Report: Charlotte Startups Raise Over $279M in 2019

Charlotte startups raised more than $279 million over 28 deals in 2019. It's a $196 million increase over 2018, which saw a total of 25 deals worth $82.5 million.

That's according to a new report from PitchBook and the National Venture Capital Association, which quantifies moves such as these in metro service areas, regions and states each quarter.

It was Q4 in Charlotte that spurred such high annual returns, with nine companies raising more than $232 million. In fact, Q4 had the biggest dollar amount since Q2 of 2017, which brought in $329.49 million over seven deals.

Q4: The Stats

PitchBook reports that the largest Charlotte-Gastonia-Concord metro service area deals in Q4 were:

Charlotte boasted the largest deal in the state during Q4: AvidXchange's $150 million funding, with Passport's $65 million Series D coming in at No. 3.

Charlotte Leaders Sound Off

The Charlotte companies making the list of biggest Q4 deals in the state represent a diverse range of stages, industries and offerings.

It serves as sort of a microcosm of the total funding landscape in Charlotte, especially when you consider the wide range of trends that local leaders observe — not only through Q4, but also the whole of the year.

"In 2019, we saw plenty of technology-enabled, platform-based, business-to-business concepts," Dr. Shanté Williams, CEO at Black Pearl Global Investments and managing partner at RW Capital Partners, told Charlotte Inno. "These companies were leveraging technology for everything from payment processing to legal compliance. Machine learning and artificial intelligence powered concepts were also trending for our firm."

This wide range of local offerings makes the Queen City stand apart.

"We believe that a holistic ecosystem perspective is what venture investors are looking for," said Dan Roselli, founder and managing partner of Carolina Fintech Ventures (even though he acknowledged that his firm focuses primarily on the fintech space, an industry, he added, "Charlotte understands.")

There are still observable patterns, however, and successful Charlotte startups are often unified by one thing: their tech-enabled service status.

Greg Brown, administrator of the Charlotte Angel Fund and Cardinal Finance founder, said that trend wasn't surprising.

"Given that Charlotte isn't an R&D hot spot, it makes sense that entrepreneurs would focus upon innovative business models versus pure tech plays," he said.

The year also brought the inclusion of more local investment leaders.

"We were thrilled to see in 2019 major financial players like Barings lean in further on supporting the growing startup ecosystem in Charlotte, via the hosting of events like Venture 135 and the TFX Veteran Startup Showcase," said Kevin Eckert, partner at TFX Capital, a firm that works with ex-military founders. "We were also excited to see the arrival of Bunker Labs in Charlotte, a nonprofit with a growing national footprint that helps military veterans with becoming entrepreneurs. Bunker Labs officially opens its Charlotte chapter next month."

North Carolina's Performance

The state brought in nearly $1.4 billion via 209 deals in 2019, with the highest amount of money coming in during Q4 ($548.7 million). That was less than 2018, which had 195 deals worth around $2.6 billion.

While the state's two exits in Q4 were worth less than a million, North Carolina’s 2019 included 13 exits worth nearly $1.5 billion. That's two less exits than last year, but the worth of 2019's deals were far more (2018 brought in $671.76 million).

Much like in Charlotte, the state saw an increase of investment players with the launch of xElle Ventures, a Triangle-based community of female investors that works with early-stage, North Carolina-based female founders.

Founder Robbie Hardy first conceptualized the organization in 2000, but the time wasn't right for a launch. After waiting for the tides to change, she realized that 2019 was the perfect opportunity to get xElle off the ground.

"Women are more than half the work force and own the majority of small businesses, yet we receive a tiny percent of venture funding, less than 3%," Hardy told Charlotte Inno. "xElle was created to tip that scale. The first $50,000 is the hardest for women to get, so we are beginning with a straight debt model in the $25,000-100,000 range."

Insights on Regional Deals

It was a big year for the Southeast, too, which saw an increase — if incremental — in the percentage of the nation's total deals (6.8% in deal count, up .1% from 2018, and 4.6% in deal value, up .6% from 2018).

The same companies that had the biggest Q4 deals in the Charlotte were big enough to make regional waves. AvidXchange came in at No. 2 and Passport landing at No. 4 on the report's ranking of biggest regional deals (Plantation, Fla.-based consumer electronics company Magic Leap took the top spot, thanks to its $500 million Series E).

How does this compare to National movements?

U.S.-based companies raised about $136.5 billion across more than 10,700 deals in 2019, according to PitchBook. 2019 VC activity was slightly lower than 2018, when U.S. companies raised $140 billion across 10,500 deals. The dip was due to a slower fourth quarter, PitchBook says. But overall, the data, released Tuesday, shows that venture capital raised by U.S. companies has been steadily rising since 2006.

California startups saw the most funding of any state, with companies raising more than $63 billion across 3,623 deals. The state had several multi-million-dollar deals from San Francisco companies such as DoorDash, which raised $700 million last year, and Databricks, which raised $400 million in October.

Following California was New York, whose startups raised more than $27 billion across 1,315 deals, and Massachusetts, which saw more than $10 billion raised in 2019 across 740 deals.When it came to startup exits, 2019 hit a new record for U.S. VC exit value, coming in at $256.4 billion across 882 liquidity events. One of the year’s largest exits was Honey, which was acquired for $4 billion by PayPal in November.

Female-founded companies saw record activity on both a capital and deal count basis, raising $18 billion across 2,184 deals in 2019, compared to nearly $17 billion across 2,057 deals in 2018.

"2019 was another year in which valuations for angel and seed stage investments continued to steadily increase," Brown added. "The mid-2019 HALO Report from the Angel Resource Institute indicated that the median pre-money valuation for seed stage investments was $7.1 million, up from $5 million in the prior year."

Looking Ahead

Leaders like Roselli, Brown and Williams shared a similar observation for the Charlotte funding scene in 2020: expansion.

"We are seeing a growing appetite for venture investing from high net worth individuals in the Charlotte area," Roselli said. "There have also been some great exits in the last year of around $250 million, which has put money on the street and in the community — with more expected exits pending in 2020."

Williams added that while Charlotte is still slightly risk averse, she sees opportunity for companies in certain industries, such as health care and energy, to really start to make significant financial moves.

"The 'VC seeds' of these industries were planted last year, with the announcement of the coming medical school, the IBM health tech accelerator and the greater focus on climate change," she said.

Those aren't the only predictions Williams has for 2020.

"I am particularly interested in a trend that I am starting to see emerge: better marrying financial returns to community initiatives," she said. "While social entrepreneurs are not new in Charlotte, I am seeing more intentionality from the larger institutions looking to make more of a community impact, and not just through philanthropy."

Intentionality with capital isn't just limited to community impact, with both Brown and Hardy previewing what their organizations have tapped for the year ahead.

"We hope to fund our first deal this quarter, and to fund a few more throughout the year," Hardy said. "We also want to increase the number of women angle investors, so we are organizing some information education sessions so women can get comfortable with this type of investing. We might just launch another xElle in North Carolina by the end of 2020."

More funding is on the docket for CFA, too.

"In 2020, Charlotte Angel Fund is initiating a new investment path that will result in us considering some earlier stage opportunities on which we would have passed in prior years," he said. "I believe that this will result Charlotte Angel Fund increasing its pace of investing as well as the share of our portfolio that consists of companies from the Charlotte region."