Hot or Not in the Triangle – VC Part II
by Jack Beuttell -- December 26th, 2012
re. Carolina vs. California, corporate venture, and what it takes to win
Layered into Mark Heesen’s presentation on the “State of Venture Capital” were two interesting themes that addressed a question I’ve been asking for many weeks: what are the prospects for VC in the Triangle area?
First, he pointed out that the new financing deals that have transacted in the last year have overwhelmingly favored companies located in California. And of the money that went to those start-ups, a vast majority went to only a handful of companies. This is a message the Nicholas School’s new professor of the practice of environmental innovation and entrepreneurship, Jesko von Windheim, has had on replay for months now. Meanwhile, the broader investor community has begun to question the strength of recent returns and the role of venture in its portfolio allocations. What this means is that smaller and younger funds, like those in the Triangle region, are having a harder time raising new money.
As if he could see the concern in our eyes, Mark assuaged us, noting that RTP is better off than other regions of the country because of its well-developed corporate infrastructure—law and accounting firms, banks, and middle management talent. Furthermore, the VCs in the area enjoy a good reputation with investors because of several notable successes, and outside firms are attracted to the region because of its growth potential. All of that sounded reasonably favorable, but I wasn’t left with much reassurance that there would be a VC job for me in the Triangle next year if I wanted one.
The dialogue continued, and hope sprung from a question in the audience posed by an entrepreneur from 8 Rivers Capital, a hybrid investment firm based in Durham. “Where does corporate venture fall in the mix?” Corporate venture is the often unknown, risk-seeking arm of established firms needing to invest excess cash or looking for new sources of internal innovation. Mark praised the questioner for reminding him of a topic he’d intended to include in his no-slides talk, moving on to describe corporate venture as the growth area in venture. He said that large companies value this approach because they can generate outsize returns and, if lucky enough, internalize a technology or business process that produces major cost savings.
This news corroborated something I’d heard several weeks ago when I reached out to an MEM/MBA alumnus to learn more about Deere & Company’s approach to venture, acquisitions, and new technologies. He told me that Deere is famously conservative in this respect, despite recent efforts by colleagues to illuminate the benefits of venture-style corporate investing. His suggestion was to investigate Fortune 500 firms like IBM, who know little about something like agriculture, but are dying to get into the space because they see it as a major growth area.
I took his advice and did a little research on the number of Fortune 500 in the area. There are 24 headquartered in North Carolina (population circa 9M), and only three of those are in the Triangle area, five if you include Hillsborough and Burlington. Sounds pathetic, right? Not so!
There are 98 in California (population circa 37M), and San Francisco, which many MBAs regard as the Holy Land when it comes to cool corporations and venture capital, has only 7. As it turns out, California tops North Carolina by less than 4 percent in terms of Fortune 500 companies per capita (Sources: Fortune and 2012 U.S. Census). If you add large private entities like SAS, Quintiles, WakeMed Health & Hospitals, and, the largest private employer in the area, Duke University and Medical Center, the picture brightens a bit.
In the end, I come back to what I’ve always known. Finding a job in venture capital, regardless of where you are, comes down to three things: 1) Your resume needs to be competitive in terms of experience in finance, entrepreneurship, and innovation; 2) you need to get lucky; and 3) perhaps most importantly, you need to exhibit the personal characteristics of an entrepreneur—the hunger, the persistence, the creativity. You need to pound the pavement, knock on doors, and get in front of people. You need to be able to find the opportunities that no one else can.