Sitting in a sunny room with several hundred entrepreneurs and investors in Winston-Salem last month, I was reminded why local investors are so important to our state’s innovation economy.
The 44 men and women who pooled their dollars to create the New Ventures Club last year are a primary reason a region with population just over 500,000 and traditionally heavy in manufacturing has a vibrant and growing startup ecosystem.
Besides four pitches from New Ventures’ accelerator participants, 34 companies and 10 support organizations rallied in under two weeks to showcase their businesses and missions in expo fashion.
Among the mix of companies that ranged from VR technology to kombucha, I met entrepreneurs behind a pharma company with NIH funding to treat drug addiction, a unique twist on food delivery and a software company that makes application development fast and easy for enterprises.
Investors certainly doesn’t overshadow the efforts of universities, local chambers of commerce, co-working spaces or meetup groups—research and plenty of case studies show they’re all critical to a startup community. But local investors make entrepreneurs show up—giving them the early funding, personal connections, mentorship (with skin in the game) and validation that their ideas are worth pursuing.
In nascent startup communities like the Triad, angels, seed and early stage funders are critical to the continued growth of an ecosystem.
But just like each stage of a venture-backed company’s development requires a unique set of investors, the same is true for communities. In the Triangle, with its larger distribution of growth and late stage technology startups, investors with a mindset toward growth and exit are important too.
A perfect case study happened earlier this year, when fast-moving Cary healthcare e-learning company Relias Learning acquired a Boston software company called Advanced Practice Strategies. Their connection was River Cities Capital Funds, a Cincinnati-based venture capital firm with an office in Raleigh.
River Cities typically invests $6 million to $15 million in several companies a year—local portfolio companies include Netsertive, KnowledgeTree (acquired by SAVO this summer), Reveal Mobile and SciQuest (prior to its IPO and subsequent acquisition). In March 2015, River Cities invested $12 million in APS from its fifth fund.
As part of the support he provides as a board member to any portfolio company, venture partner Rik Vandevenne scanned his network for good connections for APS, which provides hiring, onboarding and e-learning tools to hospital systems. He knew Relias Learning CEO Jim Triandiflou through the Triangle entrepreneurial community and initially asked him to serve as an outside board director for APS.
But as Triandiflou got to know the APS team and its technology, he saw a natural fit within Relias.
“This is a good example of where good consistent networking and meeting people can lead to things down the road that can be transformational,” Vandevenne says.
While they can help build management teams and offer critical advice for scaling companies, later stage VCs also provide vast networks of their own investors—typically large institutional hedge funds—and their more diverse and widespread investments. Local ones know the key players throughout their own city’s ecosystem too.
APS doubled in revenue in the two years after its River Cities investment and grew to 140 employees—it also made its own North Carolina acquisition, bringing in a Greensboro-based nurse pre-hire assessment company called Prophecy Healthcare. River Cities was banking on 10x growth over a number years, making APS prime for an exit then.
But things happen. And in this case, a local connection sped up the plans.
Almost by default, there’s altruism involved with any sort of venture investing. Angels or venture investors want to make smart investments for their own portfolio or LPs, but they also want to see the ecosystem of startups expand. It’s the only way to grow the talent base and have more choice for investing their funds.
Last week’s Startup Grind Conference in Cary kicked off with a call from investor David Gardner for more early stage investors in the Triangle and around the state to fund the important innovation happening here.
These stories back up the rallying cry. But who will do something about it?
