According to the Council for Entrepreneurial Development’s (CED) just-released Innovators Report, 2015 might be a blockbuster year for investments in North Carolina startups. At least it will be if the second two quarters follow trends set during the first half of 2015, when nearly $427 million was invested in North Carolina companies through 90 deals.
The report was released today to kick off the CED’s annual Tech Venture Conference in Raleigh.
Both the amount of dollars invested and the sheer number of deals North Carolina startups received outpaces what was reported at this point in both 2013 and 2014. Dollars invested are up 70 percent from this time last year. And the dollars raised just over these two quarters have almost caught up to the total amount raised in all of 2013 ($430,791,019).
But IPOs are down, and so is the amount of investment in the state’s tech companies. Meanwhile, after dipping last year, life science companies are leading the pack in terms of deals closed and dollars raised.
The data and the report lead CED to believe that if the second two quarters continue at this pace, North Carolina will be poised to become one of the top five entrepreneurial hubs in the country.
This year’s report revealed four major trends occurring in North Carolina—life science investments are booming, startups are attracting investments from across the country and world, the number of “scale-ups” (or Tweeners, a term ChannelAdvisor founder Scot Wingo has coined) are rising, and there are fewer IPOs.
Last year’s tech investment numbers were a bit skewed by the $100 million raised by Dude Solutions early last year, as well as smaller but still significant raises by Windsor Circle, Automated Insights and Validic. Those helped tech dominate the first half of 2014 fundraising. This year, tech has taken a back seat to the life science companies that have collectively raised 63 percent of the funds thus far, a 654 percent increase since last year. Also important to note, the 26 deals by life science companies have been much larger than the typical tech investments.
The rest of the year looks promising for life sciences too.
Meanwhile, tech companies have raised 37 percent less than they had at this point last year, but still 141 percent more than at this point in 2013. The largest deals in the first half of the year were the $29 million raised by Wilmington FinTech startup nCino and $16 million by Cary-based Samanage.
Joan Siefert Rose, CED’s president and CEO says this swing from high raises in tech to life sciences is a trend she has seen occur in North Carolina in the past. When one industry’s funding raises are up, the others’ tend to be down. But it’s a relatively short swing in funding cycles, changing from year to year according to CED’s data. Siefert Rose says that having both sectors, as well as the Cleantech and Advanced Manufacturing and Materials sectors perform well, is important to the health of North Carolina’s economy and sets it apart from other regions and states.
These investments are coming from all over the country and world too. Of the 90 total investments made, 19 are from North Carolina based firms, while 15 are from California, 19 are from the Northeast and six came from international investors.
CED also highlighted the increase of the number of “scale-up” companies (or what we at ExitEvent call “tweeners”) in North Carolina. They’re companies like ReverbNation, Spoonflower and Dude Solutions—which have moved beyond the early-stage, are profitable, growing rapidly and becoming significant players in their respective industries.
Another trend identified, is that IPOs are down across all industries in North Carolina this year, with only one IPO—Maxpoint Interactive—having occurred so far this year.
However, IPOs are down nationally and globally, so North Carolina’s is not out of sync with the rest of the country. M&As, meanwhile, tend to be the most popular exit strategy in the Triangle. Leading the pack on the tech side is Bronto Software, which sold for $200 million earlier this year. Salix Pharmaceuticals was the largest sale on the life science side so far, with an $11 billion deal with Canada-based Valeant. Valeant’s other big Triangle acquisition—Sprout Pharmaceuticals—isn’t included in these numbers since the $1 billion deal didn’t close until August 2015.
The Report and its Data
This is the third year the CED has collected, compiled, analyzed and released data on startup activity through the Innovators Report, meaning trends are finally becoming evident and significant. Dhruv Patel, CED’s director of investor relations, developed and standardized a methodology in 2013 to collect and verify information on funding, deals and exits. He’s used the same methodology each year to compile the report.
CED collects the data from a variety of partners like the SEC, National Venture Capital Association (NVCA), the North Carolina Biotechnology Center, Ernst & Young and PricewaterhouseCoopers MoneyTree Report. The organization verifies the data by “doing a lot of detective work” and personally following up with companies and investors. For example, up to $200 million in investment is not included in these traditional reports because they are deals done with private individuals or foundations.
CED announced that data will be released quarterly in the future (as opposed to bi-annually) and is now filterable and searchable in an interactive online database. Siefert Rose says CED developed the new tool because, “there’s a real hunger for this kind of information.”
The year-over-year comparisons allow CED to benchmark the state against itself and to identify key trends in startup activity. To date, no other comparable report has been developed outside of North Carolina, so comparisons to peer states and regions are unavailable.
However, the trends identified in the report can be compared to national and global trends identified by other research institutions like the NVCA or Kauffman Foundation.
For most trends, North Carolina tracks with the rest of the country. Like in North Carolina, Q2 2015 was the strongest quarter for venture capital investments nationally since 2007 according to the NVCA. Companies are also increasingly putting off going public, so IPOs are down nationally and globally—not just in North Carolina.
What is an anomaly when compared to the rest of the country, is the higher investments made in life science companies. In Q2 2015, the NVCA reports that just a subsection of tech companies—software companies—outpace venture capital investments in biotech companies four to one. But like Siefert Rose indicated, the funding pendulum swings rapidly in North Carolina, so tech could be back on top next year.
Stay tuned for more from the CED Tech Venture conference.