Triangle’s hot ‘Tweener’ startups look for ‘silver linings’ amid recession fears

RALEIGH – Rising interest rates, sky-high inflation, lackluster economic growth. Signs are flashing that the US economy is headed for another downturn. Yet many Triangle growth-stage startups say they’re looking at the “silver linings.”

“I’d say we’re cautiously optimistic,” Mark Rosenberg, founder of Hip eCommerce, told WRAL TechWire at last week’s seventh annual Triangle Tweener Awards in Raleigh.

His startup was among the honorees. Hip eCommerce is a fast-growing, VC-backed, startup that builds marketplaces for specific collectibles, including comic books and stamps. Since the pandemic, it’s grown at around 15% year over year, he said, and he expects that to continue, even in a recession. “Dealing in collectibles is kind of a fail-safe for people looking for investments, so we’re not too concerned.”

Indeed, little could dampen the enthusiasm in the room after a 75-strong crowd braved a torrential downpour just to attend the awards ceremony at Lonerider Brewery last Thursday.

The Triangle Tweener Awards has become one of the most eagerly awaited annual events on the Triangle’s startup scene ever since Spiffy CEO and serial entrepreneur Scot Wingo began compiling a list seven years ago highlighting local tech startups in what he calls the “Goldilocks” phase. That’s the space between early stage and a larger corporation, generating more than $1 million but less than $80 million in annual revenue, and/or employing at least 10 full-time workers but no more than 500.

“When I started this in 2015, we had 50. We are now over 250,” Wingo told WRAL TechWire. “I couldn’t really envision us getting to 5x that, and here we are.”

Scot Wingo at Triangle Tweener Awards on Thursday night in Raleigh.

251 companies landed a coveted spot on the list, to be exact – up from 176 in 2019 and 143 in 2018. The question now is where it will go next. A day before the list dropped, the Federal Reserve raised interest rates by three-quarters of a percentage point, its most aggressive hike since 1994.

Wingo, who lived through the dot-come bubble in the late 90s and the 2008 Great Recession while heading up e-commerce solution ChannelAdvisor, believes the Triangle is well placed to ride out the times.

“The amount of money invested in the last year, married with the mergers and acquisitions boom, we should be good for into mid 2023. Hopefully that gets us through,” he said.

Record raises, acquisitions

Indeed, Wingo recorded a whopping 248% spike in investments with $700 million raised amongst the group in 2021. It also recorded 12 exits — up 100%.

Early exits and fundraises in 2022 indicate the region is continuing to look strong. Raleigh-based Global Data Consortium sold to the London Stock Exchange Group for “hundreds of millions” in April. Morrisville-based JupiterOne closed on a $70 million Series C funding round to earn an estimated valuation at $1 billion in June. And just last week, Durham-based Teamworks scored $50 million in its latest funding round.

On the night, however, 2021 results reigned. Durham startup Spoonflower was awarded as the top exit, having been acquired by Shutterfly for $225 million last June.

Durham’s ProcessMaker also won for “one of the top investments,” raising $45 million from Aldrich Capital Partners in February of last year. Meanwhile, Durham-based Phononics received kudos for landing $50 million from Goldman Sachs a few months later in August.

“It’s been an incredible journey,” Phononics CEO Tony Atti said, while accepting his award. “We founded a company located here in RTP. I had the choice of the Valley, Phoenix, Austin, RTP, or Boston and we chose to put the company here.”

Phononics CEO Tony Atti accepting his award for “one of the top investments” in 2021 on Thursday.

Ivan Barajas Vargas, co-founder of Raleigh-based MuukTest, is among the 37 new Tweeners, up 11% on last count. “It’s exciting and motivating,” he said in an email. “I’ve been following the Tweener list for years. [To see] startups like Pendo, and many others, get in, grow, and graduate is motivational. It proves the potential.”

‘Silver linings’

While there are many reasons to be hopeful, many founders are still going into the next period with eyes wide open.

“Things are resetting fast,” said ProcessMaker’s CEO and co-founder Brian Reale, pointing to a company that his company had considered acquiring a few months ago. Then, the startup’s price tag was around $18 million. It’s now dropped to around $1 million, and Reale is still not sure.

“Interestingly, even though it came way down, we’re still now questioning whether even that makes sense,” he said.

On the bright side: A downturn means easier access to talent, he said. “I got the first call in, like, three years from somebody looking for a job as opposed to [the other way around]. Candidates are suddenly also much higher caliber,” he said.

ProcessMaker’s CEO and co-founder Brian Reale

Melissa Phillippi, co-founder and CEO of Durham-based WorkDove, formerly Performance Culture, also saw some positives.

“I love a recession. As a growth-stage startup, it levels the playing field for me with my competitors, and for companies that have grown in a more financially sustainable way,” she said.

“Whereas [many later-stage companies] have to hit some pretty high numbers consistently to make their investors happy and keep their numbers growing, I just don’t need as many deals to keep going as they do. When the economy pulls back and businesses stop or slow spending, the same pressure is not there.”

Bottom line: “We’ve already been through one pullback when COVID hit and we’ve learned some lessons there,” she said. “When you have a healthy balance sheet and cash flow, and you’ve got a good model, it kind of doesn’t matter.”