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North Carolina Equity Investments Double, Topping $1B in 2015

Xconomy Raleigh-Durham — 

Some North Carolina entrepreneurs lament a shortage of available capital that can help their companies grow. A new report suggests that companies in the state are raising more money than ever before, and they’re attracting those investments from more places—in some cases, overseas.

Companies in technology, life sciences, cleantech, and advanced manufacturing raised $1.2 billion in equity financing through 191 deals last year, more than doubling what companies raised in 2014. The figures, from the Council for Entrepreneurial Development’s annual Innovators Report, also show that 75 percent of the institutional investment in North Carolina companies came from outside of the state.

For some context, the MoneyTree report, compiled by PricewaterhouseCoopers and the National Venture Capital Association, showed that North Carolina companies raised $675.5 million last year in 63 total deals. The MoneyTree report uses data from Thomson Reuters. CED’s figures include the venture capital deals counted in the MoneyTree report. But the Durham, NC-based entrepreneurial organization also includes investments from angel groups and high-net worth individuals, which aren’t reflected by venture capital figures. The $1.2 billion in equity funding that CED reports for 2015 represents a 122 percent increase compared with the $533 million in equity financing it tallied in 2014.

Since CED’s first funding report in 2013, the organization has maintained that looking only at venture capital financing does not give the complete picture of how North Carolina companies secure capital. Joan Siefert Rose, CED’s president, says that more than half of the funding totals captured by the CED data came from angels, wealthy individuals, and family offices, which are management firms that advise wealthy individuals or families. “This new class of investor is really playing a significant role in North Carolina,” Rose says.

Family offices were key to the $150 million Series B round raised last October by Humacyte, a Research Triangle Park regenerative medicine company that is in late-stage clinical trials evaluating lab-grown blood vessels. Before that, the company’s entire $63 million Series A round came from former Credit Suisse CEO Brady Dougan, Humacyte CFO Paul Boyer says. Boyer says Humacyte initially pursued an initial public offering to raise the funds for Phase 3 studies, getting to the point where it was ready to submit a filing with securities regulators. But with no commercialized product and no clinical data expected for 18 months, the company would have no new information to offer investors. Executives concluded that there might be better options for funding.

Humacyte’s entire Series B round was funded by family offices, who measure their net worth in the billions, even tens of billions of dollars. Boyer says that of the 33 family offices Humacyte spoke with, 27 invested in the $150 million round. Those investors are based in the Middle East, Europe, Russia, and the United States. Boyer says the company did not explore a deal with big pharma companies, explaining that partnering too early—before the company had hit milestones that demonstrated the value of its technology—could result in leaving money on the table. Humacyte also did not pursue venture capital financing, instead preferring the outlook held by family offices. “They have a very long view of how they dispatch their capital in terms of returns,” Boyer says.

As a biological product developer, Humacyte still needs to complete clinical trials and receive FDA approval before it can sell anything. But more than a single product whose value would be realized when it reaches the market, Boyer says Humacyte has developed a platform technology that can be developed for multiple applications. Boyer says family offices see that longer-term value, assuming Humacyte can deliver.

Humacyte’s $150 million Series B round was one of 19 North Carolina deals greater than $15 million in 2015, versus six such deals in 2014. The median deal size was $1.1 million, double what it was in the previous year. The vast majority of investments—70 percent—were made in companies in the Research Triangle region.

The largest 2015 deal was the $225 million raised by AvidXchange. Bain Capital led the investment in the Charlotte company, which automates invoices and payments for companies in various industries. Humacyte was the second-largest deal, followed by the $50 million raised by Sprout Pharmaceuticals. That Raleigh company won FDA approval for the first drug to boost sex drive in women, and was then acquired by Valeant Pharmaceuticals (NYSE: VRX) for $1 billion. Sprout’s funding came from angel investors and other wealthy individuals.

Life sciences led all sectors with $583.7 million invested in such North Carolina companies in 2015, up 213 percent year over year, according to the CED report. Technology investments totaled $516.3 million, up 97 percent over 2014. Advanced manufacturing investments totaled $55.9 million, down 25 percent. A total of $26.2 million was invested in cleantech, up 168 percent versus 2014.