RALEIGH – You might think the overall economy isn’t affecting the startup ecosystem because of the recent $2 billion megadeal from Cary’s Epic Games. But it was announced in April – after the first quarter ended – and venture capital investment activity in the United States has slowed compared to the flurry of activity throughout 2021, a new report from PitchBook and the National Venture Capital Association says.
In our state the news is different.
In North Carolina, there were 77 venture capital deals in the first quarter of the year, following 340 total deals in all of 2021, according to PitchBook data, shared with WRAL TechWire upon request. Total capital raised by firms based in North Carolina in the first quarter approached $600 million, the data showed.
A year ago, 37 deals in the state netted $390 million.
Whereas the national environment may have changed for VCs, not much has changed locally, said John Espey, the CEO and co-founder of Defiance Ventures, in an interview with WRAL TechWire.
Report: There’s growing shift in venture capital – Triangle startups are benefiting
Bullish on North Carolina’s ecosystems
“Valuations are still very strong, interest is strong, and companies that need funding and are worth investing in are not struggling to find money,” said Espey.
North Carolina’s venture capital environment is starting to see what Tim McLoughlin, partner at Cofounders Capital, called “the fruits of their labor over the past decade or two” in an interview with WRAL TechWire this week.
“We have seen successful exits, great valuations, and capital that is now hopefully going to be recycled back into the earliest stages of the ecosystem,” said McLoughlin.
But there has been a slight change in 2022 compared to 2021, McLoughlin noted. While some North Carolina entrepreneurs that sought to raise larger seed rounds at higher pre-revenue valuations on entrepreneur-friendly terms found success in 2021 due to “a lot of pent up money” being available, said McLoughlin, “we have seen that cool off in the past few months and deal terms and structures are balancing out a bit.”
All facets of U.S. venture capital industry are ‘astounding,’ report finds
Top deals in NC
The $2 billion Epic Games megadeal earlier this month was not included in the data set, as it closed and was announced after the conclusion of the first quarter of 2022.
Still, North Carolina companies raised nearly $600 million in total, the data from the report found.
According to the data from PitchBook and the National Venture Capital Association, the top deals in North Carolina included:
- 8 Rivers Capital, which raised $100 million
- Biomason, which raised $65 million
- Vestaron, which raised $61 million
- Topsail Re, which raised $50 million
- Inceptor Bio, which raised $43 million
- Spiffy, which raised $32 million
- Locus Biosciences, which raised $31 million
NC startups raised $3.6B in VC in 2021 – but nearly 70% went to two firms
Strong sectors
And the success stories, including that of Epic Games, said McLoughlin, are actually overlooked by a lot of people, at least in how it relates to the health and vibrancy of the early stage entrepreneurial ecosystem.
That’s because five years ago, said McLoughlin, when raising a fund, there weren’t as many “unicorn” success stories in the region. But now, with Epic, as well as with AvidXchange, Prometheus Group, Pendo, nCino, and other companies that have high valuations and have shown growth and success in the prior half decade, said McLoughlin, “take that objection away.”
Still, most of the venture capital activity in the state is in the biotechnology, life science, and technology sectors, said Karen LeVert, a venture partner at Pappas Capital, which is raising a $250 million fund.
“These are very strong sectors for North Carolina,” said LeVert, noting that the state’s strength in its entrepreneurial ecosystems continues to be found in the life sciences.
There’s more opportunity, though, believes LeVert, who told WRAL TechWire that the top revenue source in the state is agriculture, which is talked about far less than the biotechnology sector, she said.
“I feel we’re at the precipice of being a nationally renowned agricultural technology hotbed,” said LeVert. “[We] will see an improvement in venture capital activity in agriculture.”
