Money talks. And while venture capital firms can (and do) talk about the types of companies they look to invest in, sometimes you need to dive deeper into the numbers for clarity.
That’s why we’ve compiled a survey of the Triangle VCs to further get at this question of who their investments are going to and why. The survey spans investments from 2017 onwards so the last five-plus years.
Some key takeways are that Cofounders Capital is the most focused on local startups, Cofounders and Oval Park Capital tend to invest the earliest, IDEA Fund Partners makes the most incremental add-on investments to its portfolio companies, Oval Park has the strongest record of investing in diverse founders, and Bull City Venture Partners is much more likely to invest in serial entrepreneurs with an exit to their name than a first-timer.
Let’s take a closer look at each local VC in alphabetical order:
Bull City Venture Partners
Durham-based Bull City Venture Partners invested in a total of 18 companies since the beginning of 2017. These include Zift Solutions, Adwerx, Reveal Mobile, Full Measure Education, Contactually (which was acquired by Compass), Spoonflower (which was acquired by Shutterfly), Spiffy, VividCortex (which was acquired by SolarWinds), Biospatial, Even (acquired by Walmart), Attila Security (acquired by ID Technologies), Levitate, ServiceTrade (which made a majority deal with PE), Circonus, LaunchNotes, Blueprint Title, Viably and Tiny Earth Toys.
Investments by the numbers
Location: 50 percent located in NC. The rest are headquartered in Philadelphia, Washington D.C., Maryland, Virginia, Nashville and San Francisco.
Sector: 95 percent software/internet/ecommerce
Diversity: 17 percent led by women. 53 percent have women on the executive team. 0 percent were led by minority founders.
Average check size: $1.4 million (typically starts with around $500,000-$750,000)
Stage: 50 percent of deals were seed-stage, while 40 percent were Series A
How hands-on: BCVP was the lead investor in 70 percent of deals, and the first outside funding in 71 percent. In 95 percent of deals, Bull City Venture Partners took a board seat at the company.
From the numbers—and its stated philosophy—Bull City Venture Partners strongly prefers to invest in experienced entrepreneurs. In fact, 88 percent of deals were with founders who had made a previous exit.
Partner David Jones said Bull City will always invest in the entrepreneur, even if the market vertical is a bit out of their usual preference. Jones (jokingly) said they might invest in Spiffy CEO Scot Wingo’s lemonade stand if he had one because it very much comes down to the entrepreneur and the team.
“The team will trump the theme for the most part,” Jones said. “We’re really looking mostly for those great teams.”
Jones said while BCVP has yet to invest in a minority founder, deploying capital to women and minority founders is an increasing focus for the team. They are continuously working to become a presence in female and minority founder networks, he said.
Durham-based Tiny Earth Toys’ Founder and CEO Rachael Classi is a great example of a talented woman founder that Bull City recently invested in, Jones said. Classi also had the business expertise that Bull City traditionally looks for, having founded a startup previously and worked as a Chief Marketing Officer at several venture-backed companies, including Durham’s Teamworks.
Breaking down those barriers is purposeful since Bull City Venture Partners is composed of three men.
“Very frankly, if you’re a woman founder and you’re building something, three guys may not be the first stop,” Jones said. “And I just think we’re trying to break that down.”
It’s inherently more difficult to find women and minority founders with the type of entrepreneurship background that Bull City tends to look for, but Jones is hopeful that VC is moving in the right direction.
“I hope in the last few years, the appropriate light has been shone on them, and we’re starting to highlight them more,” Jones said. “The proof has been in all the studies that having women and minority-led, having a mix on the team, increases returns.”
Of course this has long been an issue across the United States. In recent years, only 2.6 percent of venture dollars went to minorities, and only 2.2 percent was invested in women-owned businesses.
Jones said Bull City’s new fund intends to play a significant role in building more great companies locally, as more and more unicorns make their home in the Southeast.
“I feel like it’s a rocket ship with Epic Games and all the great companies, all the people moving here,” Jones said. “I can’t tell you how many times a week I get the call from a San Francisco or New York founder that’s moving the company here.”
Over the past five years, Cary-based Cofounders Capital has invested in 20 companies: Servus Connect, MapMyCustomers, Impathiq, Feedtrail, The Looma Project, ContractorQuotes, CareNexis, EasyVote, Ecobot, RelayOne, Waam, Automation Intellect, Element451, Slope Software, CureMint, Pattern Health, marGo, Certificial, ViewStub and Biospatial.
