '51, MS EE '53, a former vice president of research at Scientific-Atlanta.
A 1963 study sponsored by the Georgia Tech Alumni Association found that creation of a technology-oriented business park could attract companies and spark high-tech growth.
In 1971, Technology Park/Atlanta was incorporated, and two years later construction crews broke ground on the development in the city's northern exurbs. Paul Duke, ME '45, EE '46, was chief promoter of the project, modeled after a successful development at Stanford University, and all of the investors were Georgia Tech alumni. But before Technology Park/Atlanta achieved critical mass, a real-estate recession hit the city and the project was in jeopardy.
Michael Tennenbaum, EE '58, became chairman during the crisis, and Charles Brown, BC '62, was named president. The organization's directors personally guaranteed a bank loan that financed continued construction, while Brown began recruiting tenants. Technology Park has become home to a number of high-profile, high-tech companies, including Scientific-Atlanta, General Electric, EDS Nuclear and Digital Communications Associates.
In 1971, Parker H. "Pete" Petit, ME '62, MS EM '64, an aircraft engineer who lost a six-month-old son to Sudden Infant Death Syndrome, quit his job and founded Healthdyne in Marietta, Ga., where he developed the first home device to monitor infants at risk for SIDS.
Tech grad Dennis Hayes, Cls '73 (right), and a co-worker at National Data Corp. built at Hayes' kitchen table in 1977 the first modem that could be used on a personal computer. Within eight years, Hayes Corp. would control 60 percent of the world's modem market.
In 1972, Dr. Joseph Mayo Pettit (right) became president of Georgia Tech, leaving his position as dean of engineering at Stanford University. He brought to Atlanta both familiarity with Silicon Valley and a wealth of personal experience. A graduate of Stanford and a member of its faculty for 25 years, Pettit had been a major participant in the high-tech research and development boom that exploded around the Stanford campus. He became a chief proponent for high-tech development in Atlanta.
At the same time, a group of young Tech alumni living in Atlanta were taking matters into their own hands. The "Committee of Twenty," an adjunct committee of the Georgia Tech Alumni Association that was formed to keep young alumni active in campus affairs, decided the best and most obvious way to allow Tech graduates to remain in Georgia was to provide good jobs for them.
They did it, with help from President Pettit and one young lawyer willing to gamble with his personal American Express card. After graduation, John Hayes, IE '70, worked on economic-development projects for Sen. Herman Talmadge (D-Ga.), attended Emory University law school, set out his shingle with an Atlanta law firm and joined the Committee of Twenty. In 1977, with Ben Dyer and several other friends from Tech, Hayes founded Peachtree Software, which grew to national prominence after developing software for IBM personal computers. But they got a firsthand introduction to how difficult life was for start-up companies in a town where neither bankers nor accountants, marketers nor lawyers understood the computer business.
"In the '60s, the idea of going to a start-up was just crazy. In the '80s, the start-ups were a raging success."
In 1978, the Committee of Twenty sought advice from Pat Lyles, a Harvard Business School expert in entrepreneurship who had once worked in Atlanta for Scientific-Atlanta.
John Hayes recalls Lyles telling them:
"You've got all the right ingredients, but they're not quite ripe. They're not close enough together to create the right climate, the right critical mass. You've got Georgia Tech, a great technological university. You've got people with a real entrepreneurial spirit, but they're all doing real estate, not high tech. You've got very conservative banks who all want to be doing more, but don't know how to do it. You've got law firms and accounting firms that want to help, but don't have a clue how to do it. The best thing you could do to create 1,000 new high-tech firms is to fire all the engineers working in research at Tech, so they'd all go start their own businesses.
"The reason high tech was working in Silicon Valley and Boston and not so much in Atlanta was role models people in Silicon Valley and Boston had examples."
The Committee of Twenty began work on an innovative concept to create an incubator on the Tech campus, which would rent high-tech entrepreneurs office and laboratory space at low cost and provide a network of business and technical advisers.
Top state education officials took the incubator idea to Gov. George Busbee. He had, it turned out, been looking for ways to bring advanced technology to Georgia.
"I wanted to provide a more diversified economy, to have more career opportunities for Georgians," Busbee says. "But we had a lot of skeptics about getting the funds approved by the Legislature and even in the business community about whether you could take an incubator company and really make anything out of it."
Busbee refused to let the idea die, including money for it in the budget he sent to the 1980 General Assembly.
Meanwhile, on the venture-capital front, John Hayes and a few others were struggling to set up a venture capital conference that would introduce the owners of start-ups to the owners of big bucks. They had just $100, from the Committee of Twenty.
John Hayes tried to win the sponsorship of a group that put on a similar conference in Silicon Valley. Not interested, they responded; this won't ever happen in Atlanta.
Hayes charged the invitations to his law firm, hoping his managing partner wouldn't mind too much. He charged the rental of conference rooms at the Atlanta Hilton on his personal American Express card, "in the great hope that the conference would at least break even," he recalled almost 20 years later.
