Despite pandemic, investments into NC startups keep pace with last year, report shows
Despite the coronavirus pandemic disrupting in-person meetings between investors and companies, investments into North Carolina startups are keeping pace with last year’s tally.
In the second quarter of the year — when the pandemic’s disruptions were felt fully throughout the country — 59 investment deals were completed in North Carolina, up one from the 58 deals completed during the same period last year.
When the first three months of the year are included, 15 more investment deals have been closed this year by North Carolina startups than during the first half of 2019.
That data comes from the most recent Venture Monitor report, an analysis published quarterly by PitchBook and the National Venture Capital Association. The report showed that, overall, the coronavirus has taken a chunk out of the investment activity in the country, as it has become harder to find deals through traditional outlets.
“Sourcing these deals is so much more difficult, or has been at least this quarter, because of the (lack of) ability to go to events to meet companies and share ideas,” said Kyle Stanford, an analyst at Pitchbook.
This has been particularly hard, Stanford said, for the youngest companies that didn’t have existing relationships with investors before the pandemic started. A lot of deals have been going to later-stage startups, he added, as “investors are looking to protect their most valuable investments.”
Jason Caplain, of Durham-based Bull City Venture Partners, said the curtailment of travel has indeed hurt many of the youngest startups in North Carolina that receive funding from out of state.
“Seed and early-stage capital is scarce in North Carolina,” he said in an email, “and today travel complicates the ability for companies here to land that from investors outside our state.”
Despite seeing the number of deals stay constant, the amount of money raised by startups fell by almost half. North Carolina startups raised $296 million in the second quarter of the year. That represented a 49% decline from the second quarter of 2019, when startups raised $575 million.
However, thanks to a larger first quarter, the first six months of 2020 outraised the first halves of both 2019 and 2018.
Stanford said it’s normal to see a lot of variation in the amount of money raised for smaller ecosystems. Just one large fund-raising round can have an outsize effect on North Carolina’s numbers compared to the most active regions like Silicon Valley.
The Triangle’s startups dominated the state’s venture capital funding in the second quarter. Companies in the region raised a little more than $1 billion from investors in 2019, or roughly 72% of all funding in the state, The News & Observer previously reported.
The largest deal last quarter came from Durham-based Shattuck Labs, a biotech company that is creating cancer and autoimmune therapies. The company raised $118 million from investors in June, which is the largest of any company in the Triangle so far this year.
Pitchbook did not originally include Shattuck Labs in its count for North Carolina. The company lists its primary address as Austin, Texas, but Shattuck’s CEO and a majority of its workforce are based in Research Triangle Park.
The second-largest deal in the state also came from a Durham startup. Teamworks, which runs a scheduling-and-communication platform for student and professional athletes, raised $27 million from investors in April.
Raleigh-based pharmaceutical startup Bryn Pharma rounded out the top three, raising $26 million from investors last month.
Stanford said he expects that, nationally, investments will make a comeback in the latter half of the year. In the Triangle in recent years, the last two quarters have seen more investments happen than the first two.
Caplain said he expects some larger transactions in the second half of the year to lift the state’s fundraising numbers.
“The numbers in (North Carolina continue to be lumpy quarter to quarter,” he said in an email. “...We are seeing some larger transactions here that will close in Q3, so expect a lift in the numbers for the second half of the year.”
One potentially large deal could come from Cary-based Epic Games, the maker of the Fortnite video game. The company is reportedly close to raising an additional $750 million from investors — a total that would put its valuation at $17 billion.
Stanford said he expects activity to pick up in the next several months. Investment firms, he noted, have too much money on the sidelines right now not to put it to work. At the beginning of the year, there was more than $120 billion sitting in the coffers of venture capital firms across the country. Since then $40 billion has been added to that total, Stanford said.
Those numbers, he added, don’t even include the private-equity and hedge-fund money that has also been targeting startups recently.
“There’s an enormous amount of dry powder ready to be invested and investors will find a way to put that money to work,” he said.
Caplain said he believes private-equity money will play a big role going forward.
“The amount of dry powder private equity firms have is now at record levels,” he said. “We continue to see a lot of demand from that part of the market once companies are at scale.”
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 July 16, 2020 at 1:19 PM with the headline "Despite pandemic, investments into NC startups keep pace with last year, report shows."