Investments by the numbers
Location: 70 percent located in the Triangle, 20 percent in other North Carolina areas, 10 percent outside NC
Sector: 100 percent B2B software
Diversity: 10 percent companies led by a woman or person of color at initial investment, 15 percent including new CEOs Cofounders Capital brought in
Average check size: $725,000 (more recently $1.25 million)
Stage: 90 percent seed stage, 10 percent Series A
How hands-on: Lead investor in 85 percent of its deals and the first outside funding for 75 percent. Cofounders took a board seat in all 100 percent of its deals since 2017.
Cofounders Capital wasn’t afraid to invest in first-time entrepreneurs, as only 25 percent of its deals since 2017 were with founders that had made previous exits.
“We don’t shy away from first-time founders,” Cofounders Capital Partner Tim McLoughlin said. “You can see that the majority of our companies had CEOs that didn’t have exits before.”
McLoughlin said Cofounders Capital considers themselves pretty hands-on investors, as exemplified by the fact it took a board seat at 100 percent of the startups it’s invested in since 2017.
While Cofounders intends to be opportunistic across the Southeast, especially in its new fund, they invest predominantly in North Carolina because that’s where their network is and that’s where they’d like to see their money deployed, McLoughlin said.
In terms of the type of company they look for, B2B software is where they’ve been most comfortable.
“We like things that have a demonstrable ROI, so better, faster, cheaper business-process-improvement solutions,” McLoughlin said. “We’re not looking for the deepest tech, necessarily, but something that solves a real business problem, and I think you see that kind of across the portfolio.”
Only 10 percent of the companies Cofounders Capital invested in since 2017 were led by a woman or person of color at the time of the initial investing, but they increased that number to 15 percent by adding on new CEOs to the companies they made deals with.
“You really have to make an effort on the part of the venture firm to seek out more diverse founders,” McLoughlin said. “Up until the last few years, I’d say it was easy to sit back and let the deal flow roll in, and now we’re trying to be more proactive.”
McLoughlin said in order to increase funding for women and minorities, VCs have to be purposeful in expanding their networks to find those entrepreneurs. This could mean attending more pitch events that focus on underrepresented founders. Other important pieces include bringing on diverse interns in the VC firm itself and looking at the hiring practices of the companies they’ve invested in.
For instance, Cofounders Capital partnered with Raleigh-based The Diversity Movement to help its portfolio companies evaluate their hiring practices and seek out more diverse job candidates.
There’s no “snap your finger” kind of solution, McLoughlin said, but having more women and minorities on management teams will prompt more women and people of color to create their own companies and raise capital themselves.
Cofounders Capital has made one hire in the past six years, but combined, their portfolio companies have brought on hundreds if not thousands of new employees. This is where impact lies.
Looking ahead to the rest of 2022 and beyond, Cofounders is investing from its third fund with a targeted $50 million goal and looking to add to its team. From its portfolio, they hope to spark local job creation, successful exits and wealth that will be redeployed back into the entrepreneurial community.
“I hope we’re going to be able to make several new investments which are not only going to be the start of making great returns for our investors, but giving entrepreneurs the chance to achieve what they’re working so hard to achieve,” McLoughlin said. “I love creating jobs and high-growth opportunities inside of North Carolina and the Southeast.”
McLoughlin said Cofounders Capital prides itself on its accessibility. So while it might take a while to set up a meeting, they are open to providing advice and feedback to the entrepreneurs out there.
Investments by the numbers
Location: 40 percent NC-based
Sector: 30 percent medtech, 30 percent industrial tech, 15 percent digital media, 15 percent SaaS, 10 percent other
Diversity: 42 percent companies led by a woman or person of color
Average check size: $500,000
Stage: About half seed stage, half Series A
How hands-on: Lead investor in 50 percent of deals and the first outside funding in 20 percent of deals. Took a board seat in 25 percent of the companies they invested in since 2017.
At Cary-based Harbright Ventures, fifty percent of the deals made since 2017 were follow-ons to a first funding. In 40 percent of all deals, the founders had executed a previous exit.
Raleigh-headquartered operations management software company Chekhub was one of Harbright’s most notable recent local investments. Ultimately, Harbright partner John Leachman said the VC has a sector-agnostic investment philosophy although historically, they’ve focused on SaaS, medtech and industrial tech.
