North Carolina entrepreneurs raised more than $800 million in funding deals last year, the second-highest annual total since CED began tracking investment funding.
Figures were released by the Council for Entrepreneurial Development, which tracks business investments flowing into North Carolina.
This funding comes mostly from investors like angel, venture capital or private equity groups, or from larger corporations that invest in companies at an early stage in hopes that the company's scientists will develop a new technology, drug, or other application that will then return millions more. The funding is largely directed at product development, but also supports jobs and brings outside money into a community.
Many of the small companies in and around Research Triangle Park are supported by these investments. In many cases, these companies have only a first-generation product − or sometimes no approved product at all − on the market and therefore generate little or no revenue. In rarer cases, a company is already established, but needs several million to ramp up production or grow to maturity; while these represent fewer cases, they attract investments of many millions and contribute in a bigger way to economic development because they can support many jobs and real estate investments.
Groups that invest in these companies become part owners and their investment represents a bet that the product under development will succeed. These investors reap a payout if the company completes an initial public offering to become publicly traded, or goes through a merger or acquisition with a larger company. These are known as "exits" in investor circles.
"North Carolina continues to post sizable funding totals due to the quality of entrepreneurial companies throughout the state, a diversity of investable sectors, and good valuations paired with a solid record of exits," Miriam Wilson, CED vice president of investor relations, said in a statement.
Funding in North Carolina has historically lagged behind the major tech hubs of Silicon Valley and the Boston area. That's changing, though, as Research Triangle Park matures. "There is a national recognition that we have good companies here, and as more investors are doing deals and seeing returns, word starts to get around there's good valuations and good companies here," said Steve Hinkson, CED communications director.
According to CED's 2016 report, 154 North Carolina entrepreneurial companies in the technology, life science, cleantech and advanced manufacturing and materials sectors collectively raised $806 million in funding through 188 equity investment deals.
The amount raised is down from the nearly $1.2 billion raised in 2015, a year that included several large investment deals, including $71 million raised by Durham-based thermoelectric company Phononic. While funding was down, exits were up. This is an important number to track because – ultimately – investors need to exit a deal to make money.
"As you see these companies grow, and then exit, you have this cycle of talent that then recycles into the community, you have founders that then start new companies and bring in new investment, and it just strengthens the eco-system at large," said Hinkson.
The 38 exits in 2016 were double from the previous year and included two IPOs, pharmaceutical companies Novan and Patheon. The four largest merger and acquisition deals from 2016 were:
- Sensus, acquired by Xylem for $1.7 billion
- Biologics, Inc., acquired by McKesson Specialty Health for $1.2 billion
- Bamboo Therapeutics, acquired by Pfizer for $645 million
- ESP/SurgeX, acquired by AMETEK for $130 million
Hinkson said the exits were a, "Good signal to investors as well, that this is a healthy eco-system with good companies that have a path to exit and it just attracts more capital."