Great entrepreneurs. Sophisticated and committed investors. Capable management talent.
The three elements to make a thriving, high-performance entrepreneurial ecosystem, at least according to the Triangle’s resident data scientist and entrepreneurship expert Ted Zoller of the University of North Carolina at Chapel Hill.
Zoller shared his insights during a presentation Thursday afternoon at the Coastal Connect Entrepreneur and Capital Conference in Wilmington. He also moderated a panel of angel investors and angel group organizers including Craig Stone of Triangle Angel Partners, Dallas Romanowski of Wilmington’s IMAF Cape Fear Angel Fund, Eric Dobson of Angel Capital Group of Tennessee and Ed Miles of Carolina Seed Investor.
According to Zoller’s research, a key indicator of a strong entrepreneurial ecosystem with an edge over other cities (and with the recipe above) is one with many dealmakers. These are the serial entrepreneurs and investors who broker information, shape and syndicate deals, and are interconnected within the community. Silicon Valley’s key strength is dealmakers a-plenty, Zoller says. The Triangle, meanwhile ranks lowest of 12 key regions he’s studied.
While there is a healthy number of entrepreneurs and investors in town compared to other parts of our state, the lack of dealmakers may be a challenge to competing nationally for startups and attention from venture capitalists. Zoller’s research shows that in Silicon Valley, 86.6 percent of serial entrepreneurs have one degree of separation to other serial entrepreneurs in the city. In Boston, that figure drops to 56 percent. And in the Triangle, to near 40 percent.
But Zoller’s research is meant to inform and inspire. So his key question to the panel focused on capital, was how to make Southern metro networks stack up against those in other dealmaker-heavy cities? And how to get more money into North Carolina companies?
Here are three key strategies they propose:
More angel group collaboration. This is already happening. Romanowski coordinates a monthly phone call between eight funds in North Carolina. Each shares the most exciting deals in its pipeline and gives the others an opportunity to get involved. Two recent examples of syndicated deals between angel groups include wine and beer recommendation app maker NextGlass, which received funding from IMAF and then tripled the investment after other groups got involved, and RFID tracking software company Entigral Systems, which first received funding from TAP and then both IMAF-RTP and IMAF Cape Fear.
Don’t give up. Hit your milestones. Though TAP has made just eight investments (and three follow-on) from the 500 proposals considered, there have been times individual investors have chosen to invest. For example, Stone and seven other TAP members invested individually in Lonerider Brewing Company when TAP passed on the deal. And three of its portfolio companies pitched 18 months before the group eventually invested. The partners look for entrepreneurs who are willing to take their suggestions, and meet their stated goals.
Consider crowdfunding, but maybe not for equity investing. There was some debate around crowdfunding as an investment tool, but most agree that reward-based crowdfunding, i.e., pre selling your product through sites like Indiegogo or Kickstarter before it’s even in production, is good and attractive to angel investors. Equity crowdfunding may be a risk because of murky SEC rules – professional investors may be less likely to invest after a company has used the tool.