As their numbers show, the preference is to invest in the Southeast, but it ultimately comes down to their trust in the management team to execute.
“We found that deal terms in the Southeast are fairly reasonable, valuations are fairly reasonable, and there’s plenty of activity,” Leachman said. “We want to be supportive of the local community.”
A total of 42 percent of Harbright’s investments since 2017 went to startups with one or more founders who are women or people of color. That number, while relatively high compared to other VCs, was not a specific target but instead just the result of finding great businesses that happened to have those founders, Leachman said.
“Education is both the barrier and solution to the problem (of) why is it challenging for women and people of color to raise capital,” Leachman said. “Additionally, we shouldn’t wait until kids are in their 20s to teach entrepreneurship, and running a business should be taught to all.”
Leachman said as Harbright looks to the next one to two years, they plan to close their second fund, which has a target of $12-20 million target.
“While we are not a social-impact fund,” Leachman said, “we do endeavor to make investments that contribute to the greater good.”
IDEA Fund Partners
Durham-based IDEA Fund Partners participated in 84 rounds of financing since 2017 across 36 companies. These companies included Adrich, AIO, Alivision, Antenna, Biospatial, Boundless Life, Canopy, Ceterus, Choicewox, CloudTags, Distil Networks, Fenris Digital, Finmark, First.io, Impossible Objects, InsightFinder, Key Living, Klearly, Livesource, Lucerno Dynamics, Mati, Pangea.app, Payzer, Pendo, Poppy, Punchlist, Scoreboard, Reveal Mobile, RightRev, Sarda Technologies, Second Nature, Sense Photonics, Silbo, Sortspoke, Spiffy and SwitchBoard.
Investments by the numbers
Location: 47 percent located in North Carolina
Sector: 25 percent AI/big data, 17 percent ad/marketing tech, 14 percent tech-enabled services, 14 percent fintech, 14 percent other, 11 percent real estate/property tech, 6 percent cybersecurity
Diversity: 36 percent of companies led by woman and/or person of color
Average check size: $424,000
Stage: 29 percent were seed stage and 9 percent Series A. IDEA Fund characterized 45 percent of its deals as “bridge/extension,” most of them add-on investments to a company that the firm had already invested in before.
How hands-on: Led or co-led at least one round of financing for 61 percent of its portfolio companies. The firm took a board seat at 61 percent of companies and a board observer seat at an additional 33 percent. Fully 71 percent of its investments since 2017 were follow-on checks.
IDEA Fund’s Managing Partner Lister Delgado said that over the years, there’s been a natural evolution of IDEA Fund to include a wider range of deals in terms of the stage the companies are at and where they’re located.
Diversity has been of increasing focus, too. As a Latino, Delgado said it’s always been important to invest in underrepresented founders, but he cannot say that IDEA Fund did this consciously 10 or 15 years ago.
Though that’s changed in the last five years, and 36 percent of IDEA Fund’s portfolio companies were led by a woman or person of color. It’s an improvement on where they’ve been historically, but moving forward, Delgado wants that number to reach 50 percent.
“You are in a privileged position when you’re running a venture fund, especially in an underrepresented or under-served city,” Delgado said.
There’s a responsibility to the community as a VC firm, but there’s also a tremendous business opportunity to invest in businesses that historically fell through the cracks because the founders weren’t a part of VCs’ traditionally white-male networks, Delgado said.
VCs often rely on shortcuts like where the founders went to school to evaluate if they should talk with new businesses, but that creates a bias toward white founders since “elite” schools tend to be overwhelmingly white, according to Delgado. VCs also often rely on their own networks, which are often fairly homogenous groups of older, white men.
Fixing these problems is by no means easy, Delgado said, but in the long run it will lead to better outcomes and higher success rates.
“Like any problem that is societal, it’s very hard to say whose responsibility it is to fix this,” Delgado said. “Is it investors? Is it entrepreneurs? Is it politicians? Is it businesses? I don’t know. It’s not easy to point out. And that’s what makes it difficult.”
Delgado said VCs need to continue to change what their networks look like and hire more diversely on their own teams. But everybody needs to do their part, and market forces will likely begin to correct the issue, especially as more diverse investors come on board.
