The Venture Capital Scene for Tech Startups in the Raleigh-Durham Area

Lately, it seems the web has been abuzz with a new East Coast vs. West Coast battle.  However, this battle is much lamer than Notorious BIG and Tupac fighting a turf war, it’s a reputation battle between venture capitalists.  Many are claiming that NYC is on the upswing and could soon displace Boston and Silicon Valley as the premiere location for tech entrepreneurs.  Here’s an NY Times article on the subject and here’s a Chris Dixon post on what really matters for entrepreneurs choosing a location.

This digital jousting spurred an email exchange between me and a couple friends.  One of whom works for a successful middle market Investment Bank and the other works for a VC-backed Real Time Advertising Exchange startup in San Francisco.  I wrote a rather long email to them and figured that I would post it here to give my thoughts, and solicit others’, on the venture scene for tech startups in the Triangle (what we locals lovingly call the Raleigh-Durham region).

I should note that my company is not venture-backed, a fact we’re rather proud of, and I don’t mingle much in VC circles.  However, I’ve been an entrepreneur in the area for over three years, know many other entrepreneurs in the area, and actively participate in the university system and early entrepreneurship programs; so, I think I still bring an informed, yet unique, perspective to this discussion.

I have always maintained that intrinsically the Triangle’s tech-entrepreneur scene is on par with NYC, Boston, and San Fran. The universities are stellar, the weather is amazing, and there is a natural entrepreneurial spirit. However, in my opinion, there is a lack of Investment Culture. So, even though there are VCs around (albeit fewer than those other locations), it’s not ingrained in students/20-somethings here that they can drop out and raise money for a good business idea.

This cultural difference is because there haven’t been many HUGE tech exits in the Triangle to spin off young Angels and VCs, such as the PayPal Mafia out West, to actively court and mentor young entrepreneurs. I think this fact leads to fewer people even getting to the stage of thinking about starting a company, let alone actually trying to raise real money.

I’m not entrenched in the VC/investment scene here at all, but I know there are several great firms. Also, there are some good Angels. However, these resources only reveal themselves to people who are really actively pursuing them, unlike in NYC or SF where it’s second-nature to think that you can raise money with a good idea.  So, while there is available cash in the area, early stage entrepreneurs don’t know about it and don’t know to ask for it.

Finally, I think the Triangle VC scene much prefers larger, more mature, biotech-like investments. When we worked out of a business incubator in RTP, everyone there was a pharma, bio, or high tech company. I think the area’s universities spin out a lot of these type of people and the past successful exits have been in these industries, leading to a cycle of similar investments.

If Motricity or Shoeboxed or iContact or someone else had a huge exit and spun off a bunch of 25 and 30 year olds interested in Social Media and Mobile, then I think there could be a real change in the scene. However, until there are a couple of exits like that, it’s an uphill battle for tech entrepreneurs fighting mature entrepreneurs and reclusive funding.