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Are Angel Investors Filling a VC Gap for North Carolina Startups?

Xconomy Raleigh-Durham — 

Investor purse strings loosened to fund North Carolina companies to the tune of $266 million in the first half of 2014, up more than 31 percent compared to the same period last year, according to a new report. But perhaps more surprising than the dollars are the investment trends suggested by the report. Angel investment seems to have stepped up in North Carolina to fill an investment gap left by venture capitalists. And for the first time in recent memory, total technology investments have eclipsed life science investments—by a wide margin.

The findings come from the Council for Entrepreneurial Development (CED), a Durham, NC-based organization that supports North Carolina entrepreneurs. CED’s mid-year update to its annual Innovator’s Report counted 127 North Carolina companies raising money in the first half of the year. Of the 127 companies, 75 raised equity financing.

To put those numbers in some context, the National Venture Capital Association’s tally for investments in the first half of 2014 was $91 million invested in 21 North Carolina companies. That’s far short of dollar and company totals CED counts for the first and second quarters. Joan Siefert Rose, president of CED, says “undisclosed investors” participated in two-thirds of the 127 equity deals that CED counted. These investors include high net-worth individuals, families, angel investors, and syndicates of angels. Rose says the growth in angel investment shown in CED’s report is consistent with increased angel investment that the Angel Capital Association (ACA) sees throughout the country.

“This is a whole new class of investors that are starting to make an impact,” Rose says.

Analysis from others suggests that North Carolina is not an outlier. The University of New Hampshire Center for Venture Research has researched the angel market since 1980. The center’s figures for 2013—its most recent figures available—showed that angel investment totaled $24.8 billion nationally, up 8.3 percent over total angel investment the previous year. The number of U.S. entrepreneurs receiving angel funding in 2013 totaled 70,730 in 2013, up 5.5 percent over 2012. The high mark for angel investment occurred in 2007 when funding reached $26 billion, according to the center.

Rose says angel investors give startups an alternative to venture capital funding. Those angels come with their own professional networks, which bring to North Carolina startups a different investor mix than they have seen in the past. That means startups don’t necessarily need to turn to venture capital firms for money, she says.

This is the third year that CED has done its Innovator’s Report, but this is the first time that CED has noted the growth of angel investment. Dhruv Patel, CED’s program director, says the methodology has not changed—the council is talking with the same people. CED used information from the National Venture Capital Association, the North Carolina Biotechnology Center, Ernst & Young, and Small Business Innovation Research grants.

Jim Roberts, executive director of the Center for Innovation and Entrepreneurship at the University of North Carolina-Wilmington, says he’s seeing … Next Page »

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