In the second installment of a three-part story, WRALTechWire takes an in-depth look at the North Carolina Innovation Fund. (Part One is available to WRALTechWire Insiders online.
RALEIGH, N.C. – Is North Carolina’s Innovation Fund that was created to help jump-start new and emerging companies while generate jobs across the state working?
Yes, say people involved with the fund, who note a growing number of investments from high-tech to manufacturing – plus a higher rate of return than realized by the state’s over $80 billion pension fund. The $232.3 million fund was allocated by North Carolina Department of State Treasurer Janet Cowell in March 2010.
“We have made several investments in North Carolina,” said Christy Shaffer, venture partner at Hatteras Venture Partners in Durham, “since we received money from the NC Innovation Fund.”
“G1 Therapeutics is an example of a North Carolina company in which we’re invested, and they are doing very well.”
Hatteras made the investment in G1 a year ago, in September. Shaffer currently serves as Executive Chair of the Board of Directors for the company.
“We’re a manager for the NC Innovation Fund,” added John Crumpler, general partner at Hatteras, “it’s been a significant part of what we do.”
“Our current fund has made six investments, three of which have headquarters locations in North Carolina.”
These companies, Clinverse, G1 Therapeutics, and NeuroTronik, represent just a portion of the startup activity in the state, said Crumpler.
“There’s a fantastic ecosystem here in North Carolina,” Crumpler explained, “that activity requires capital to help companies become successful.”
This is why the NC Innovation Fund is so important, he noted. It’s a win-win for the state, with “good investments for investors, good companies for the world, and for the communities that we live in.”
Proof in Rate of Return
What’s the payoff been so far?
The North Carolina pension fund is valued at $80 billion, and the rate of return was more than 9 percent, said Tracy Harris, vice president at Credit Suisse. The NC Innovation Fund, though, boasts a return of more than 17 percent, said Harris.
The NC Innovation Fund is definitely working in several areas, said Cowell during a visit to Raleigh-based StepLeader, which drew funding from investors allied with the Innovation Fund. She also noted that investing in companies across the state is about to become easier. There is recent legislation, Senate Bill 558, that enables the State Treasurer to extend the state portfolio into additional asset classes, said Cowell.
“We’re trying to move part of the portfolio into credit, where we have really good returns,” said Cowell, “as well as private equity, where we have middle of the road returns.”
“We’re trying to give ourselves a little more flexibility to be consistent,” she added, pointing out that the Senate Bill will enable the Department of State Treasurer to do this.
Ultimately, said Cowell, this is good for the state’s pensioners, because the NC Innovation Fund can potentially yield an even greater return.
Looking at Cleantech
It’s not all sunshine and roses for the NC Innovation Fund.
“I think the one frustration in the fund,” said Cowell, “is that we thought there would be more energy – more cleantech.”
The Fund has looked at a lot of biofuels, and a lot of research coming out of the state’s universities, yet made few investments.
“We haven’t seen many deals,” said Cowell, “or at least not the right deals.”
Manufacturing and Jobs
Nevertheless, Cowell has been pleasantly surprised with the success of manufacturing companies.
“It’s a great jobs story,” said Cowell, “because manufacturers do tend to add a lot of people relatively quickly. Given the unemployment rate in the state, this is a feel good story.”
One of these companies is ITEC (Instrument Transformer Equipment Corporation), a Monroe-based manufacturing company. NC Innovation Fund partner Falfurrias Capital Partners invested in ITEC in March 2013, confirmed Ed McMahan, partner at Falfurrias Capital. The investment was made as a part of a strategy to acquire businesses that support mission-critical elements of the electric utility grid, said materials on the Falfurrias Capital website.
The investment, the details of which were not disclosed, will help accelerate new products and the companies ability to test new technologies for deployment on the electric utility grid, said company founder John Cochran, who is also the organization’s outgoing CEO.
Cowell visited ITEC at their headquarters in Monroe, NC, on July 11. It was Cowell’s first visit to a company that received funding through the NC Innovation Fund. As with the StepLeader visit, Cowell showcased how the Innovation Fund is helping startups as well as earning a good rate of return on the state pension fund.
“The ITEC story is representative of how the Innovation Fund is accomplishing both of these goals,” a statement released in July by the Treasurer’s office read. “Through Falfurrias’ investment, ITEC has recruited an industry-leading CEO in March and acquired new equipment to expand products and services.”
Next: The Fund’s Future