Triangle startups dominated NC venture capital funding last year. 2020 is up in the air
The Triangle’s tech and life sciences startups once again dominated among North Carolina startups raising money from investors in 2019, according to a new report from the Durham-based Council For Entrepreneurial Development.
But for the second year in a row, the number of investments declined across the state, and with the economy in tatters because of the coronavirus, deals could drop even more in 2020.
North Carolina companies raised nearly $1.5 billion from investors in 2019, a total that has only been bested in recent years by 2018, when Epic Games, the Cary-based maker of Fortnite, brought in a mammoth round of $1.25 billion from investors, according to the Council for Entrepreneurial Development (CED).
Without the Epic deal, 2018 and 2019 would’ve been roughly equal.
“Those are both very big years,” said Hunter Young, director of capital at CED.
And nearly three-quarters of that money went to startups based in the Triangle. Companies in the region raised a little more than $1 billion from investors in 2019, equal to 72.3% of all funding in the state.
The Triangle’s dominance was highlighted by companies like Pendo, whose $100 million raise last October officially brought that startup’s valuation to $1 billion, and AskBio, a Research Triangle Park-based gene therapy company, that brought in $235 million.
For the second year in a row, the state as a whole saw a surge in the number of funding deals valued at more than $50 million. Three of those deals — all valued over $75 million — went to financial technology startups: Charlotte-based AvidXchange, Durham-based Spreedly and Wilmington-based nCino.
Still, the total number of deals completed last year continued to fall, especially for the state’s youngest companies, The News & Observer previously reported. The number of deals valued below $5 million in 2019 decreased 7.9% from 2018 and 25.7% from 2017.
“What you are seeing here in the past two years mirrors what is happening nationally,” Young said of the decreasing number of smaller deals.
Investors have been more interested in more established startups in recent years, according to a 2019 report from Pitchbook, because they are looking to make larger investments that generate larger returns.
Some local investors have raised concerns in recent months that the falling number of investment deals could harm the Triangle in the long run.
“If we aren’t investing in early-stage companies, then where are the later-stage companies going to come from?” David Gardner, of Cary-based Cofounders Capital, told The N&O in an earlier report on declining deal numbers. “You need someone planting seeds so you can harvest later on.”
The number of exits also fell in 2019 compared to the year prior. There were only 21 exits — defined as initial public offerings or a merger or acquisition — in 2019 compared to 2018. Exits are an important metric, as they help return money to employees and investors, which often recirculate into future investments.
Now, with the coronavirus pandemic putting the economy into a recession, the number of completed deals in North Carolina could potentially continue to fall.
“There is obviously the potential for that,” Young said. But “The bigger issue is that investors are trying to be better stewards of that money and not do capital calls just for the sake of doing them. ... I think there will be some hesitancy,” he said.
Young said he is hopeful that the entire year won’t be a wash, noting that most of the largest deals traditionally come toward the end of the year. The economy, he said, could be in a much more stable condition this fall and winter — depending on whether there is a severe second wave of the coronavirus.
Earlier this year, Thom Ruhe, head of the NC IDEA foundation, which gives grants to startups, warned that the coronavirus could make it even harder for young companies to convince investors to give them money. “I am worried that we are going to see several years of setback” for the startup ecosystem, he said.
However, Epic Games, as it did in 2018, could again have a disproportionate influence over the state’s funding totals this year. The video game company is reportedly in the market to raise somewhere between $500 million and $1 billion in additional capital, Bloomberg News reported earlier this year.
That funding, if it comes to pass, would push the firm’s valuation over $15 billion. Epic has declined to comment on whether it is seeking more funding.
This story was produced with financial support from a coalition of partners led by Innovate Raleigh as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work. Learn more; go to bit.ly/newsinnovate
This story was originally published June 8, 2020 at 4:31 PM with the headline "Triangle startups dominated NC venture capital funding last year. 2020 is up in the air."
