Start-Ups

From textiles to tech: North Carolina's journey to becoming a startup epicenter

North Carolina's Research Triangle Park has led the charge in making the former textile state one of the top five startup epicenters in the US. But challenges remain.

 

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A meeting of RevTech Labs class 3.
 Image: Jack Brayboy

Five years ago, if you were to tell someone in Charlotte, NC that you were an entrepreneur, they would most likely respond with the question, "When did you get fired from the bank?" North Carolina has long been a hub for big tech companies, but startups are moving in and entrepreneurs are starting to get some respect.

Entrepreneurship in the Tar Heel State has been moving past the "bless your heart" platitudes, and the Great Recession was one of the catalysts for that movement. In 2008, the community at large, was shocked into the realization that startups can play a valuable role as a part of the state economy. The tech startup scene in North Carolina has actually been vibrant for quite some time, but the newfound support from the larger community is helping to propel it forward.

The world of startup funding is flattening out as internet resources can, more easily, connect investors to their investments. Entrepreneurs now have the ability to pick and choose where they want to anchor their businesses, instead of moving to where the money is. Many of North Carolina's big cities consistently rank high in quality of living and low in cost of living, making them an enticing spot to plant roots and build a company.

Dan Roselli is one of these Charlotte bankers turned entrepreneurs. In the early 2000s he left his job at Bank of America to start his first of many startups. After a successful run as a founder, he now works as a co-founder of Packard Place, an incubator and tech center in downtown Charlotte, and as the managing director of RevTech Labs, a startup incubator and accelerator.

"The slope of our line, in terms of entrepreneurial growth, is as steep as any community in the country in terms of development and growth over the last three years," Roselli said. "It feels like, and it is, one of the most dynamic entrepreneurial communities in the country. That's why people want to be a part of it, because they are shaping where it goes," he added. 

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Source: NVCA
 According to the National Venture Capital Association's 2013 Yearbook, North Carolina was one of the top five states for amount of capital committed to venture capital funds in 2012. They came in at number five with $472 million in committed capital committed. To give some perspective, California took the number one spot with nearly $13.7 billion committed, followed by Massachusetts, Connecticut, New York, and North Carolina. Even with its up-and-coming Austin startup scene, Texas came in at number 21 with only $31 million committed. So, North Carolina may be dwarfed by Silicon Valley, but they still had more than ten times the amount of capital committed to funds than Texas in 2012.

In the days of multi-billion dollar startup exists, $472 million might not seem like a lot of money, but considering that it costs significantly less to start a company and live in North Carolina, that is still a lot of money for a state to invest in startup companies. The state has a long way to go before it will be competing with East Coast powerhouses Boston or New York, but the ground is fertile and the soil has been tilled to produce a slew of rockstar tech companies in the Old North State.  

From textiles to tech

In the early 1800s, North Carolina was producing large amounts of textiles by hand. With the advent of the cotton textile mill, North Carolina quickly rose to prominence as the foremost textile producer in the US. Burlington, NC is even home to the Textile Heritage Museum. Unfortunately, textile mills in North Carolina started to die out in the middle of the twentieth century as jobs were outsourced and production was moved overseas. Some mills are still active, but workers know that their future is uncertain.

While the death of textile manufacturing in North Carolina is tragic, it paved the way for new industries and a new economical focus. Out of the textile ashes, technology made its phoenix rise in the early 1990s as companies such as Cisco moved some of their operations to the state and companies like Red Hat decided to build there. These companies set up shop near the Research Triangle Park (RTP) near North Carolina's Research Triangle, an area in the state that comprises the cities of Raleigh, Durham, and Chapel Hill and houses many top universities such as University of North Carolina, North Carolina State University, and Duke.  

When it comes to the fertile ground that North Carolina provides for potential startups Joan Siefert Rose, the president of the  Council for Entrepreneurial Development, said that it starts in the Triangle.

"It all begins with the 3 major research universities in the Research Triangle region – UNC, NC State, and Duke.  These universities are great talent magnets and generate intellectual property that helps fuel the startup scene," Rose said. "In addition, we have a highly educated workforce in the Triangle, reasonable cost of living, and specialized networks and support services like CED to help entrepreneurial companies."

The Triangle also houses other heavy-hitters, such as IBM, Bayer, DuPont, and GlaxoSmithKline. The universities draw youthful energy and talent in their students, while the big corporations draw (or force) talent into the state by moving employees. Charlotte, another city known for its big businesses, is also throwing even more fuel on the fire for startups in North Carolina.

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Packard Place, located on S Church Street in Charlotte, NC.
 Image: Katy Hill

Charlotte is largely regarded as the second largest financial center in the United States, next to New York, and it is growing as an energy hub. Charlotte's major banking institutions offer easy access to financial tools for aspiring entrepreneurs, and it's renewed focus on energy makes it a great place for energy and green tech startups. The Charlotte Chamber of Commerce partnered with APC Energy to outline the growth of Charlotte's energy cluster.

Aside from just its major cities, the state trying to position itself as a haven for new companies. North Carolina Congressman Patrick McHenry was awarded the 2013 Crowdfunding Visionary Award for his effort to get his "The Entrepreneur Access To Capital Act"" bill through Congress. The bill, which permits crowdfunding issuances that offer an equity stake to investors, was later signed into law by President Obama in 2012. In addition to legislation like this and tax cuts in the past, the state offers the NC IDEA grant program to entrepreneurs.

