Editor’s note: Pitchbook and the National Venture Capital Association (NVCA) released venture capital data from the 4Q 2017 on January 9th, 2018 in their quarterly PitchBook-NVCA Venture Monitor report. After a series of articles from WRAL TechWire analyzing the data to identify trends in the Triangle, the state, and nation, and compare the report we now hear from six entrepreneurs and investors who participated in funding or fundraising in 2017.
RESEARCH TRIANGLE PARK – The perception of how the startup ecosystem in North Carolina, the Triangle, or other regions fared in 2017’s venture capital funding data varies depending on who is asked. So do predictions for what the venture capital market will look like in 2018.
But when it comes to recommendations for improvement, a consensus emerged—continued focus on increasing the sheer number of startups and growing local funding opportunities for seed and initial series of funding is needed.
In addition, celebrating late stage success and encouraging those companies and their leaders to remain locally headquartered and to reinvest in the community after exiting will spur a healthy life-cycle.
Collectively, the entrepreneurs we interviewed, Todd Olson of Pendo, Scot Wingo of Spiffy, Dale Carey of Eco Site and Mike Praeger of AvidXchange raised $402.5 million in venture capital and private equity in 2017. And the investors we spoke with, David Gardner of Cofounder’s Capital and David Jones, general partner at Bull City Venture Partners (BCVP) represent two of the most active investing groups in the Triangle.
2017 wasn’t as Bad a Year as the Data Made it Seem
The data paint a disappointing picture for North Carolina’s venture capital market in 2017 and yet the investors and entrepreneurs we spoke with were generally unconcerned by the story the data told. Speaking from his experience as CEO of the wireless broadband tower company, Eco-Site, where the company raised $70 million in private equity investments, and from his perspective as an investor in early-stage funds like Cofounders Capital, Dale Carey called 2017 a “great year” for the Triangle.
Mike Praeger, CEO of the Charlotte-based fintech company, AvidXchange also viewed 2017 positively crediting the state’s “reputation for building an economy that fosters innovation, upward mobility and high-skilled workers,” for the positive state of the capital market.
Scot Wingo, CEO of Spiffy and executive chairman at ChannelAdvisor says the data doesn’t indicate the region is less attractive. Instead, he points to the uptick in startup-focused events, resources, and organizations that support the ecosystem and attract investors to the area.
But not all sectors fared well in 2017. David Gardner, founder and managing partner of Cofounders Capital points out that funding to companies in the IT sector in the Triangle didn’t increase in 2017. He also noted the lack of seed funding in the state will inhibit future growth opportunities.
What’s Good for One Region is Good for All
Even though the NVCA breaks down their data regionally, the entrepreneurs and investors we spoke with weren’t concerned with regional rankings. Spirited competition was particularly absent among those in the Triangle—where the split between Durham and the Raleigh-Cary MSA’s is nearly meaningless to those on the ground. Wingo says he “likes to think of the Triangle as one MSA,” and Todd Olson, Pendo’s founder and CEO says Durham’s “thriving” tech scene is “great for the region.”
David Jones, general partner at Bull City Venture Partners (BCVP) praised the geographic disbursement of funding saying, “I believe it’s fantastic the way NC was able to show breadth in our many MSA’s, it proves that great things are happening through the state and that the top national investors are recognizing it.”
Wingo applauded Charlotte-based, AvidXchange’s $300 million raise saying, “Kudos to them, it’s great for our state to be on the ‘unicorn map’.” But in the spirit of friendly competition, described Pendo as a “baby unicorn” and says, “so maybe in 2018 they can raise a $200 million round and put us [the Triangle] on top again!”
All Parts of the Startup Life-Cycle Need Attention
Gardner says there’s a need for more funding deployed to seed stage companies, and a specific need for local, professional seed funds. He explains their importance by saying, “No one is going to fly here to deploy small checks in early stage ventures that require a lot of mentoring,” rather, more local seed funds should be established to “plant the seeds” that “bring the big later rounds of capital into the state.”
Olson points to a need for “more entrepreneurs starting companies” and on the other end of the spectrum highlights the need for moving large companies to a liquidity event. He says it’s important because, “they can put wealth in employees’ pockets, which fuels them to leave and start more companies.” Carey agrees pointing to successful entrepreneurs like Steve Malik, who exited from Medfusion in 2010, but remained and is invested in the area. Carey notes, however, the need for the headquarters of acquired companies to remain in the state once acquired. The trend he observed is that once their company is acquired, the entrepreneurs remain in the state, but the business’ headquarters don’t. He says he wishes, “the area’s companies were doing the acquiring not the other way around.”
Praeger points to the need to better celebrate and highlight successes because in so doing, “we’re providing more opportunities for other businesses to become leading candidates for the next investment.
What will Happen in 2018 is Anyone’s Guess
Carey predicts 2018 will look a lot like 2017 short of some large global disaster that impacts the whole market.
Meanwhile, Olson describes his outlook as “bullish” and says, “I do think that things are getting harder in the earlier stages of venture while the growth market (Series B+) is incredibly strong. VCs are raising billion dollar funds and those funds will need to be deployed.”
Wingo’s views are similar, he thinks investments, particularly late-stage, large deals will continue to increase until unicorns either fail or exit. However, he sees an end in sight saying, “I’m not sure how long there will be a supply of companies that can take $30m+ sized investments for the long-term.”
Jones and Gardner both noted the inherent weaknesses in the national market’s emphasis on late-stage large deals and large mega funds and thinks those funds and deals will be the first to hurt when either the market declines. Gardner says, “I suspect we are due for a recession which will hurt larger, later stage fund returns and their ability to raise.” Jones goes as far to say the venture capital market could be in a bubble, pointing to recent remarks from famous investor Charlie Munger who said the same thing.