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more “quiet individual angels,” but not angel syndicates, stepping up to support companies he works with. Wilmington startup Next Glass, which is developing software that uses machine learning to help consumers choose wine or beer, found support from angel investors after initially bootstrapping its efforts. NCino, also based in Wilmington, last year raised $9 million in a Series A round funded by individuals. But nCino, whose cloud software manages bank operations as well as bank customer relationships, might not be representative of individual investors stepping up to invest in North Carolina startups. Most of nCino’s investors are prominent figures in the banking industry.
Abhi Muthiyan, co-founder and chief technology officer of electronic health records company Patagonia Health, looks at CED’s findings with some skepticism. Muthiyan’s Cary, NC-based company has grown from a startup founded in the 2008 recession into a company now serving medical practices throughout the Southeast—without raising angel or institutional funding. Muthiyan acknowledges that the investment climate appears to have improved. But he views investors as still being conservative, choosing to put their money into companies that are further along in development and already generating revenue, rather than seeding early-stage companies. In other words, they’re funding lower-risk investments, Muthiyan says.
According to CED’s data, North Carolina technology companies raised $184.0 million in the first half of the year. By comparison, the state’s life science companies raised $54.9 million. The imbalance comes as a surprise, considering the cluster of pharma companies in the Research Triangle and the emergence of life science companies in other parts of the state. Rose interprets the data as representative of economic breadth.
“North Carolina’s entrepreneurial economy is not dependent on any one sector,” she says.
But direct comparisons between biotech and tech investing can be misleading. Efficiencies of cloud-based technology have reduced capital requirements for tech companies. On the other hand, drug development has a long life cycle that requires companies to test experimental therapies in three different phases of clinical trials that take years. Those capital needs have not changed—pharmas still need to raise tens of millions of dollars to finance these trials.
Offsetting pharma companies’ need to raise capital from private investors is the improved market for initial public offerings in the last two years. Durham companies Argos Therapeutics (NASDAQ: ARGS), NephroGenex (NASDAQ: NRX), and Scynexis (NASDAQ: SCYX), are all in various stages of testing their respective drug candidates. All of them succeeded in going public in the last year. Had those companies remained private, each would have needed to raise tens of millions to finance clinical trials, which likely would have tipped the balance of CED’s figures toward life science investing. Instead, the companies are funding those trials with proceeds from their IPOs.
Patel says CED doesn’t know for sure if this is the first time that private tech investment has outpaced life sciences. Classification of companies is one issue. More health IT firms have emerged in recent years, and CED classifies these software developers as tech companies. But medical device companies are grouped in life sciences. CED’s analysis also does not break down the companies in any sector by their stage of development.