RESEARCH TRIANGLE PARK – Since the dawn of the “dot com” and internet boom 30 years ago, Triangle and North Carolina startups have lusted after Silicon Valley investors where venture capital has always been abundant. In 2022, proof emerged that the West Coast gurus are at last heavily paying – literally – attention to N.C.
“I think it’s just nice to know that we’re starting to get a piece of our pie from those funds and where they actually are, and it’s not just relying on who’s here anymore,” Hunter Young, Head of Capital at the Council for Entrepreneurial Development, tells WAL TechWire.
And he has plenty of data to back up that statement.
According to a report released by the CED, NC-headquartered companies received investment from 325 different investor groups in 2022.
Ninety-three of the investors were from the West Coast, making that region the single biggest source of funding for NC companies.
These data were shared in CED’s annual Venture Report of equity funding, released Thursday. The report also shared that NC companies raised a total of $4.2 billion in 2022, a slight decrease from 2021 but still the second-highest year on record since CED began tracking investments in 2000.
I connected with Young to ask what the out-of-region investment could mean for the Triangle. A lightly edited transcript of our interview appears below.
- The recent Venture Report showed that a record number of investors from across the globe closed deals with companies headquartered in North Carolina. Can you help me understand how this has changed over the years?
Young: Recently, we’ve seen more and more coming from the West Coast. If you look back five-plus years ago into the reports, our data shows that it was around 20 funds from the West Coast participating here. So now, when you have upwards of 80, 90 funds, it’s a multiple.
I think, beyond just the geographic part, I think the floor has risen here. Two straight years of $4 billion of fundraising. Not long ago, we were talking about $1 billion being the bellwether number that we wanted to get past, and so, hopefully, we don’t drop back down to that number. We have established a new floor, which is great.
I think geographically, within the state, the majority of the deals are still in the Triangle. But I think another thing we’ve seen is the acceleration in other parts of the state as well, which is awesome.
Even though there’s so many more funds here, boots on the ground, the reality is—the density of most venture funds are going to be West Coast and the Northeast. That’s the reality, right? So when you look at reports like this, they reflect the reality of where these funds are located.
So I think it’s just nice to know that we’re starting to get a piece of our pie from those funds and where they actually are, and it’s not just relying on who’s here anymore.
- Do you have a sense of why we’re seeing this change?
Young: Money definitely travels more now than ever. I think we’ve been saying that for a few years, we were saying that even pre-COVID, but I think COVID has definitely helped accelerate the idea of virtual meetings, investing beyond your backyard.
Another thing that has happened is just the maturity of the ecosystem and the flywheel effect. Better companies existing here is going to attract more investors into that next round of companies. So when you have Pendo and Epic Games and Global Data Consortium and their exit, and things like that, it’s just going to attract more eyeballs on this region.
We also just have better entrepreneurs here as well. And I think they have more support resources. Obviously, I’m biased, so I can say CED, but there’s so many groups here that are helping the entrepreneurs in this region. And we have so many people moving here from all over the place. You’re getting all these diverse perspectives, diverse experiences, and that, all combined together, is just creating a better ecosystem. And that turns into better entrepreneurs.
I think we’ve always heard that people think there’s attractive valuations here and there’s capital efficiency and things of that nature, and investors are interested in those things. I just think they’ve had the ability to act on those things more recently than maybe they ever were before.
- What do these trends mean for companies in North Carolina? What are your predictions for NC startups?
Young: Early funding, at the earliest stages, is still going to, majority, be local folks. There’s going to be more desire for hands-on investing, if you will. So I think this area, still, is going to need more angels, family offices, people of those types to help get ideas off the ground and out of the lab to finding product market fit.
But I think once you’re a company that has found that product market fit, and you’re now growing, scaling, etcetera—investors will find you. You don’t need to be worried about, you know, finding that person to raise your Series A, Series B+ round, because if you have good metrics and you have product market fit, there’s plenty of investors both locally and nationally that will be interested.
- What do these trends tell you about the future of raises in NC?
Young: I would say it’s better than ever before. On top of the out-of-region funds that travel here, virtually or in real life to get deals done, we actually have more localized venture funds and investment groups than ever before, in my estimation, and in talking with people who’ve been around for a while.
And that’s come from net new fund creation, things like successful entrepreneurs now having lots of cash and wanting to put it back into the ecosystem, so they create funds, right?
We have things like full funds moving here for relocations. That hasn’t happened a lot, but there’s actually been a few of those that used to be located somewhere else, and they’ve all decided to move here.
And what we’ve seen a lot of, actually, is sort of the partner or team member of a fund that’s located somewhere else moving here, to the Triangle and being the, sort of, “boots on the ground” here. As much as we live in a virtual world now, and you can talk to someone on Zoom whenever you want, I do think the ability to have face-to-face, some of the time, and have it be as easy as walking out your front door and getting in your car, and not necessarily getting an airplane, is super important.
And I think that group that’s growing, the local group, is super collaborative, they all know each other really well. And they all want to push this area forward. And so I think that that momentum and that inertia is going to help the entrepreneurs in this area, whether they’re getting investment from those local groups, or support in other ways. I think the future is bright.