But entrepreneurs wouldn't come without knowing which venture capitalists had signed up; venture capitalists wouldn't come without knowing which entrepreneurs had committed.
John Hayes went to Pettit, who told him to invite a venture capitalist in California. He did, and the man agreed to come. Other venture capitalists followed, with alacrity.
Surprised at the turnaround, Hayes asked who that first venture capitalist was. It turned out to be Tommy Davis of the Mayfield Fund, the "dean of California venture capital," the investor who had made much of Silicon Valley possible and reaped many fortunes in return. Pettit had worked for him while a graduate student, steering him to several good buys.
Still, the clock was running. Silicon Valley was a stunning success. MIT in Boston was spawning a similar high-tech corridor. All the new high-tech companies wanted to be part of that synergy. Atlanta would just have to grow its own industry.
High-tech promoter John B. Hayes, IE '70, is president of OneCoast Network.
Things were looking good in the early 1980s:
The conferences brought venture capital to Atlanta, but in a trickle instead of the hoped-for flood. Atlanta banks remained skeptical. But success came with a twist: Some of the people involved in luring venture capitalists here became so convinced of business potential in Atlanta that they left their jobs and set up their own venture capital funds. Tech grad Charles D. "Charlie" Moseley, IE '65, was the first of them. Moseley co-founded Noro-Moseley Partners, one of Georgia's original venture-capital funds, in 1983.
"The state recognized the need to broaden its investment in technology research and micro-electronics was a key area. The Micro-electronics Research Center at Tech was the first effort in that direction."
Then Atlanta was surprised to find itself a leading candidate to land a huge high-tech prize: MCC, a computer-industry research consortium, designed to come up with technologies and products that might stem the hemorrhage of market share to Asian firms. The city lost out to Austin, Texas.
"That was a disappointment, yes, but it also was the genesis of a real start toward a different way of thinking as far as technology development was concerned," Hodges (right) says. "We found out that we could compete against some very strong locations. The four finalists were North Carolina, San Diego, Austin and us; and we came in second. That was a real plus."
The strength of Atlanta's bid was Georgia Tech, Hodges says.
"We got into the competition late, but were allowed to make a presentation in Chicago," Hodges recalls. "They were so impressed with Joe Pettit and Georgia Tech that Atlanta remained in the competition until the final cut."
The state created a research consortium that funded and built the Microelectronics Research Center at Tech to strengthen the Institute's research prowess and enhance Atlanta's image as a high-tech city.
"The state recognized the need to broaden its investment in technology research areas and microelectronics was a key area," Hodges says. "This was the first effort in that direction."
McKinsey & Co. was hired by the state to do a study targeting the state's high-tech potential. The study, directed by Dan Pittard, IM '71, had two major recommendations:
Atlanta civic booster Larry Gellerstedt, ChE '45, who was chairman of Beers Inc., contacted colleagues at other state colleges and universities, tossing around ideas that ultimately would lead to the Georgia Research Alliance.
McKinsey's advice came just in advance of a major culture shift in the engineering world, sparked by the explosion in microcomputer software and the go-go entrepreneurial spirit of the Ronald Reagan presidency, with the resulting easy access to venture capital.
"There was a real legitimization of being an entrepreneur," John Hayes recalls. "In the '60s, if you graduated from a good school, you went to a big firm. The idea of going to a start-up was just crazy. But now, the idea of being an entrepreneur was a lot more acceptable. In the '80s, the start-ups were a raging success."
In June 1990, the Georgia Research Alliance opened its doors, operating with a mix of public and private funding. Its first job was to attract "eminent scholars" from across the nation to fill endowed chairs at six Georgia universities, in three research areas: telecommunications, biomedicine and the environment.
The Georgia Center for Advanced Telecommunications Technology, or GCATT, located contiguous to the Tech campus, spearheads the GRA's telecommunications thrust.
GRA is ahead of its 20-year schedule, Todd said, as measured in patents filed and awarded, royalty income and other income. So far, GRA has invested nearly $300 million in state and private funds, which has attracted about another $500 million in federal funds. It has endowed almost 30 chairs for nationally recognized research professors, at $5 million apiece. It's added 1 million square feet of research facilities to campuses and stocked them with scientific equipment.
In Good Company
Then there's the ATDC. Its member companies report revenues of more than $300 million and employ about 2,500 people. One of its stars is MindSpring, the nation's fifth-largest Internet service provider, which has grown to 700 employees and annual revenue of $78 million.
"We have invested heavily in building the intellectual content to support a robust technological economy."
ATDC also operates incubators at GCATT and in Warner Robins, Ga., where high-tech companies get office space, access to resources at Georgia Tech and the University System, and are linked to investors, accountants and attorneys.
"Entrepreneurship and new-company formation has been the critical element, but the notion was and remains today that there must be a mechanism to move discoveries from Georgia Tech laboratories to the marketplace. It's not automatic, and it's not particularly easy," Todd says. "It has taken, and will continue to take, a lot of nurturing and care.
