Carolina in My Mind (actually, just the Research Triangle for now)

by Lister Delgado, Managing Partner

Following up on our recent post that touches on the geographic thesis posited by IDEA Fund Partners, today we would like to focus on one of the top places to live in the country, and according to many, one of the best places to start a high growth business. I am referring to our home metro area, the region of the Research Triangle (RDU).

With a population of 2.1M people, the Raleigh-Durham metro area is constantly mentioned in many lists as one of the best places to “fill in the blank” in the country. Affectionally known as the “Triangle”, the region has a bit of a goldilocks aspect to it. The area is not too big nor too small. The weather is not too hot nor too cold. It has a bit of urban and a bit of rural aspects to it. It is the kind of wholesome and affordable place where many people want to raise a family, but it is also a dynamic multicultural metro full of innovators.

The Triangle has seen its population grow by about 20% over the past decade, this makes the area the second fastest growing MSA with more than 2 million people in the country. In addition to this hyper growth, the area is young, affluent and highly educated. According to the US Census, the Triangle’s median age is 37.5 years, one year younger than the average age in the country. Median household income is $73,654, about $8,000 more per year than the average median US household. And 47% of the population in the Triangle has a bachelor’s degree or higher. That figure is about 50% larger than that of the US as a whole, where 33% have a bachelor’s degree or higher.

What sets the region apart is the strength and number of premier academic and research institutions located in its territory, creating a vibrant entrepreneurial ecosystem for both technology and life science companies.

Many large and small biotech companies, as well as clinical research organizations are headquartered in the Triangle. At the same time Research Triangle Park houses large divisions of Fortune 500 tech and finance companies like IBM, Cisco, SAS, Fidelity and Credit Suisse. Perhaps most notably, the Triangle is also home to some of the top universities in the country including Duke, UNC, NC State and NCCU.

In our attempt to evaluate entrepreneurial ecosystems, IFP has developed a proprietary set of metrics. Among them is a “Talent Score”, which looks at educational attainment, tech talent and job creation to determine the quality of raw materials necessary for a strong entrepreneurial environment. Using that metric, the Triangle shows up as one of the top talent areas among the 33 we analyzed.

The annual Tech Talent Ranking produced by CBRE has the Raleigh-Durham area at number 10 nationally. This is a comprehensive analysis of labor market conditions focused on the quality of the local tech talent impacting real estate growth. The Triangle is listed as an area poised for post-pandemic tech growth in that report.

IndexMundi has an interesting chart highlighting the top 100 cities ranked by educational attainment. Interestingly, Raleigh is listed there at #10, with just north of 50% of its population of 25+ in age with a bachelor’s degree or higher, and Durham at #14 with just under 50%.

Among the 33 major metro areas we analyzed from around the country, Raleigh-Durham arrives at #7 on the list for number of new companies started per capita, a strong measure of company formation capacity. Where the area falls short is in the percentage of these companies receiving venture capital funding. The perennial question is: are those companies not receiving funding undeserving of raising money or is there not enough funding to go around?

As is the case in most strong entrepreneurial centers in the Southeast, the Triangle lacks local VC dollars. A decade ago, Durham was home to the largest VC fund in the Southeast, Intersouth VII at $250 million. In addition, Aurora was operating its third fund at around $100 million, among others. Today, there are only three active early-stage technology venture funds investing out of their second fund or later, with the largest of these merely $30 million in size. This feels counter-intuitive when coupled with the above-mentioned growth, strength of talent, and a community of entrepreneurs starting new companies that has become stronger over that same time frame.

While this arguably works in favor of VC funds like IDEA Fund Partners because it means we have less local competition than funds have in other areas, the funny thing about the venture business is that the strength of the competition is an important component for investor success.

One key indicator of strength in the Triangle community is the number of repeat entrepreneurs running businesses. Statistics are hard to come by on this, but in our opinion, the number of serial entrepreneurs per capita is one of the best leading indicators for future entrepreneurial success in a region.

While the ingredients are there in abundance in a place like the Triangle, it all means nothing if the expected outcomes are not achieved. Despite large raises by unicorn companies like Pendo and Epic, the Triangle has not seen enough great exits. And ultimately, this is the only measuring stick that matters for investors. This is where the area can do better.

Our analysis of 33 metro areas gives as an indication that while the desired outcomes have not been achieved at scale yet in the Triangle, the ingredients for success are there and the trends look very positive. Venture investing is all about investing in the future and the Raleigh-Durham area seems poised for success in the years to come.

IDEA Fund Partners is one of the oldest and most active early stage VCs headquartered in the Southeast United States.

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