VC in the QC
By John Espey
January 08, 2018
Barely a week goes by that I don’t hear a podcast or read a blog post or comment lamenting the sorry state of VC funding in Charlotte. I hear it in almost every other city I visit, but it seems the loudest in Charlotte.
There are many variants of this theme, but they all go something like this: “There are many people who would like to start companies in the Queen City, but there is a lack of VC funding, and until it comes, we will struggle to create new companies.”
This refrain is often followed by a well-intentioned scheme to somehow change this state of affairs, usually involving promotion of some conference, event, legislation, or incubator, and frankly, I have yet to meet any successful founder who points to any of these things as having helped his or her cause. The reality is venture capital has no boundaries; it will flow wherever there are talent and real potential.
The reality is venture capital has no boundaries; it will flow wherever there are talent and real potential.
I do not claim that we have a vibrant community of venture capital funds in our city, but I am sick of hearing this tired excuse. It belies a very naive understanding of the relationship of venture capital and entrepreneurs. It also ignores the reality that Charlotte-based companies like SmartSky, AvidXChange, Passport, MapAnything, Payzer, Commerce Signals, and many others have all been funded by world-class VC and PE funds.
Even the humble technology services company I started with a group of friends has managed to raise roughly $5 million over the past three years, and if we ran it better or had bigger opportunities to deploy capital against, we would or will easily raise a lot more.
Venture capital has never preceded world-beating startups. In fact, the cause and effect work in the opposite direction; world-beating startups lead to venture funds. Sure, the two eventually create a snowball effect that leads to acceleration of both funding and exits and job creation, but the order of operations is absolutely that capital follows success.
When we wake up one day and find two or three VC funds headquartered in Charlotte, we will know that there have been multiple successful exits here. Companies like AvidXchange, Passport, and the others are proof positive that large checks will always be written to well run companies with not only a vision—but a passion and a team—with the abilities to turn that vision into a reality. We simply do not yet have the critical mass in Charlotte to entice these funds to set up shop locally.
We simply do not yet have the critical mass in Charlotte to entice these funds to set up shop locally.
As a case in point, Lowe’s Home Improvement is based just outside of The Queen City in Mooresville and has a venture arm, like many big companies do, called Lowe’s Ventures. They list a portfolio of 11 companies, and not one of them is from Charlotte. This is not at all a verdict on Lowe’s that it does not support local companies, it just reflects that there are not enough startups that fit the profile Lowe’s is searching for. Surely they would prefer to find local startups shaping the future of retail and the home and would gladly write a meaningful check, but there is not currently a home improvement equivalent to Passport or MapAnything in their backyard.
Washington, DC has two well known and highly successful VC funds that illustrate the point that capital follows success. Revolution Ventures was started by Steve Case, the founder of AOL. QED Ventures was started by Nigel Morris, one of the founders of Capital One. Both are now investing across the world in technology startups, including North Carolina-based companies.
Many Silicon Valley VC giants can similarly trace their roots back to one successful startup that itself was bootstrapped by an investment from a local entrepreneur. This is not at all a case of the chicken and egg, and it is not as vexing of a problem that needs to be solved as so many in the media and our local community suggest. Successful companies can absolutely be launched—but not necessarily scaled—without VC funding, but no amount of VC funding can create a successful company without a passionate, focused, and talented team.
If an entrepreneur needs, but cannot find, early-stage funding, it is not because they are in Charlotte or any other city outside of the Bay Area, Austin, Boston, or New York. It is because the idea is not as good as they think, they do not have the product developed well enough, because they have not proven the economic viability of the business model, or they have not built the cross-functional team of technologists, designers, business development, marketing, finance, or operations people that is required.
Maybe they do not yet have the track record of many who can raise money earlier in the lifecycle of their startup. And politicians, corporate managers, economic development folks, or anyone else who complains about the lack of VCs here are doing a massive disservice in perpetuating the myth that we need early-stage funding to support a vibrant entrepreneurial ecosystem—we just need more and better entrepreneurs.
John has helped lead multiple successful startups and large-scale consulting engagements throughout his 20 years in software development. As the COO of Amentra, he was instrumental in growing the company from a regional player prior to its acquisition by Red Hat in 2008. He also served as the COO of Nexgrid, an innovative smart grid provider. John’s deep technical skills and collaborative leadership style have been essential to Levvel’s evolution into a world-class consultancy.