NC’s startups raised record amounts of money in 2020, with half coming from Epic Games
When the coronavirus came to American shores last year, startups across North Carolina fretted about what it meant for their future.
The state’s startup ecosystem had been growing by leaps and bounds in the past decade, and the pandemic appeared to create a huge obstacle to its momentum.
Offices closed, in-person meetings with investors were canceled, and revenue estimates were being slashed.
And yet, looking in the rear-view mirror at the start of 2021, tech startups continued to thrive during the pandemic.
North Carolina tech companies ended up raising more than $3.6 billion in 2020, the most the state has seen since the dot-com bubble of the late 1990s, according to newly released data from PitchBook, a firm that tracks the venture capital industry.
Among the states, the data rank North Carolina sixth for total amount of investment brought in — a rise from previous years.
North Carolina’s numbers greatly benefited from the meteoric rise of Cary-based Epic Games, the maker of the popular Fortnite video game and 3-D visualization tool Unreal Engine.
The video game-maker raised $1.8 billion from investors in 2020, one of the largest amounts in the country last year. The round was only bested by startups like autonomous vehicle developer Waymo and Elon Musk’s space transportation company, SpaceX.
It wasn’t just a record-breaking year for North Carolina, but one for the entire country as well, according to PitchBook’s data. U.S. startups raised $156.2 billion last year, the first time that number has crossed $150 billion.
“Interest in venture capital and private funding of these high-growth tech companies is at an all-time high,” Kyle Stanford, an analyst for PitchBook, said in a telephone interview. “When the pandemic hit, we sat back and thought it was going to be a struggle, but the amount of capital coming into the market and number of investors going into private rounds couldn’t have been higher.”
Benefiting from the pandemic?
In some ways, the tech industry benefited from the pandemic.
With so much in-person activity obstructed, Americans relied on technology for everything from doctor visits and shopping to entertainment and creating home offices.
Jason Caplain, a local investor with Bull City Venture Partners, said the pandemic accelerated interest in some companies and sped up the adoption of new technologies. He pointed to one of his firm’s investments as an example.
Spoonflower, a Durham-based online retailer of custom fabric, ended up having a record year in 2020, growing sales by 162%. The company’s e-commerce platform allowed it to take advantage of the growing migration away from brick-and-mortar retail.
“Some companies in our portfolio had the kind of growth they forecasted over the next few years happen all within a few months,” Caplain said of the pandemic’s effects.
Epic raised its money as more people stayed home and played video games during the pandemic. Globally, a record amount of money was spent on games this year.
The huge amount of money has allowed it to go toe-to-toe with Apple in an antitrust lawsuit and plan an ambitious new headquarters on the site of Cary Towne Center.
“I think any company that is raising a billion dollars is in its own class,” Stanford said of Epic’s year. “But mega deals (like that) are here to stay.”
That’s because large investors like mutual funds are jumping into venture capital, Stanford added, helping create record amounts of money for startup investments.
These types of investors have been encouraged by the resurgence of the initial public offering (IPO) market in 2020, with startups like Airbnb and DoorDash going public last year. “The ability for so many high-profile companies to have a successful exit,” he said, “is reinforcing the funding and deal making trends that we have seen recently.”
As long as that continues to happen, investments should remain strong, Stanford said.
Will North Carolina continue to thrive in 2021?
California still far and away dominates venture capital investment, according to PitchBook’s report.
Its healthy lead in that department should be kept in mind, as speculation builds on which places will benefit from a growing migration of people away from high-cost metro areas to places like Austin, Texas, or even the Research Triangle.
PitchBook forecasts that the Bay Area will make up less than 20% of the nation’s deal count in 2021. If the prediction holds, it would be the first time that has happened.
Stanford said that’s good news for emerging tech hubs, as investments are expected to remain strong this year. “There’s a lot of interest right now,” Stanford said, “and a lot of funds are being raised” — both for the youngest startups and more mature ones.
That money will start to flow to markets outside of California.
Places like Austin, Nashville and Raleigh already “had growing VC ecosystems over the past years,” Stanford said. “This will help accelerate that growth.”
New York, Boston and Silicon Valley will still be the centers of capital, he added, “But with Zoom, it has become easier to meet companies, and that is helping spread capital out.”
Caplain said North Carolina is well positioned to take advantage of that trend.
“North Carolina continues to be top 10 in the country for attracting venture capital ... (and) per capita, Raleigh-Durham is No. 3 behind Silicon Valley and Boston,” he said.
The Research Triangle dominates when it comes to venture capital in North Carolina. The region landed more than 76% of total capital raised last year. And eight of the 10 biggest raises were based in the Triangle.
Caplain expects that to translate into an increasing number of IPOs or acquisitions. That’s an important measurement, as those financial exits allow investors to recoup their money.
Startup scenes in NC
Startup scenes in Charlotte and Wilmington are also growing.
Charlotte’s AvidXChange, which makes an accounts payable automation software, raised nearly $600 million last year. The company is expected to go public with an initial public offering this year, according to Forbes.
And Wilmington has a thriving financial technology hub sprouting around Live Oak Bank. One of that bank’s first spin outs, nCino, had the largest IPO in the state last year.
But the Triangle, Caplain said, is really starting to stand out. It no longer has to tout itself just as a low-cost destination for entrepreneurs and startups. It can legitimately point out its successes, like Epic Games, Pendo, Red Hat and Bandwidth.
It’s also home to a large cluster of biotech startups, an industry that is expected to see an influx of capital in 2021 because of the pandemic, PitchBook said in its report. The largest acquisition in the state last year was the gene therapy startup AskBio, which fetched a $4 billion price tag from Bayer.
“It used to be our region had just handful of startups and a bunch of green shoots,” Caplain said. “Those companies have now matured and (are) aggressively hiring.”
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 January 14, 2021 at 6:00 AM with the headline "NC’s startups raised record amounts of money in 2020, with half coming from Epic Games."
