RALEIGH – Some startups might be feeling changes in the macroeconomic climate, especially as venture capital funding plummeted in the second half of 2022.  But in the Triangle, the entrepreneurial ecosystem remains strong, multiple local venture capitalists and investors told WRAL TechWire, despite a national venture capital report appearing gloomy at first sight.

That’s because total venture capital funding for startups fell 35% year-over-year, according to the latest data from CB Insights.  And the decrease in venture capital investment was even more severe in the United States, with a drop of 37% in 2022 compared to 2021, the report found.

But there were still deals happening, including in the Raleigh market, as $191 million in venture capital was invested in the fourth quarter of 2022 across 33 deals.  Compared to 2021, both deals and invested capital decreased substantially, as there was $455 million invested in the fourth quarter of 2021 across 39 deals, according to the CB Insights data.

CB Insights data, image (Screenshot of digital report taken by WRAL TechWire)

 

Yet despite the recent downward trajectory, North Carolina’s startup economies are well-positioned to outperform the nation in 2023, said David Jones of Bull City Venture Partners in an interview with WRAL TechWire on Wednesday.

While Jones predicted there will be a “large drop in total VC dollars invested in 2023,” he went on to note that the Triangle and North Carolina are “still strong.”

That’s because the state economy remains strong, and people are still moving into the state, including highly skilled workers who are taking roles at startups across the state, said Jones.

“We have seen this movie before and have lots of scars and lessons learned,” said Jones, noting that Bull City Venture Partners operated during the 2001-2002 internet bubble, and the 2008-2009 great recession.

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In the Triangle’s entrepreneurial economy, mid-stage deal share grew while early-stage and late-stage deal share decreased during 2022, according to the data from CB Insights.

Those “in between” companies, which entrepreneur and investor Scot Wingo dubbed “Tweeners” nearly a decade ago, however, saw an increasing amount of deal flow in 2022.

Given where the venture capital industry slowed, Wingo, who is founder and CEO of Spiffy and the founder of the Triangle Tweener Fund, said that the Triangle’s startup ecosystem remains quite strong at an event earlier this month.

CB Insights data, image (Screenshot of digital report taken by WRAL TechWire)

“We haven’t seen a slowdown, we’ve actually seen a lot of activity,” said Wingo, of those mid-stage and late early-stage companies.

“In conclusion, the data that I see, everything in our startup ecosystem is very robust, we’ve grown 5x over the last seven years,” Wingo said.  “And I don’t see it slowing down.”

So the entrepreneurial economy of the Triangle and other startup economies in North Carolina may be positioned just fine, Wingo indicated.

And despite a slowing in venture capital nationally, Wingo’s Triangle Tweener Fund accelerated in 2022, and has now made 56 investments in local companies.

Triangle ‘Tweener’ fund fuels startups with 56 investments, nearly $3M in deals

Optimism persists among NC venture capitalists

Despite a slowdown of venture capital in the fourth quarter of 2022, deal flow actually appeared to increase, said David Gardner, managing partner at Cofounders Capital in Cary.

“We have never seen deal flow this high as it is now and valuations are once again at what I’d call very reasonable,” said Gardner.  “I suspect the rest of this year will remain very hot with a minor slowdown this summer but all in all a bumper year for us writing term sheets.”

Gardner noted that early-stage technology companies may end up being the least affected by changing macroeconomic conditions.  And instead of suffering from any downturn in the economy, these types of startups and the sector as a whole may actually benefit, as opportunity can emerge from recessions.

“Market downturns often create new entrepreneurs starting companies,” said Gardner.

And even for those who are affected by rising tech sector layoffs, starting a company may not be their only option.

Jones told WRAL TechWire that startups are already seeing attracting and hiring talented, skilled workers to be a bit easier in 2023 than in 2022, “as many of the larger companies have been laying off workers.”

That makes it “a good time to be investing,” noted Jones.  “We have a fresh new fund we are investing out of and plan to continue to do our same 3-5 investments per year in 2023,” Jones added.

They won’t be the only local venture capital firm looking to make deals in 2023, either.

“We have built an unmatched portfolio of the top startups in the Triangle and are only getting started,” Wingo said of the Triangle Tweener Fund.  “Last year we made 48 investments and our goal is to meet or exceed that in 2023.”

History has shown slowdowns or recessions can be the best time to make early stage investments, Wingo noted.

And Gardner told WRAL TechWire that Cofounders Capital will be highly active in 2023, as well, noting “we will do more deals this year than in any previous year.”