"NC IDEA is a statewide grant program that provides up to $50,000 in capital to early stage companies. In addition to the no-strings-attached grants, NC IDEA provides links to mentors and investors that are invaluable for companies both inside and outside the Triangle," Rose said.

Incentives are only part of the recipe for a vibrant startup community. The companies that are championing the state and evangelizing for the North Carolina startup scene are part of the reason the state is on the map (pun intended) for entrepreneurs.

Flagship tenants

Don Rainey, a general partner Grotech Ventures who lives in North Carolina, said that startup ecosystems are not unlike crop seasons — a fitting metaphor for a state that is no stranger to farming. The foundation for a certain season's crop is laid by the previous season, and Rainey said that North Carolina is finally reaping out of its rich soil.  

"I think this is a more mature ecosystem than is generally recognized," Rainey said.

The maturity of a startup scene often comes after generations of startups have failed and succeeded within the community. Each generation has ties to the generations before it — the people, expertise, money, and direction of those generations help to fuel the startup fire, but it also helps provide the knowledge necessary to make companies that will last. It's one thing to create something cool, it's another thing to build something that impacts the world around you for years to come.

Of course, we cannot count companies like Cisco and Red Hat among North Carolina's startup numbers, but some of the people that helped build and grow these companies are still living in the area; and they are a great resource for young technologists who want to make a difference.

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RevTech Labs demo day.
 Image: Katy Hill

SAS was started in Cary, North Carolina in 1976 and is still a private company to this day. It was started at NC State, and continues to operate as part of RTP. They are no longer a startup, but having such a large private company is the area is a great resource for budding entrepreneurs. Outside of the tech giants of the state, North Carolina has recently seen success in SciQuest and ChannelAdvisor who, according to Joan Rose, "had successful IPOs in recent years and have seen their market caps grow to 9 figures."

When asked if he thought North carolina's startup scene was growing, ChannelAdvisor CEO Scot Wingo replied, "Definitely, I don't have anything quantitative, but the number of new startups is exploding and the options they have for where to go for advice, funding, talent are on the rise."

In addition to an impressive talent pool and mentoring resources, the scene has a good number of incubators and accelerators as well. Rose said that the flagship accelerator program is the Triangle Startup Factory, which invests in tech companies. Founders in the Triangle also have access to the two locations of The American Underground, which is slated to open its third location later this year. Charlotte founders have a major resource in Packard Place and can get help with funding and launching at RevTech Labs.

Holding them back

So, what is holding North Carolina back from being the SIlicon Valley of the American South?

People and ecosystem.

"A lot of folks will tell you we need more venture capital, but I actually think it makes our companies more scrappy and reliable on revenue/customers vs. those eyeball/user type models," Wingo said. "So I think we are in a goldilocks phase right now - just right.  We used to be entrepreneur deprived, but that has changed in the last two years."

Bootstrapping and running lean are best practices, so "scrappy" can be a very good thing for startups. Self-reliance will take you far as an entrepreneur, but you still need access to folks who carry a knowledge base that is complementary to yours. In some ways, it does indeed take a village to raise a startup, and you people that provide services like legal counseling and accounting to be a part of that startup ecosystem for it to grow. According to Rainey, North Carolina doesn't have people in those fields who are willing to invest in the startup scene.

"There is not the depth of people that are savvy to, or interested in startups that there needs to be for us to see a groundswell," Rainey said.

For a startup community to be successful, there has to be participants that exist outside of the entrepreneurial inner circle that can see the value of investing their time in startups to produce future clients and a better economy. Right now, North Carolina doesn't have enough players in that secondary support ecosystem that understand the lifecycle.

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 Image: iStockphoto/wellesenterprises

According to Rainey, there is not a broad enough constituency or consensus statewide for startups to explode in North Carolina. He believes they will grow slowly, but there will not be a boom. Brooks sides with Rainey on this point, citing the pockets around the state that do not have ready-access to a university as potentially contentious with startup growth over the entire state.

The major cities can take the lead in growing the scene, but they need the support and energy of the surrounding state to help North Carolina bloom into a startup mecca. As a startup community takes shape, the members of that community need to define their goals and their approach.

"We need our roadmap for entrepreneurial growth. We can't take another community's roadmap and use it here. We cannot take Austin's roadmap, or Boston's, or Silicon Valley's," Roselli said.

North Carolina needs more startup capital (grants, etc), tax credits, public policy to support startups, startup expertise, and organizations that are advocating for tech development.

"The only thing that can stop North Carolina from entrepreneurial success is North Carolina," Roselli said. "All of the right resources and DNA are here, but the challenge is will we think big enough."

The North Carolina startup scene is nowhere near Silicon Valley, New York, or Boston; but it sits high above the rest of the country when it comes to starting and funding new companies. Still, there is a lot of work to do before North Carolina can be fully realized as a technology and startup powerhouse.

"We planted the seedlings, but they have not blossomed yet. It is early, and we are not there yet," said Ben Brooks, a founding partner at Southern Capitol Ventures.

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About

Conner Forrest is a Staff Writer for TechRepublic. He covers Google and startups and is passionate about the convergence of technology and culture.

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