A Review of North Carolina Venture Capital Tech Investing

From 2009 to the First Half of 2012

BY ZACK MANSFIELD@zackmansfield7.18.12
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Filed Under: NEWS: Startups

In my role working with startups in the NC startup ecosystem, one of the constant cries and concerns I hear from entrepreneurs is that there is not enough investment capital available, especially for early stage companies.

As participants in a relatively smaller entrepreneurial ecosystem – compared to the mammoth markets of Silicon Valley, Boston and New York – it's an easy conclusion to come to. And the reality is that there is a concerning lack of resident venture funds. However, we all know that entrepreneurs are nothing if not persistent and there continue to be individuals working tirelessly to grow startup ventures which will need capital in order to grow.

So literally on a daily basis I'm meeting with entrepreneurs and doing my best to understand what their capital needs might be and trying my hardest to use the market knowledge available to figure out what group or individual might be the right fit as a capital source and partner.

In order to provide meaningful feedback in this cause, it's important to understand who does have an appetite for investing in this region. A little more than a year ago I spent some time and wrote a couple blog posts on the venture capital activity within tech companies in North Carolina over the prior three years.

Recently, I spent some more time looking at the companies that were able to secure funding during 2011 and the first half of 2012 and hope the following data points will prove helpful in understanding what the market looks like today.
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Before we dive in, a bit of commentary on the methodology and data that was used.

I chose again to limit the conversation to institutional investments in “tech”, and to break up the analysis between “hard” and “soft” tech. Broadly speaking, “hard” technologies include semiconductors, materials, & sensors. “Soft” technologies include internet/web services, mobile, technology enabled services, e-commerce, and healthcare IT. This analysis does not include life sciences or medtech transactions.

For a full breakdown of the methodology and rationale I invite you to see my post from last year on the subject. Also, a hat tip to Square 1 intern Abbey Wells who did fantastic work helping me to compile this data - thanks Abbey!

On to the data:



  • During calendar year 2011, tech companies in North Carolina raised a total of $214MM in 26 total transactions. This was an increase in total dollars from the $135MM tech companies raised in 2010, even though there were an almost even number of transactions. Both 2010 and 2011 were markedly higher than 2009, when tech companies raised just less than $63MM in 16 transactions.

  • By digging one layer deeper into the data, it was interesting to note that the number and total dollars raised in soft tech transactions was almost exactly the same in 2011 and 2010. There was $114MM raised in 20 soft tech deals in 2011 vs. $109MM in 20 transactions in 2010.

  • Thus, the variance in total dollars raised in 2011 vs. 2010 was driven in large part by an increase in size in hard tech deals. Almost $100MM was raised in 6 hard tech deals in 2011 vs. just less than $26MM in 5 hard tech deals in 2010. This highlights the danger in simply looking at the aggregate amount of venture money raised in a region over a period of time and extrapolating this information as an indicator of the region's health in terms of funding. The reality is that the 2011 numbers in this analysis are greatly influenced by a reported $43MM+ transaction for Overture Networks, a company which raised its first institutional funding in May of 2001. EDIT: Upon closer examination of the SEC filing for the Overture transaction, it appears this was an issuance of shares for a merger instead of a new cash financing.




  • When looking at the stratification of total deal size amongst the companies that raised in 2011, it was interesting to note the bifurcation between the very small transactions of less than $1.5MM and larger deals with a round size in excess of $10MM. Of the 26 total transactions during 2011, 10 were for deals less than $1.5MM and 8 were for the larger, $10MM+ deals. For all the talk about a lack of early stage funding in NC, it seems that in 2011 at least, the most evident gap was in the $1.5 - $5MM deal size range. One could point to the limited number of resident, NC-based venture funds as a cause of this funding gap. Of the 3 deals in the $1.5 - $5MM range, all led by firms based outside of North Carolina (FirstMark Capital, Court Square Ventures and iEnergies).




  • It should be noted, however, that in 2010 the bifurcation between large and small deals did not exist. In fact, the largest single category in 2010 was the 10 deals in the $1.5-$5MM range. Of these 10 deals, exactly half (5) included an investor based in North Carolina (Intersouth Partners (2), Frontier Capital, SunBridge Partners, IDEA Fund Partners, and the Aurora Funds.

  • Of the $1.5-$5MM cohort from 2010, half of the deals (5) represented the first institutional round for the companies. Only 1 of the 3 similar sized deals in 2011 represented a first institutional round of funding. The two other companies had raised a smaller round in a prior year before raising a growth round.

  • For the ten transactions in 2011 less than $1.5MM, six (6) were for companies raising their first institutional round of funding. These six companies raised a total of $5.22MM, or $870k on average. This is consistent with broader themes in tech investing which suggest that it is cheaper than ever to start a technology company. In total, there were ten companies in 2011 which raised an initial round of institutional investment.




  • While it is generally accepted that it is cheaper than ever to finance a tech company, it is still generally true that to grow to true scale can require considerable time and capital. The ten companies that raised more than $10MM raised a total of $172.5MM. It's interesting to note the amount of time since first round of financing for the companies in this grouping. As noted in the chart below, the average time since initial institutional round is 1519 days, or more than 4 years. This group includes Bandwidth.com, which raised an initial round of institutional funding of $22MM in March 2011 and Overture Networks which first raised money in 2001. The majority of the companies in this band raised initial rounds sometime between 2006-2009.

  • Many entrepreneurs are probably asking the question, “Who is funding these companies?” Or, said differently, which funds have shown the appetite to invest in North Carolina over the last few years. Below is a listing of the firms which have made more than 1 investment in the region since 2009: Intersouth Partners (9), Idea Fund Partners (7), The Aurora Funds (3), Acorn Investments (2), Capitol Broadcasting Company (2), Intel Capital (2), Noro-Moseley Parnters (2), Novak Biddle Venture Partners (2), OCA Ventures (2), Trinity Ventures (2), Valhalla Partners (2), Venrock (2)

  • Other notable firms who have made at least one investment during the period since 1/1/2009 include: .406 Ventures, Battery Ventures, Canaan Partners, Chrysalis Ventures, CourtSquare Ventures, FirstMark Capital, Felicis Ventures, Frontier Capital, Great Oaks Ventures Capital, Greycroft Partners, Grotech Ventures, Harbert Ventures, JMI Equity, Madrona Venture Group, Oak Investment Partners, RRE Ventures, Southern Capitol Ventures, SunBridge Capital, TDF Capital, Tomorrow Ventures, True Ventures, Updata Partners, and Zelkova Ventures.

  • On a final note, there is some concern when looking at the data at the lack of total investments during the first half of 2012. There were only nine (9) total investments through 6/30/2012, totaling just more than $14MM. Of these deals, three (3) are for companies raising an initial round of fuding. While there was a $5MM raise for Knowledge Tree announced in July that will increase these numbers, unless there is a sharp increase in activity during the 2nd half of the year, it is likely 2012 will feature the lowest number of deals and total dollars raised by tech companies since the financial crisis of 2008-2009.
  • Companies We Mentioned In This Post

    Acorn Innovestments
    Aurora Funds
    Bandwidth.com
    Frontier Capital
    IDEA Fund Partners
    Intersouth Partners
    KnowledgeTree
    Overture Networks
    Square 1 Bank
    Square Roots
    SunBridge Partners







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