When I moved back to North Carolina from NYC a little less than a year ago, one of the first questions I asked some of the local participants in the startup ecosystem was a simple one – “who are the active VCs and investors in this region?”
I began to look into this question late last summer and was inspired to do a deeper dive during last week’s CED Venture Conference. In two separate conversations with an out of town VC and lawyer, I was asked the following:
- How many venture-backed tech companies are there in NC?
- Who is funding these companies?
Over the last week I’ve been spending time looking into the answers to these questions. To provide a bit of framework for my research, I decided to drill down on a specific subset of companies. I’ve often found that in looking at macro VC data, it’s difficult to distinguish the signal from noise due to the effect of aggregation. For instance, when looking at total VC investment in North Carolina in a given year (or quarter), the data can be meaningless as a proxy for health of the ecosystem if the simple “NC companies raised $400MM in VC last year” test is applied. This gives no credence to what portion of this total number is driven by a small number of small large rounds or whether the aggregate value is being influenced by a bent towards life science or tech.
In an attempt to make the data a bit more meaningful, I chose to employ the following methodology:
- Focus on technology deals – I chose to focus on the broad category of tech (and in turn to ignore, for the moment, life science/medtech/materials science/biotech/etc). This is not a commentary on life sciences by any means, as anyone who knows NC can attest that the region’s life science and biotech community is a huge natural resource. Rather, the impetus for the post came from the conversation at the Venture conference which had a decidedly tech bent. Additionally, I wanted to compile this data to serve as a resource for tech companies asking the question of “what firms are investing in NC.”
- Hard/Soft Segmentation – within the technology category, I attempted to further segment based on “hard” vs. “soft” technologies. Broadly speaking, “hard” technologies include semiconductors, materials, & sensors. “Soft” technologies include internet/web services, mobile, technology enabled services, e-commerce, and healthcare IT.
- Recent lookback – I looked at the companies that had raised money in the last 3.5 years - all investments occurred between 1/1/2008 and 5/1/2011. In short, I wanted to know who’s investing NOW vs. who used to invest in NC.
- Data Resources – I used data from PWC Moneytree & Thomson. It should be noted that PWC and Thomson (as well as the other entities that cover PE investing) don’t all use the same methodologies for how they report rounds (especially as it relates to tranches, convertible bridge loans, etc). Therefore, for every attempt to make this science, there was a bit of art in combining the data into a form which is hopefully very accurate.
- Focus on institutional investors - the data sources tend to list institutional investors and do not always note individual angel investors. It’s likely that there were additional companies that have raised angel money or equity from friends and family. Some of these deals are likely not included in this analysis.
- During the period from 1/1/2008 – 5/1/2011, at total of 56 tech companies in North Carolina raised money from institutional investors.
- The equity raised by these tech companies came from more than 80 unique investment firms.
- In aggregate, these companies raised more than $500MM in capital during this time period. Of this total, ~$146MM was for “hard” technologies and ~$366MM for “soft” technologies.
Further Breakdown: “Soft Technologies”
- $366MM raised, from 44 companies
- Average raised was $8.73MM; Median raised was $4.97MM. There were 8 total softtech companies which raised more than $17MM each - the largest of which was the $45MM raised by iContact. There was a bit of a barbell outcome in terms of total amount raised - 13 companies have raised less than $2MM, with 29 companies raising more than $10MM. 8 of the companies which have raised less than $2MM did so within the last year - therefore, it’s likely that some of these will “graduate” into the next level of the graph below in the year ahead.
A total of 65 different firms invested in softtech companies during the time period. The most active firms (those with more than 1 investment during the period):
- IDEA Fund Partners (7)
- Southern Capitol Ventures (6)
- Intersouth Partners (4)
- Capitol Broadcasting Company (3)
- Valhalla Partners (3)
- Aurora Funds (2)
- Frontier Capital (2)
- Intel Capital (2)
- Kodiak Venture Partners (2)
- Noro-Moseley Partners (2)
- RRE Ventures (2)
- Trinity Ventures (2)
- Wakefield Group (2)
Notable out-of-town VC firms which made at least 1 softtech bet during the period include: .406 Ventures, Azure Capital Partners, Canaan Partners, Chrysalis Ventures, Core Capital Partners, Flybridge Capital Partners, General Catalyst Partners, Greycroft Partners, Harbert Venture Partners, Highland Capital Partners, JMI Equity, Kinetic Ventures, Madrona Venture Group, New Enterprise Associates, North Atlantic Capital, North Bridge Venture Partners, Novak Biddle Venture Partners, True Ventures, Updata Partners, & Venrock Associates.
Further Breakdown: “Hard Technologies”
- $146MM raised, from 12 companies
- Average raised was $12.2MM; Median raised was $9.75MM. Every hardtech company except for 1 had raised more than $5MM. The largest raises were from Overture Networks ($35MM+) and Bright View Technologies ($28MM+)
A total of 22 different firms invested in hardtech companies during the time period. Of these firms, only 5 also invested in softtech deals during the same period:
- Intersouth Partners (5)
- Aurora Funds (2)
- IDEA Fund Partners (1)
- Novak Biddle Venture Partners (1)
- Venrock Associates (1)
No other firms invested in more than 1 hardtech deal in NC during this time period. Notable out-of-town firms which made hardtech bets include: Battery Ventures, ARCH Venture Partners, Oak Investment Partners, and Morgenthaler Ventures.
A Few Thoughts
In compiling the data, it was interesting to think through just how few venture backed tech companies there are in North Carolina. Over a 3 year period, only 56 companies raised money from institutional investors. This is a sobering and somewhat mind-boggling fact to me, but highlights the notion that the VC world is indeed very small when you step back and look at it.
There is often a sentiment that there is not enough resident venture capital in North Carolina. What this data suggests is that the local funds are the most active in terms of overall number of deals funded - IDEA Fund Partners, Intersouth Partners, and Southern Capitol Ventures were involved in the most # of deals. However, two funds of older vintage - Wakefield Group and Aurora Funds - that were active in the past are not making new investments. It seems that out of town firms are willing to come to NC to invest - literally dozens have dipped their toes in the water at some point in the last 3 years. Yet, with few exceptions, these firms tend to do so on a one-off basis, and for companies which have gained some early traction.
All of this leads to the obvious bigger question - are there more fundable entrepreneurial companies in NC? And if there are, if there was more resident early stage capital in the state, would we see even more interest from out of town funds for the follow on rounds (or funds willing to do multiple deals in the state). This is an age-old question and I’d love to hear the thoughts of readers in the comments.
As a final thought, there’s obviously much more analysis which can be done on this data - I hope to be able to provide some additional looks in the weeks ahead.