Last week, I came across an interesting report on a U.S. region I don’t cover too much — the Southeast — that looked at more than just how much startups in each state were raising.
From Atlanta venture capital and private equity firm BIP Capital, “The State of Startups in the Southeast” looked at how fundraising trends in the Southeast compare to fundraising in “Innovation Hubs” (Boston, New York City, and the Bay Area), as well funding trends over a five-year-period in each state in the region. The Southeast here is defined as Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, and Virginia.
Using PitchBook and CB Insights data, BIP Capital found that 36 percent of deals reported in Innovation Hubs are rounds of $5 million or greater. In the Southeast, only 15 percent of deals are $5 million or greater, while 57 percent are less than $1 million. I think this is a more helpful metric for understanding the funding disparities that exist between top-tier tech hubs and other parts of the country — and why it’s so difficult to close these gaps — than simply looking at the total amount of venture capital going to these areas.
The Southeast is home to six unicorn companies, which represent an odd cross-section of industries and funding trajectories. There’s SoftBank-backed Kabbage and Fanatics, as well as waste management startup Rubicon Global. An 18-year-old payable software company, AvidXchange, just became a unicorn last year. Oh, and there’s MagicLeap, which faces new accusations of being overfunded pretty much every month. It’s difficult to see a tentpole company among this bunch that can help create new categories in their city and spur the creation of other startups, except for possibly AvidXchange, which is located in Charlotte, North Carolina, a city with a growing fintech sector.
An area of particular concern is Mississippi, whose startups have raised just $27 million since 2013, one of the lowest fundraising totals in the nation.
One promising trend in the Southeast is that the types of startups raising money in each of these states seems to be diversifying. Take North Carolina, for example — the state has traditionally been a powerhouse for biotech startups (biotech and pharmaceutical startups have raised almost $2 billion since 2013). However, it also seems to be home to a quickly growing SaaS sector. In 2013, SaaS startups raised just $25.2 million, compared to $200.9 million in 2017. Raleigh’s Pendo raised a $50 million round this year, bringing its fundraising total to $106 million, which the company claims is the largest amount of money raised by a Raleigh software company in nearly two decades.
For the readers who are located in the Southeast — what other startups or trends should I keep an eye on? Send me your thoughts via email.
Thanks for reading,
Heartland Tech Reporter
Check out this video from the Kauffman Foundation: ESHIP Summit 2018: Victor Hwang
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