Must go west? NC startup founders weigh Silicon Valley vs. RTP to chase their dreams

Need North Carolina startups head west to reach their full potential?

It’s a question many local founders contemplate. Despite its wealth of tech talent and booming population, the Research Triangle remains a minnow compared to the venture capital funding seen in the largest tech hubs of Boston, New York, Los Angeles and, especially, the Bay Area.

According to data released Thursday by the financial database PitchBook, Raleigh and Durham startups have completed a combined 84 deals so far this year. For comparison, Silicon Valley (not even counting San Francisco, Oakland or San Jose) has recorded more than 1,200 deals in 2023.

Durham native Nicholas Donahue intended to remain in the Triangle after he dropped out of North Carolina State University to start his custom home business Atmos. Then a mentor in Silicon Valley called to ask, with some exacerbation, what he was doing over in North Carolina.

So, Donahue moved to the Bay.

“I don’t think you have to be in Silicon Valley to build a great company,” he said. “I do think it is much easier. I think your odds are much higher, putting yourself in an environment that fully nurtures (startups.)”

‘Dispersion of tech talent’

Donahue admitted he at times considers relocating Atmos to North Carolina, given the area’s robust workforce talent and the fact the company is initially focused on building in the Triangle and Charlotte.

Plenty of homegrown startups have stayed in the Triangle and succeeded: SAS Institute, Pendo, Red Hat and Wolfspeed. Dozens more are raising millions and adding employees while creating things like genetically edited salads, monk-infused watermelons, ethical AI, and toilets that analyze your poop.

“Especially over last five years, the idea that ‘If you’re in tech you must be a West Coast person’ has completely shattered,’ said Brent Wadas, cofounder of the robot-home-building startup BotBuilt. “Now, we’re seeing that dispersion of tech talent.”

Both Wadas and Donahue have participated in Y Combinator, a selective startup accelerator based in Silicon Valley.

Last year, the greater Raleigh region was a top 15 market for venture capital activity, PitchBook found. The area is home to several tech-focused venture funds, including Durham’s Bull City Ventures and Jurassic Capital, Cofounders Capital in Cary, and the Triangle Tweener Fund, which focuses on smaller, early-stage companies.

“We are growing very significantly, yet still, we are way under-capitalized,” said Tobi Walters of Cofounders Capital.

In April, the Durham sports technology firm Teamworks raised $65 million, the largest haul for a local startup during the second quarter of 2023. The same month, the health care company Sprout Pharmaceuticals attracted $35 million in a later stage round, the largest startup haul in Raleigh last quarter.

Smaller tech hubs facing larger headwinds

But Silicon Valley and the other major hubs still possess clear advantages to raising money says Kaidi Gao, a Pitchbook venture capital analyst and Duke University graduate.

“When we speak to general partners, there is that strong inclination to invest into deals that are at least within driving distance of (their) home,” she said. “That’s just because people want that familiarity.”

During the pandemic, Gao said, non-core tech cities like Raleigh benefited from the rise of virtual meetings, as investors were less concerned with making deals from afar. But as in-person business returned, so too has the importance of geography.

“You could have all the formal board meetings via Zoom, but what about those hallway conversations?” she said. “When you’re done with the meeting, you chat in the hallway. And those little things, those are really to the disadvantage of people that are located in a non-core area.”

And when the venture capital market tightens, as is currently happening nationwide, Gao said deals often further concentrate around the major hubs where investors tend to have deeper financial reserves.

“When things get hard, if you have the dry powder left over from the good days, you have more money that you can spread around and give back to a community,” she said.

In releasing its data this week, PitchBook noted higher federal interest rates have left the venture capital ecosystem “struggling to adapt to a market that has not been seen in years.”

In the past year, deal counts in Raleigh and Durham have generally plateaued to levels below the record highs of 2021 but still above pre-pandemic activity.

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