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How to Attract Smart People, Smart Ideas, and Smart Money

Opinion

Xconomy Raleigh-Durham — 

North Carolina entrepreneurs are attracting attention all over the nation—and all over the world—across the tech, life science, and advanced materials sectors.

The proof is in the numbers.

Last year, more than 220 entrepreneurial companies in North Carolina raised nearly half a billion dollars through equity investments, grants, and awards from 108 unique funders, according to our Innovators Report, a semi-annual publication tracking startups and entrepreneurship in the state. The report focuses on three major indicators: investments, partnerships, and exits, and the biggest news was that 75 percent of these funders were from other states or other countries. We had investors from New York and Boston, California, Atlanta, and Chicago, as well as about a dozen international funds.

Furthermore, 80 percent of the money raised for entrepreneurial companies in North Carolina was invested right here in the Triangle (Wake, Durham, and Orange counties).

As president of the Durham, NC-based Council for Entrepreneurial Development (CED), the largest and oldest entrepreneurial support organization in the country, I often get asked: How do these deals come together?

Consider the stories of three entrepreneurs attracting attention (and investments) in the state of North Carolina and beyond:

Phononic

With a Ph.D. in organic chemistry from the University of Southern California and an MBA from New York University, Tony Atti spent a decade in New York City brokering deals for a venture capital fund. He started Phononic in 2008 with some proprietary technology from the University of Oklahoma and concepts on a whiteboard. Phononic’s big idea is applying semiconductors for cooling and heating that eliminate the need for compressors; think of a refrigerator that’s silent and sustainable (freon and electricity need not apply).

Phononic raised its first money from private investors in 2009, followed by a competitive grant from the federal government designed to encourage innovation in energy efficiency. Tony moved his “virtual” company to the incubator at Centennial Campus at North Carolina State University in 2010. Why did he choose Raleigh? Because of the talent—he needed smart engineers with expertise in semiconductors and manufacturing. He told me that came down to just a handful of places—and Raleigh had the workforce, the quality of life, a good business climate, and the specialized network he needed. Looking back, Phononic convinced two of Silicon Valley’s most well known VCs to build a semiconductor hardware company … in North Carolina.

The Great Recession barely slowed Phononic down at all. The company proved its technology worked, and raised $17 million in venture capital. Soon after came a deal with the world’s largest appliance manufacturer, thanks to an introduction made through the North Carolina Department of Commerce. A move to a manufacturing facility at the edge of Research Triangle Park followed, along with $26 million in expansion investment from funds in California and China. The company just completed work on a 20,000-square-foot manufacturing facility that will employ 60 people in good-paying manufacturing jobs with growth on the horizon.

Phononic continues to evolve. Now a full-fledged consumer products company, it is introducing new products for medical and lab refrigeration, and is poised to deliver thermal management solutions for climate control, cooling big data and server units, and other applications under development.

BioMason

Ginger Dosier is all about bricks. But not the type you and I grew up with. Dosier grows bricks through a process using microbes with the unique ability to produce cement. Her company is called BioMason, and she started down the path of entrepreneurship while teaching architecture at North Carolina State University.

Dosier says she became interested in bricks while in architecture school. Because they’re simple to make, they are used all over the world. But traditional bricks need clay, and have to be fired at high temperatures—both of which are harmful for the environment, especially as demand picks up in rapidly growing countries.

About eight years ago, she started taking courses in biology and chemistry and talking with scientists. She particularly wanted to explore whether building materials that occur in nature—coral reefs, seashells, spider webs—could be models for more environmentally friendly building materials.

This led to several years of experimentation using sand and a variety of organic mixtures with bacteria that have the ability to turn sand into sandstone. For a couple of years, she used a spare bedroom in her Raleigh apartment as a lab.

Through a lot of trial and error, Dosier happened upon a process that grew a brick as durable as conventional clay bricks, but with a significantly smaller impact on the environment—no digging up the land for raw materials, no using heat to fire at high temperatures. Once she was able to show that this process could be replicated, she went on to attract attention from investors with an interest in sustainability, including Acorn Innovestments in Durham, Cherokee Investment Partners in Raleigh, and architect William McDonough, who sponsored a national contest that BioMason won.

Last year, Dosier was the grand prize winner—$670,000—in an international competition sponsored by Richard Branson, the entrepreneurial founder of Virgin Airlines.

BioMason, with help from Acorn Innovestments and the North Carolina Biotechnology Center, is opening an expanded lab in Raleigh and further increasing the team. And her bricks will get their first commercial application this year in San Francisco.

Novan Therapeutics

Here is one more story of a company with the right founder, big potential market, and the right connections.

Nathan Stasko was a Ph.D. candidate in chemistry at the University of North Carolina–Chapel Hill, working in the lab of a professor with an entrepreneurial bent who was studying how nitric oxide could be used to treat a number of serious illnesses. In particular, these researchers thought that nitric oxide could be an effective replacement for some antibiotics that were encountering resistance from bacteria, and co-founded Novan, Inc. to tackle this huge public health threat.

Upon graduation, Stasko took the path less traveled and became the first employee of Novan Therapeutics as its president. Stasko enrolled in CED’s FastTrac class to learn the basics of forming a company, where he met other entrepreneurs and connected with a larger professional network.

As Stasko was just in his late 20s when he formed Novan, it would have been a challenge for him to attract investors on his own. Through the Research Triangle Park area network, he met industry leaders and other entrepreneurs who shared his vision. One of them became an investor and joined the board as Novan’s chairman, helping the company attract more than $20 million from an excellent pedigree of investors. Currently the company operates in a 20,000-square-foot facility in Durham and employs close to 40 full-time and contract employees.

It takes a long time to get a new drug to market, but Novan is making great progress. One of its products just received positive results from a phase 2 clinical trial, an essential step to winning FDA approval. The company also received top recognition from the U.S. Small Business Administration this year for effectively using $7 million in Small Business Innovation Research grants. And at the big BIO industry conference in San Diego, Stasko presented as one of four companies recognized as the “Buzz of BIO.”

The Rise of the Rest

Each of these deals represents a series of relationships built on trust, history, sector expertise, and timing. While the myth may be that a great entrepreneur does it all by him- or herself, that’s really not the case. It takes a great network, an understanding of how ideas can turn into products or services that people will buy, and some luck.

You can come see some of North Carolina’s rising stars at this year’s CED Tech Venture Conference 2014, Sept. 16-17 at the Raleigh Convention Center. And mark your calendar for the Life Science Conference, March 3-4, 2015.

When you meet our entrepreneurs, you’ll start to understand why the Triangle is a prime example of “The Rise of the Rest.” This is the notion that Silicon Valley, Boston, and New York do not have a lock on entrepreneurship and innovation. Raleigh and Durham join other “rising” cities like Austin, Seattle, and Denver with environments where great companies can form and grow—attracting smart people, smart ideas, and smart money.