How does the Triangle stack up to other emerging technology hubs?
CED, a Triangle-based support group for entrepreneurs, has the answer. Or, to be more precise, lots of answers.
CED commissioned Randy Myer, a professor at UNC-Chapel Hill’s Kenan-Flagler Business School, to do a benchmark study featuring statistical comparisons of the Triangle and other “emerging” hubs for technology startups.
The bottom line?
“I would say we punch above our weight class,” said Joan Siefert Rose, president of CED. “We were the smallest of these regions and, by and large, we hung right in there with these other communities.”
The study, Rose said, focused first and foremost on “capital formation and availability” – that is, whether Triangle startups have access to the money they need to develop new products and expand their operations.
“If we are talking about the success of entrepreneurial hubs, we really are talking about which companies scale and grow,” Rose said. “We were looking for the best proxies we could find to see how does the Triangle compare to these other markets.”
The study was done in two phases. The first compared the Triangle with three other tech startup hubs, while the second expanded the comparisons to five cities: Atlanta, Austin, Texas, Chicago, Denver and Seattle.
“Probably none of us is going to be the next Silicon Valley,” Rose said. “But we all have strengths and we all have things we can learn from these other markets.”
The data include an important caveat: The Triangle is the smallest, population-wise, of the six hubs. Austin is slightly larger, while the rest are significantly bigger. Atlanta is more than three times the Triangle’s size, and Chicago is more than five times bigger.
“That is going to affect the number of angel investors,” Myer said. “That is going to impact the number of entrepreneurs. ... It affects a whole bunch of things.”
None of these hubs can boast of a company that raised more than $1 billion in an initial public offering of common stock, or IPO.
“We always hear about, where is the billion-dollar company?” Rose said. “Well, guess what? None of these markets had a billion-dollar IPO. ... We have growing markets, and yet the level of maturity to get to billion-dollar IPOs, none of us have it.”
CED commissioned the study for internal planning purposes but agreed to share it with The News & Observer.
“We are interested, certainly, in having CED known as the organization that is tracking this data and trying to find points of comparison and look for ways to propel the region forward,” Rose said.
Here are some of the data highlights:
Initial public offerings: The Triangle ranked fifth among the six hubs with 16 IPOs over the past decade – but not far behind No. 2 Atlanta, which boasted 19 IPOs during that span.
The Triangle ranked fourth in the amount of money those IPOs raised: $3.05 billion.
The Triangle’s IPOs were heavily weighted towards the life science sector – biotechnology and medical device companies – which accounted for 11 of the IPOs. That was tops among the hubs.
On the other hand, just two of the Triangle’s IPOs were information technology companies. That was fewer than all of the hubs except Denver.
Mergers and acquisitions: The Triangle ranked fourth with 63 deals in the life science sector that totaled $5.57 billion over the past five years. But its 62 IT/telecommunications deals and $4.16 billion raised lagged well behind the other hubs.
“I think we have a mature life science sector,” Rose said. “In technology, we have seen a lot of activity, but it’s still coming together.”
“I think we definitely have work to do” on the tech side, said Brooks Bell, founder and CEO of a marketing analytics company that bears her name. “I do think that, in our favor, we have pretty incredible momentum and energy here. ... We’re behind, but I feel like we just got started.”
“I’m still really bullish on our potential to be a top five (IT hub) in the future,” Bell said. “Of course, for us to be a top five, we need to beat Atlanta, Austin, Chicago, Denver and Seattle.”
Venture capital firms: The data provides more fuel for entrepreneurs who have long complained that the Triangle has a dearth of venture capital firms based here.
The Triangle has six venture capital firms, the fewest of all the hubs. Those firms’ current investment funds total $627 million, which is more than Atlanta’s nine funds ($439 million) and Denver’s seven funds ($395 million), but less than half the $1.49 billion that Austin’s 10 funds manage.
“What was surprising to me is seeing how much more funding the other regions have than us – that we truly have a problem with venture capital,” Bell said.
“The unanswered question here is, is our pipeline of quality ideas what is keeping other (venture capital) firms from coming here, or causing us to have less venture capital here?” Myer said. “The reciprocal of that question is, if we brought more venture capital here, would we do twice as many deals? That’s the unanswered question.”
An important factor that doesn’t show up in the venture capital data is that some Triangle firms, including Intersouth Partners and Aurora Funds, are no longer making investments in new companies. Rather, they’re only making follow-up investments in companies already in their portfolio.
“That’s a little bit of an unfortunate reality of this area,” said Rik Vandevenne, a venture capitalist in the Raleigh office of River Cities Capital Fund.
The study also showed that Triangle companies snagged fewer investments from the nation’s 50 largest venture capital funds than any other hub.
Still, “there are many more active venture funds than the top 50,” Vandevenne said. “It perhaps says we are less likely to have the next Uber – some really high-profile company that is going to raise $1 billion in venture funding – but it doesn’t say we’re unlikely to have lots of great doubles and triples coming out of the Triangle.”
Local investments by Triangle venture capital firms: Thirty-eight percent of the companies that Triangle venture capital firms have been investing in are local, which is roughly average among the hubs.
“It might be a measure of the quality of our ideas ... that we are at about the norm for the other parts of the country,” Myer said.
Angel investors: The Triangle ranks third in the number of active angel investors – wealthy individuals who invest in startups – with 213, well ahead of Austin and the significantly larger Atlanta and Denver.
Angel investors are crucial because they frequently are the first outside investors in a technology startup after “friends and family.”
“The angel activity that is going on is supporting the next group of companies that will scale up and be of the size” that will attract venture capital dollars, Vandevenne said.
Research: The Triangle’s three major research universities – Duke, N.C. State and UNC-Chapel Hill, spent $7.71 billion on research from 2009 to 2012. That put it behind just Austin among the four hubs compared in the study – and Austin’s $9.68 billion total encompasses the entire University of Texas System, regardless of location.
And there’s more. The Triangle’s research universities came out on top with 865 technology transfer licenses during that period.
“That tells us that the funnel is strong,” said Stephen Fraser, co-founder of Spoonflower, a Durham company that uses digital printing technology to create fabric, wallpaper and gift wrap on demand. “There are a lot of opportunities for companies to continue to be born and come out of the Triangle. We’ve got the right foundations in place.”