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“My scoutmaster used to say that Dougherty had his head on backwards. He was right.” – Intersouth’s Dennis Dougherty
DURHAM, N.C. – Did you know that Intersouth founder Dennis Dougherty, the acknowledged patriarch of venture funding in North Carolina, overcame dyslexia and hearing problems? What’s he think about the Triangle’s future? The state of investment capital? And will Intersouth raise a new fund? Our Insiders get the story in the second part of our exclusive Q&A.
The interview is the last in a series profiling the five technology and life science pioneers in North Carolina who earlier this month were made the first members of the WRAL TechWire Hall of Fame.
Part one is available online. Other profiles in the series are linked in this post.
- If you were to share a story about overcoming a personal challenge, what might that be – and how does that relate or impact on your professional career?
My scoutmaster used to say that Dougherty had his head on backwards. He was right.
Several in my family have mild or moderate dyslexia. I just got a lot of things backwards. I’m still amazed at people who know right and left without thinking about it.
And I’m partially deaf.
Together these ailments conspired to make school and sports very difficult (in football the left guard needs to line up on the left).
I was diagnosed as hearing impaired after high school so I was able to figure out how to function in college before it was too late and I did pretty well.
How that affected Intersouth? Especially for raising the early funds, I think I had an expectation that it would be really hard and maybe I had a high tolerance for rejection.
When investors said “No,” I knew they really meant “Yes.” When they said “Hell No,” I knew they really loved me.
- The Triangle has changed so much over the past 30 years. What has impressed you the most about the region’s growth and evolution?
I was the chairman of CED’s first venture capital conference. There were about 15 presenters.
That was both the number of applications and the number selected!
We had to convince companies who were not even raising money to present so it looked like there were plenty of deals. Ironically, there were a number of pretty good deals but there was still a stigma attached to a company that had to ask for money. Some potential candidates didn’t want to stand up and ask for money.
One scientist (you know who you are) stood up and said that his technology was so hot he couldn’t talk about it on stage and walked off.
The committee members were eager to help but it was the first rodeo for all of us. Today there are scores of smart, sophisticated entrepreneurs who know how and when to seek funding. They are building some of tomorrow’s best companies. And the Triangle is respected worldwide as an entrepreneurial hotspot.
- On the other hand, what has been your biggest disappointment?
Venture capital is only part of the solution for the capital needs of rapidly growing companies. A venture fund only makes a handful of investments a year.
There’s a lot of attention on the venture deals, maybe because of the dollar amounts involved, or because it may provide a sort of certification for the new company. For every venture backed company, there are 50 others that don’t get funded. The bigger part of the funding picture should be angels and super-angels. We have some great ones here, but not enough.
When Intersouth was smaller we invested a lot with angel investors, but not so much after we began to invest much bigger funds.
I would still like to cultivate a better angel network here. I think it’s needed as much as new venture funds.
- Access to local investment capital has been a challenge over the years. Is Intersouth going to raise another fund? If so, when and what needs to happen? If not, why not?
The investment opportunities are really great here.
Our last two funds totaled nearly $500 million. We still have a pretty large portfolio of active companies that we are managing to liquidity. We expect that to take another few years.
At $275 million, Fund 7 was too large to efficiently invest just in North Carolina and the Southeast, and we also have portfolio companies in Boston, Austin, California, and other states.
It may appear in the regional press that we are less active because we are investing in those locations. Regarding a new fund, we may raise a smaller fund to back some of the very attractive companies here.
We need to work down the existing portfolio through exits and distributions before we would raise any fund.
Venture capital has been very good to us, and we are proud to have made a difference in the entrepreneurial landscape here. Regardless if we formally raise a fund, we plan to be angel investors and advisors to start ups in the Triangle.
- Does Intersouth remain an active investor and a partner in its portfolio? In what ways?
Absolutely! We have 26 companies in the portfolio and have invested $100 million in those companies since we stopped backing new deals a few years ago. We are on many of the boards.
Our charter is not to maximize the number of new deals backed, but to maximize the value of the portfolio, which usually means several rounds of capital over many years.
The new deals get the press, but the mature deals that survive are where the returns are made.
- What does the Triangle need to do/state need to do in order to attract more investment capital? And/or to generate more local capital?
Venture capital goes were the deals are. More deals will attract more venture capital. To have more deals we need angel investors, which I discussed, and more local venture investors.
Local or regional investors who will lead a startup financing. Early stage investing is a local business. The number of deals is a function of the number of active private equity investors, and not necessarily the amount of capital invested.
And, local institutional investors, the limited partners, should actively back local venture funds. We were always frustrated by the lack of widespread support for local venture funds. 90% of Intersouth’s limited partners are not in this region.
We were forever asked why there weren’t more North Carolina investors in our funds if this was such a great place to invest.
We never had really good answers, but it was a really good question.