Jason Caplain BCVP

{{ story.headline }}

{{ story.subheading }}

{{ story.timestamp }}

It's a strange time to be a startup founder in the Triangle.

On one hand, escalating valuations and bubble talk in Silicon Valley is made even worse by the fact that hedge and mutual funds are funding the largest and latest stage California rounds just as the stock market continues its decline.

On the other, North Carolina startups raised a near record $675 million in 2015, with some of the largest later stage rounds our state has seen in years. There's also a boom in early stage funding activity, with new funds by Triangle Angel Partners and Cofounders Capital, along with the Duke Angel Network and Duke Innovation Fund. Plans are taking shape for a "super angel network" tying together investors associated with Duke, UNC and NC State. And according to last year's CED Innovators Report, there continue to be new individual angels investing in local companies. 

Bull City Venture Partners' Jason Caplain says it's good and bad for the region to have such polarizing movements going on. He expects the investors and entrepreneurs gathering for today's annual Entrepreneurs' Series event to have opinions on both sides. Here's a preview of those conversations.

On high valuations in Silicon Valley and the Triangle:

Caplain calls the funding landscape today "overheated," and in fact, he and partner David Jones have shared with BCVP's limited partners that a market correction is coming.

In particular, he's concerned about valuations of Silicon Valley unicorns at an average 11 times their revenue as well as the number of those companies getting funding from non-venture capital sources. His research shows that 78 percent of the funding to the 50 newest unicorns has come from hedge funds, strategic corporate investors or mutual funds, all of which are hugely impacted by the ebbs and flows of the stock market.  He expects any kind of freeze by those funds to have a trickle down effect throughout the startup economy. 

On record funding in North Carolina: 

Caplain expects our region to be somewhat safe from the correction, mostly because companies here tend to bootstrap or get to cash flow positive instead of raising larger rounds of funding.  

"The secret to our region," he says, "is that we've got some really high quality companies, some that bootstrapped to revenue, with the depth of engineering thanks to the local universities. The valuations are not what they are in Boston, Silicon Valley or New York." That's why 75 percent of the investments made from his current fund and previous Southern Capitol Ventures have gone to local companies. 

The influx of new early stage funding should help too. Since the Duke Angel Network formed last summer, it's investors have made six deals, three to Durham-based companies and a fourth to a Boston company whose CEO is based in the region. The Duke Innovation Fund has provided additional funding to those companies. 

Triangle Angel Partners launched its second fund with an initial $2.5 million close in September 2015, funds that came in three times as fast as with fund one, reported partner Jan Davis. And Cofounders Capital has already made six investments from its $12 million fund closed in July 2015. 

The Startup Factory hasn't announced a second fund, but has been recruiting for a new accelerator class to begin the program this spring. It's a move that seems to signify at least some funding is in. Coming in 2016 is a new super angel network that puts Duke, UNC or NC State-affiliated startups in front of alumni-angel investors from each of the universities. Details of the network are still in the works, several sources have told me. Washington D.C.-based NextGen Angels also plan to open a chapter in the region.

Regardless of all the activity, Caplain emphasizes that several large deals caused last year's funding boom (see our top tech fundraisers list). And it mirrored activity in Austin, Atlanta, Washington D.C. and other growing startup communities. D.C. in particular hit $1.4 billion in funding for the year. Overall, Caplain says funding in North Carolina is "lumpy."

"Take out a couple of deals and the numbers are not as robust," he says. Cary investor Alex Osadzinski echoed this sentiment to me during a recent call. 

On later stage deals in the Triangle:

The positive of more plentiful funding is the proof it gives investors from outside the region that North Carolina can build strong, high-growth companies. Evidence, says Caplain, are Durham's Spoonflower, Wilmington's nCino and Charlotte's AvidXchange, each of which raised large rounds in 2015 after achieving fast growth rates in their respective industries. 

"Our companies are now good enough to compete nationally," he says. "They are having to, and they are winning that growth capital."

The region may continue to be an appealing place for these investors to place their dollars, likely due to the tempered valuations and some strong recent exits. That's been the case for Osadzinski, who after years in Silicon Valley has focused a great deal of his attention recently on Triangle companies.

"With Automated Insights, Maxpoint, Bronto and Blue Stripe, we're seeing some exits. There's not a sea change but it's definitely getting better," Osadzinski told me last October. And instead of his Bay Area friends asking if he has running water in his house, they tell him about the good things they're hearing on national tech blogs.

On today's presenters:

The investors on today's panels all have a connection to the Triangle, but Caplain says they represent a diversity of geographies, funding stages and industry interests. 
They were chosen to give a diversity of perspectives, but also a clear picture of what to expect from investors and markets in 2016. 

Only two speakers, North Carolina Treasurer Janet Cowell and Pendo CEO Todd Olson, live in our region. 

Logan Bartlett is an associate at Battery Ventures in Boston and helped make its Series A investment in Pendo. Battery also invested in Groupon, Glassdoor, Dollar Shave Club, Exact Target and dozens more since its founding in 1983.

David Cummings is a Duke University graduate who started and sold Pardot to Exact Target and now runs Atlanta Ventures and the Atlanta Tech Village startup campus, now with more than 200 member companies.

Mike Elliott is a long-time Triangle investor, whose Atlanta-based Noro-Moseley Partners invested in Motricity and Appia along with Bloodhound Inc., all of which have since been acquired. 

Eric Koester is a Washington D.C. entrepreneur who is bringing the NextGen Angels group to the Triangle this year. He made the announcement at last November's Internet Summit, and I'm told is planning a dinner for interested investors while in town this week.

Alex Pessala is a partner at D.C.-based Middleland Capital, an investor in WedPics. He also co-invested with Bull City Venture Partners in D.C.-based Contactually. His firm focuses on early stage food, agriculture, consumer product and enterprise startups.

Bob Smith of Baltimore-based JMI Equity has an MBA from Duke's Fuqua School of Business. His firm invests in software and tech-enabled service companies.

And Brendan Wales of Silicon Valley-based e.ventures, a firm with focus globally, is a connection of Jones.

More than 450+ will gather at Brier Creek Country Club this morning to hear perspectives on venture capital and company building. It's an event that tends to set the tone for the year—here's last year's preview. Stay tuned for our recap later today.