How Entrepreneurs Could Survive A Venture Capital Slowdown
There is widespread worry about what a slowdown in venture capital investment might mean for entrepreneurial companies. The National Venture Capital Association (NVCA) data seem to support the teeth gnashing, at first glance. Funding for entrepreneurial hubs in San Francisco and San Jose was down compared to 2014, and funding in New York, Los Angeles, Boston and Washington D.C. all lagged the national year-over-year rate of growth (19%).
While these areas account for the lion’s share of venture funding invested each year, they don’t tell a complete story of growth. Emerging entrepreneurial hubs in Miami (+37%), Pittsburgh (+20%), Portland, Oregon (+28%), and Raleigh (+43%) all bested the 19% national growth rate for funding.
What’s more, venture funding is only a piece of the overall funding picture. My organization, theCouncil for Entrepreneurial Development (CED), based in the Research Triangle region, released its Innovators Report last week. This report, which tracks venture funding but also investments from corporate strategics, angels, growth equity, family offices and other accredited investors showed that North Carolina entrepreneurial companies raised $1.2 billion in equity funding last year. The NVCA data, which only tracks venture capital, showed North Carolina companies raising $675 million.
So where did the other half of that $1.2 billion come from?
CED’s findings suggest that in emerging tech and life science hubs like the Research Triangle, a more decentralized funding model involving individual investors, angel funds, family offices, corporate strategic partners, international investors, and regional VCs (who often have angels and family offices as limited partners) are forming flexible partnerships to back promising companies at attractive valuations, then help advance their progress through to an exit.
Here are a couple of examples of how both large and small deals came together in the Research Triangle:
Humacyte, a Durham, NC-based regenerative medicine platform company aimed at improving outcomes in vascular surgery, raised its initial $63 million from a single angel investor. As the company prepared for its phase 3 clinical trial last year, it weighed the possibility of going public. However, the management team, which includes a seasoned entrepreneur and former executive from the pharmaceutical industry, thought they might pursue a different path to raise capital that would give them more time to execute their business strategy. Following introductions in Asia, arranged by their initial angel investor, the company had conversations with 32 family offices, of which 27 ultimately signed on to fund additional research and product development. The total? $150 million, none of it from venture capital. The company now has enough money on hand to launch its first product in 2019.