Want to know just how bad the venture capital industry has gotten in North Carolina?
- In Q1 2001, North Carolina generated 32 deals worth some $225 million.
- For the year, N.C. startups pulled in $585 million across 88 deals.
- In Q1 2014, N.C. startups pulled off 11 deals worth less than $60 million.
Forget the fact that 2001 was “dot com” boom times because of this news from The Associated Press:
“Funding for U.S. startup companies soared 57 percent in the first quarter to a level not seen since 2001, as venture capitalists piled more money into a growing number of deals, according to a report due out Friday.
“Startup investments totaled $9.47 billion in the first three months of the year, up from $6.01 billion in the first quarter of 2013. It was the highest since the second quarter of 2001, when investments reached $11.5 billion.
“There were 951 deals completed in the quarter, up from 916 in the same period a year ago.”
Dow Jones Venture Source reported similar numbers.
In fact, the lack of VC action continues to plague the southeast. A graphic from Dow Jones Venture Source included with this story is the best one-page snapshot around that demonstrates what startups from Florida to Virginia to Tennessee battle every day, every month, every year.
Follow the Money … Out of State
There ain’t much money. There never has been, really, and there probably never will be unless a Mark Andresseen decides to move to the mountains or beach.
Yes, these new venture capital investment statistics from two different sources illustrate an increasingly apparent reality:
VC is losing its relevance as an investment tool for growing startups in North Carolina, especially if you are looking for a deal from VCs based in this state or region.
Plus: If you want so-called institutional dollars, you must look west to the Valley, north to D.C. or New York, or to other sources such as private equity and corporate partners.
As Dow Jones Venture Source noted in its latest report, only four of 11 deals made in North Carolina had state roots:
- Two from IDEA Fund Partners in Durham
- One from River Cities, which has a Raleigh outpost
- One from Hatteras Venture Partners, which focuses on biotech
The others were made by a mix of corporate, out-of-state, and private equity backers.
Among those, at least Intel Capital has an active rep in the Triangle (Mark Rostick) who prowls the state and region for deals.
While deals and dollars are at the highest levels since 2001, both numbers remain paltry in the Tar Heel state which often ranked among the top 10 for VC action in the past.
With few if any funds raising new dollars (“I have heard some talk,” says Laura Robinette, PricewaterhouseCooper’s managing partner and VC guru in Raleigh) and a mere 11 deals totalling less than $60 million disclosed statewide in the first quarter, entrepreneurs and investors – from angels to limited partners – have to ask themselves:
“Where do I go to find dollars? Do I have any choice but to play phone tag with the Valley gurus and make more cross-country flights?”
Durham-based Intersouth – the bigggest local firm – has cut back, downsized, and is looking for exits, says Partner Mitch Mumma. Aurora Funds backs only current portfolio firms. Southern Capitol, an active early-stage deal maker, has slid from view with partners Jason Caplain and Dave Jones focused on their own Bull City Ventures. Noro-Moseley in Atlanta and Charlotte has raised a big new fund but is quiet. Other VCs talk deals but make few.
Running the Numbers
The statistics from the PricewaterhouseCoopers MoneyTree and Dow Jones Venture Source (back to 2010) reports document just how much VC business has declined in recent years.
By Quarter, year-to-year:
- 2013 Q1: 8 deals, $41 million
- 2012 Q1: 7 deals, $15 million
- 2011 Q1: 14 deals, $100 million
- 2010 Q1: 12 deals, $103 million
- 2009 Q1: 12 deals, $41 million
- 2008 Q1: 13 deals, $63 million
From Dow Jones Venture Source:
- 2013 Q1: 9 deals, $40 million
- 2012 Q1: 8 deals, $35 million
- 2011 Q1: 16 deals, $51 million
- 2010 Q1: 10 deals, $53 million
- 2013: 50 deals, $259 million
- 2012: 35 deals, $182 million
- 2011: 48 deals, $304 million
- 2010: 57 deals, $422 million
- 2009: 39 deals, $255 million
- 2008: 59 deals, $516 million
From Dow Jones Venture Source:
- 2013: 136 deals, $394 million
- 2012: 19 deals, $256 million
- 2011: 171 deals, $396 million
- 2010: 81 deals, $338 million
The 2008-2009 recession really hammered North Carolina’s economy, as we all know. But jobs are coming back, albeit slowly.
The startup communities in Durham, Raleigh and Charlotte are growing quickly, too.
But when the time comes for those startups to need institutional capital for more growth, this data is a grim warning.
If you are counting on VCs – never a sure bet anyway, no matter how good the product or business plan or sales – the regional and local picture is not getting any brighter.