Two new reports on the state of venture capital paint a grim picture for deal making in North Carolina. So what’s happening out there?

Several venture capitalists/investors offer their thoughts:

  • Merrett Moore, Lookout Capital:

Perhaps the most notable phenomenon of the past 2-3 years is the explosion of organizations throughout the Triangle, North Carolina and the Southeast looking to foster innovation and entrepreneurship. From universities to non-profits to the private sector, there are a lot more players trying to get into the startup game. Among other impacts on venture capital in the area is a dramatic increase in companies looking for funding, so deal flow has theoretically “improved” in terms of quantity.

I am not sure, however, the added quantity has resulted in better overall quality of deal flow. I am concerned the flood of new companies has diluted and will dilute specific startup company quality in that the premier entrepreurs are spread out too thinly.

In terms of “hot areas”, it seems there are a lot of social media and cloud plays out there getting attention. While I am a big proponent of making specific company and team bets, those sectors theoretically have risk-reward characteristics and funding needs that are attractive to the investment players in the community.

Frankly – and this may be a bias via my involvement with Rex Health Ventures – the most compelling opportunities I have seen recently are in drug development. More specifically, companies focused on a specific drug development niche or stage have caught my attention. Aerial Bio, Rex Health Ventures’ first investment, is a prime example of that and I have seen several other similarly compelling opportunities throughout the Southeast.

  • Chris Heivly, Triangle Startup Factory:

We are not seeing anything but continued growth in the seed stage deal flow and investment.

I would apply this to NC as well. I have no visibility into the SE.

In general – the hot area is the early startup of 2-4 people – the amount of conversations we have is off the charts.

I hear that B rounds are hard to do here in the south east as the number of VC funds operating in general have fallen.

  • David Jones and Jason Caplain, Southern Capitol Ventures:

We continue to see steady deal flow, especially given the proliferation of accelerators and incubators in the SE and Mid-Atlantic.

Information technology in general remains hot – software, internet, mobile, and social driven much by the small amounts of capital required to get these businesses started.

  • Ford Worthy, Pappas Ventures:

For us, deal flow continues to be steady.

Our follow-on investment activity has also been steady (11 follow-on deals so far this year).

One of our companies went public in late June (Tesaro), pricing in the middle of the range. Another, Liquidia, just announced a notable deal with Glaxo (including an equity investment).

I don’t see any areas that are especially hot (rare diseases/orphan diseases has gotten a bit of attention lately).