David Gardner, a veteran entrepreneur and investor started his own venture fund due to the lack of institutional capital available from North Carolina firms. So his view of what’s happening across the state is focused on what can be done to raise more money. He has some ideas. But crowdfunding, he warns, isn’t an answer.
Gardner launched Cofounders Capital in June of last year, raising $10 million. He’s also acted as an angel investor.
In response to WRAL TechWire’s inquiry about the latest MoneyTree venture capital report from PricewaterhouseCoopers in partnership with the National Venture Capital Association and Thomson Reuters, Gardner instead stressed the lack of money and pitched his ideas to improve the situation.
“My world is focused more on very early stage investing but some of my companies have managed to draw in capital from outside the state this year,” he explained. “There is a little more money coming into the state but we need much more A round capital here.”
By “here,” he means firms that have professional managers IN North Carolina markets to work with portfolio companies.
“Investors are often reluctant to invest outside of their local networks and they hate having to fly somewhere for board meetings,” he said.
Gardner pointed to state political leaders as providing a possible solution.
“Current State economic development strategy seems to be focused on bribing employers to move operations back to NC through tax incentives,” he said. “I think a more effective strategy would be to focus on helping the promising companies that already call N.C. home.
“They need investment capital to grow and to become the major employers we need.
“The best way, I believe, to accomplish this would be by offering to invest some level of matching state dollars into funds that are able to raise money here. This would be a strong incentive for fund managers to start N.C. focused funds and open offices here.
“Best of all, it would not cost the state any time because most funds actually show a decent return for their investors sometime up to three times the investment.”
The General Assembly has batted around the idea of a $50 million fund. The Department of Commerce does offer matching grants for federal awards. And state treasurer Janet Cowell has launched an investment fund. But Gardner wants more.
So WTW asked if a capital boost could come if North Carolina passed crowdfunding legislation this year.
“I’m not a big fan of crowd funding in the form that is being pushed,” he replied.
“The only way to make money on early stage investing is via a rigorous due diligence process that the average online investor is just not equipped for. This means that the vast majority of these deals will be the ones that could not get funded by sophisticated investors after scrutiny…think penny stocks being pushed in the 90’s.
“In fact, I think crowd funding could have the opposite affect. Once online investors start loosing money they will get turned off to investing in early stage companies all together hurting local angel groups and fund managers.”
He did recommend one idea where crowdfunding could be effective.
“Crowd funding could work well if each deal had to have a qualified lead investor with online investors doing add on investments only. I know this is not a popular opinion so it’s one I usually keep to myself.”