Scorecard: See the deals of 2002 at www.localtechwire.com/article.cfm?u=204
Since the early days of Research Triangle Park, North Carolina has prided itself on its technology industry. Confident in its role as the high-tech mecca for the Southeast, the state set its sights on equaling the success of Silicon Valley and Boston in nurturing information technology and life sciences start-ups and generating the venture capital that fuels such young firms.
Based on current trends, though, the state really should be looking closer to home to find a technology center to emulate.
Georgia has outstripped North Carolina in the amount of venture capital investing, both in total dollars and number of deals, for the past five years, and the gap continues to grow, according to figures compiled by accounting firm PricewaterhouseCoopers.
“They put a target on our backs and have really come after us,” says Jeff Barber, who heads the technology practice for PricewaterhouseCoopers in North Carolina. “Georgia is very aggressively pursuing high-tech and venture capital as a means of building their economy.”
In 1996, the last year North Carolina topped Georgia in venture investing, the state recorded 60 deals totaling $240 million, while 51 deals for $188 million took place in the Peach State. By last year, Georgia technology companies were seeing 50 percent more deals (118 to 75) and 50 percent more dollars ($769 million to $501 million) than their Tar Heel neighbors.
Already this year, seven of the Top 10 venture deals reported by LocalTechWire for the two states have taken place in Atlanta or its suburbs. All told, 14 deals have put more than $150 million into Georgia start-ups this year, while nine deals in North Carolina have netted just $45 million.
Cutting state funding
“It’s not only Georgia but Virginia as well,” says Walter Daniels, a Durham lawyer who represents many tech firms and formerly chaired the N.C. Technological Development Authority. “At a time when we’re cutting back state support for the Biotech Center and the TDA, those states are ratcheting up support for similar institutions.”
Firms in the Washington, D.C., area have racked up $131 million in venture capital so far this year in 14 deals, according to The Washington Post.
North Carolina officials have frozen the TDA’s annual appropriation amid questions over spending habits at the agency. Funding for the N.C. Biotechnology Center has been reduced during the current budget crisis, and MCNC, which has spawned several IT firms, was cut off entirely from state support in 1999.
“I do believe we’re resting too much on past laurels, and if we don’t retain our focus, they’re going to eat our lunch,” Daniels says of neighboring states.
Wes Getman of PricewaterhouseCoopers’ Atlanta office says Georgia has taken a number of steps in recent years to bolster its technology industry. The Yamacraw Seed Funds, two $5 million pots to fund fledgling firms in the biotech and communications industries, and EmTech, a joint venture between Georgia Tech and Emory University to spur more biotech development, are both recent creations. The state offers economic incentives for technology companies to locate in Georgia, and business officials have lobbied to invest more money from the state retirement system in venture funds.
Corporate backing important
Each effort has a parallel in North Carolina, but Georgia seems to be doing a better job on all fronts, especially in corporate support of venture investing, says Dennis Dougherty of Intersouth Partners, one of North Carolina’s oldest and largest venture firms.
“Business leaders (in Atlanta) are getting on the same song sheet of making the area a major technology center for the Southeast,” Dougherty says. “I’m highly impressed with how hard those guys have pushed to make Atlanta a center for venture capital.”
Atlanta-based utilities Southern and Georgia Power helped create Alliance Technology Ventures, BellSouth is a key investor in Noro-Moseley Partners, one of the largest venture firms in the Southeast and even United Parcel Service has its own private equity unit.
“We don’t have any large corporations participating in venture capital here,” Dougherty says, noting that major banks, which view venture capital as a necessary part of investment banking services, and universities are the only “sophisticated investors” in North Carolina.
Matter of timing?
Alan Taetle of Noro-Moseley says corporate support is an important part of Atlanta’s venture structure and, consequently, its technology base. But he says North Carolina also has a solid support system in place for tech start-ups, and he doesn’t see an ominous trend for the state in the venture numbers.
“Some of it is just blind luck, the timing of investments, the stage of various funds,” he says.
Others also disagree with the view that North Carolina has lost a step or two in the technology race.
Dan Allred, vice president of the Council for Entrepreneurial Development, which supports young firms, attributes the PricewaterhouseCoopers numbers to the larger amount of venture capital that resides in Atlanta and Washington, D.C., and the preference of funds to invest closer to home.
Walter Wilkinson of Charlotte-based Kitty Hawk Capital was more blunt in his assessment: “I think it’s, frankly, bull to compare the two states. We and other venture firms just look for good deals regardless of where they are. I think there’s plenty to go around.”