“If there are more African American, Latino and female investors, this whole conversation changes radically,” Delgado said. “Then suddenly, your networks change. The network of the people putting money to work changes. The fear that I have, as an entrepreneur, to go up to somebody that looks and sounds like me diminishes.”
Delgado is already seeing changes, but he knows it’s not going to happen overnight. At IDEA Fund, they are taking it one step at a time and working toward incremental improvements.
Overall, IDEA Fund looks to build companies that have a long-lasting presence in North Carolina and help entrepreneurs create the next generation of investors.
“I think every VC feels that way,” Delgado said. “That’s probably the main reason why they do this. It’s exciting. It’s great to see companies grow from nothing to strong entities that are contributing to the community.”
Oval Park Capital
Raleigh-based Oval Park Capital is an early-stage venture capital firm that invests primarily in deep-tech startups in the Southeast. Their industries of interest include advanced materials, agriculture, animal health, clean energy, cybersecurity, healthcare, financial, real estate and more.
Oval Park’s company portfolio includes Emrgy, FortifyData, Grubbly Farms, Medicom, NALA Membranes, OnTrack Technologies, Parmonic, Phinite, ResoluteAI, SWIR Vision Systems, Talli and Zoee.
Investments by the numbers
Location: 50 percent North Carolina, 42 percent Georgia, 8 percent New York
Sector: 8 percent advanced imaging, 8 percent agtech, 8 percent animal health, 17 percent cleantech, 8 percent cybersecurity, 8 percent enterprise software, 25 percent healthcare, 17 percent AI
Diversity: 58 percent of companies led by a woman or person of color
Average check size: $900,000
Stage: 25 percent pre-seed, 58 percent seed, 17 percent Series A
How hands-on: The firm was the lead investor in 75 percent of its deals and the first outside funding in 67 percent. It became a board director at 58 percent of its portfolio companies and a board observer at the other 42 percent. Oval Park has also made follow-on investments in 42 percent of its 12 portfolio companies.
Oval Park Capital’s Partner Justin Wright-Eakes said if you peel away the life science, biotech and mega rounds like those from Cary’s Epic Games, there’s historically been very little capital left over for early-stage software and tech startups in the Triangle. Oval Park has sought to invest in deep technologies that provide real advances in science and engineering that can be applied to large, inefficient markets.
Oval Park Capital is not an ESG (environmental, social and governance) or diversity and inclusion fund by definition, but the passion Wright-Eakes has for these issues plays a role in the types of businesses they fund.
In fact, from 2017 onwards, 58 percent of Oval Park Capital’s portfolio startups were led by a woman or a person of color.
“I think our metrics speak pretty well for that,” Wright-Eakes said. “Nearly every one of our portfolio companies has some sort of positive impact angle. We really take a do-no-harm approach first.”
There was also a mix in terms of founder experience, as only 17 percent of Oval Park’s deals were with companies whose founders had made a previous exit. This is vital to investing in an array of diverse funders. If you are only drawing from those who made previous exits, Wright-Eakes said, your funding opportunities are very small and usually very white and male.
“In a white male-dominated historical startup ecosystem, if you’re only funding people with previous exits, you’re just not going to be funding very diverse entrepreneurs,” Wright-Eakes said.
That’s partly where Oval Park Capital differentiates itself from other VCs. Having a picture-perfect track record of entrepreneurial success is not required in order to get backing from them.
“We don’t care about previous exits,” Wright-Eakes said. “We’re ready to get our hands dirty, and we’re okay with founders making mistakes and learning as they go. We don’t want to pass up great opportunities because we’re scared of risk.”
And once you start investing in more female founders, the female founders will refer you to other female-founded startups in their network, and word spreads, opening up even more opportunities to fund traditionally under-served founders, Wright-Eakes said.
“We really don’t think that we have had to make any sacrifices in the quality of the companies and are just ecstatic about the quality of entrepreneurs that we’re partnering with,” Wright-Eakes said.
The more investments into minority and female founders, the more exits. And the more exits, Wright-Eakes said, the more angel investors will emerge who will support people from the same groups that haven’t traditionally seen the same opportunities. But all the stakeholders in the tech ecosystem will have to do their part to make this happen, he added.
For Oval Park Capital, that means being conscious of these issues when evaluating companies.
“We just have such high-quality deal flow and so much of it that when we have two great companies, we’re going to naturally lean towards the ones that haven’t had access to capital traditionally,” Wright-Eakes said.