RALEIGH – Despite the ongoing economic impacts of the global coronavirus pandemic, venture-backed U.S. firms raised $329.6 billion in capital in 2021, nearly doubling the previous annual record of $166.6 billion. That came in 2020. North Carolina firms brought in more than $3.6 billion across 328 deals. But some 69.4% of capital invested in North Carolina in 2021 went to two firms: Cary’s Epic Games and Raleigh’s insightsoftware.
It’s a decent synopsis of how capital is flowing, both locally and nationally, the Q4 2021 PitchBook-NVCA Venture Monitor report notes in its executive summary that while capital invested nearly doubled, there was not a similar increase in the total number of deals. That’s an indicator that the size of venture capital investments continues to increase as late-stage companies raise capital in so-called “mega-rounds.”
“Lots of money seeking somewhere to go,” said David Gardner, founder and managing partner of Cofounders Capital. ” The big VC funds can take very large commitments and therefore help such institutions deploy that capital into late stage deals taking gains from what was traditionally the IPO market.”
According to the report, the total deal count in the United States increased from 12,173 deals in 2020 to 17,054 deals in 2021, and the report’s executive summary notes that the deal volume and invested capital is “remarkable.”
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“At the start of 2021, many investors predicted that the world would have returned to pre-pandemic ways before year-end,” the executive summary reads.
This did not come to fruition, the executive summary of the report notes, however, virtual meetings “to continue doing business and appear here to stay, regardless of the pandemic’s future trajectory.”
That’s enabling investors to widen a range of potential companies in geographic regions across the country, said John Espey, CEO and cofounder of Defiance Ventures and cofounder and CEO of Levvel, which was acquired in March 2021.
“I would say investors are looking anywhere,” Espey noted in an interview with WRAL TechWire. “There is more money looking for yield than there has ever been and, especially in a post COVID world, geography is not a constraint.”
Espey said that of all of the states and markets where funds could seek to deploy investment capital, North Carolina is among the top of the list. A December report from Revolution Ventures, founded by Steve Case, made a similar argument.
“It’s hard to imagine a state more attractive than North Carolina,” said Espey. “Between Raleigh, Charlotte, and Wilmington, there are many well documented success stories.”
Firms in the Durham-Chapel Hill metropolitan statistical area raised $1.2 billion across 95 deals in 2021 compared to $717.5 million in 67 deals in 2020, while firms in the Raleigh-Cary metropolitan statistical area raised $1.59 billion across 102 deals in 2021 compared to $2.08 billion across 77 deals in 2020.
Cary’s Epic Games raised $1.78 billion in capital in 2020, and also raised some $1.7 billion in 2021. And Raleigh-headquartered insightsoftware closed $800 million from a single investor in 2021 (along with making a number of acquisitions).
Durham biotech company Kriya Therapeutics raised $100 million in 2021, after raising $80.5 million in 2020. Durham-based ServiceTrade closed an $85 million round which company CEO Billy Marshall told WRAL TechWire in an interview came from investors who “came to us.” Medtech firm Xilis, with ties to Duke University, landed $70 million in 2021, including backing from Google Ventures.
“Investors who are looking for the next nCino or AvidXchange know that there are many of those hidden gems here,” said Espey.
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“During 2021, capital for startups spread across the U.S. more than any year previously,” said Kevin Eckert, partner at TFX Capital. “While the Bay Area saw nearly a third of all deals, there have been sharp upticks in activity in the center of the country, such as in Denver and Chicago, as well as in the Southeast, with Atlanta and Miami, as well as in Charlotte.”
In the Charlotte-Concord metropolitan statistical area, 54 firms raised $374 million in 2021, compared to $681.1 million across 35 deals in 2020, which included multiple fundraising rounds from AvidXchange of $260 million, $119 million, and $66 million. In 2021, the firm filed to become, and later became a publicly-traded company, a “seminal event for the entire North Carolina entrepreneurial economy,” said
“We do not see signs of the current trends abating with respect to investments in startups and venture capital being raised,” said Eckert. “However, inflation, should it persist and lead to rising interest rates, may slow public markets and, therefore impact the number of VC-backed companies exiting via IPO, SPAC or acquisition by public companies.”
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Of national concern, according to the report’s executive summary, are also the existing and ongoing “economy-wide supply chain woes and labor shortages.”
Locally, Gardner is concerned that North Carolina may be overlooked, even as more venture capital dollars pour into companies across the United States.
“We will continue to ride the tide of more venture capital dollars but we will also continue to get far less than our share of those dollars,” Gardner cautioned. “Because we have not done the early stage seed planting required to grow companies that can take those major investment rounds.”
There is a great ecosystem in the Triangle, and across the state, said Gardner, with “tons of startups.” Yet, without access to an ample supply of early-stage capital, said Gardner, “you are never going to hear about most of those companies.”
“We do a good job of getting folks all excited about innovation and becoming entrepreneurs but without capital, those companies generally go nowhere,” said Gardner. “North Carolina is very short sighted when it comes to encouraging and growing this sector,” he added. “In fact, incentives are going the wrong way making it more difficult for angels to invest in early stage companies, no tax incentives and no incentives for early stage venture funds to start or move here.”