"Looking back, we can see that what was so necessary was the continuous development of the research enterprise. And even though the high-tech industry here is still not as well known as it should be, that's the right sequence," Todd continues. "We were right to invest heavily in building up the research capabilities of Georgia Tech and its partners instead of buying a huge piece of property and saying, 'Y'all come.'
"We have instead invested heavily in building the intellectual content to support a robust technological economy. Historians will say it was the right thing to do." GT
Karen Hill is a freelance writer in Atlanta.
Atlanta leads the South- east in attracting start-up money
In 1980, when a group of young Georgia Tech alumni led by John Hayes organized the first venture-capital conference in Atlanta, there was no venture capital to be found in Georgia.
Since 1995, however, Atlanta has led the Southeast in attracting venture capital money investors pump into a developing company drawing more than $413 million in technology deals, according to PricewaterhouseCoopers.
Although Atlanta attracted only 3.3 percent of the U.S. high-tech venture capital during that time, the city has grown faster than top technology hot spots such as Silicon Valley; Boston; Colorado's Denver/Boulder area; Austin, Texas; and Research Triangle Park in North Carolina.
Despite this year's July-September stock-market plunge, at the end of the third quarter Georgia was on pace to out-perform its 1997 record of $290.2 million in venture investments.
Companies at Tech's Advanced Technology Development Center have attracted an estimated $88 million in investments, mergers and acquisitions since December 1997. In all, seven ATDC companies received equity investments totaling more than $22 million, and six ATDC companies were acquired for approximately $66 million.
Atlanta venture-capital firm Alliance Technology Ventures has invested in four ATDC companies over the past two years.
"At Alliance Technology Ventures, we only invest in high-tech companies, so ATDC is a terrific hunting ground for us," says General Partner Stephen Fleming, Phys '83, who adds that ATDC's formal review process ensures the quality of companies in the incubator. "If a plan makes it through the ATDC screening process, we're almost automatically interested in taking a look at it."
Among the many Georgia Tech alumni excelling as venture capitalists include:
Charles Moseley, IE '65, a partner of Noro-Moseley, one of Atlanta's leading venture-capital firms. Founded in 1983, it is one of the city's oldest.
Brook Byers, EE 68, a partner Kleiner, Perkins, Caufield and Byers of Menlo Park, Calif. He has been a venture-capital investor since 1972 and has been involved in more than 40 new science-based companies more than half of which have become public companies.
Gil Amelio, Phys '65, MS Phys '67, Ph.D. '68, a partner of the Parkside Group of San Francisco, leads his company's high-tech financing.
Michael Tennenbaum, IE '58, who founded Tennenbaum & Co. after nearly 20 years as one of Wall Street's most important players in Los Angeles, where he ran the West Coast investment banking operations of Bear Stearns & Co.
E. Roe Stamps IV, IE '67, MS IE '72, a founder and managing partner of Summit Partners of Boston. Since its founding in 1984, Summit has been the fastest growing private investment firm in the country. GT
Oldest university incubator center also rates as best
By John Toon
From the basement of an old high school to three locations in Georgia including one in the state's pre-eminent telecommunications research center the Advanced Technology Development Center has come a long way in less than 20 years.
Launched in 1980 by the governor and General Assembly to spur growth in start-up companies, ATDC opened shop in 1982 with a handful of companies working amid falling plaster and musty textbooks in former classrooms at the old O'Keefe High School. In 1985, ATDC and its companies moved into its brand-new, 83,000-square-foot headquarters building at 430 Tenth Street. Since then, ATDC has opened incubators in Warner Robins (1991) and on the fourth floor of the Georgia Center for Advanced Telecommunications Technology (1996).
Today, ATDC hosts 45 high-tech companies in technologies ranging from telecommunications and new media to biomedicine and environmental monitoring. During calendar year 1998, ATDC companies reported a record $88 million in financing, new investments, mergers and acquisitions among 15 of its companies. ATDC also celebrated the success of its most famous graduate, MindSpring Enterprises, which reported revenues of $77 million and took its place, No. 35, on Business Week magazine's list of the nation's top information-technology companies. ATDC, the oldest university-related incubator center, has also been rated the best incubator operation in the country by the National Business Incubator Association.
There's more expansion in ATDC's future. Following the model tested in GCATT, ATDC will open other incubators in major research facilities funded by the Georgia Research Alliance. The goal, according to Director Wayne Hodges, is to turn cutting-edge research into new companies by getting business people together with researchers.
This innovative incubator model putting start-up companies in the same building as leading researchers will guide ATDC's growth as it begins its next 20 years. Incubators are planned as part of the new Environmental Sciences Building and the Institute for Bioengineering and Biosciences Building both on the Georgia Tech campus and the new research facility planned by the Georgia Research Alliance for Skidaway Island. ATDC will also have a biomedical incubator as part of the new biomedical research park formed as a collaborative effort between Georgia Tech and Emory University.
It's a long way from plaster dust and old textbooks. GT
John Toon is manager of the Economic Development Institute.