A group of 10 Charlotte-based founders and investors, an Ohio congressman and four investors from Silicon Valley and New York sat around a large table at Napa on Providence late October 16. A party you might only experience in San Francisco was brought to our backyard through a tweet.
Before Roy Bahat, head of Bloomberg Beta, headed out on a three-city tour of the South, he asked his Twitter followers for advice on whom he should meet to get an authentic view of startup life in the Queen City. I’ve met some of the best founders in Charlotte through Collective Hustle, making it easy to offer introductions.
The trip was part of the “Comeback Cities Tour,” an investor pilgrimage of sorts conceived to show Silicon Valley investors the kinds of companies born and raised in parts outside the country’s major startup hubs. Earlier this year, the tour headed to several cities throughout the Midwest. Last week, that same group of investors hit up Charlotte, Columbia, S.C., and Atlanta.
A few emails and two weeks after that tweet went out, I was sitting next to Bahat as he explained his group’s goal to better understand our ecosystem, as well as learn how Silicon Valley investors can better connect with founders and investors in the South.
The following day an additional 11 investors gathered with Charlotte politicians, local educators and a handful of Charlotte founders to continue the conversation.
Even though the two different groups had separate conversations, the commentary revolved around three central questions: How can new startups gain access to capital? How can the local government better assist? And which local investor will lead the way? And the end result was a common realization: Startups are struggling to find support in the Charlotte ecosystem.
Access to capital in Charlotte
Almost every founder that spoke voiced frustration over their experience with risk-averse investors in the Queen City, leading to difficulty getting new ventures off the ground.
“Other [venture capitalists] don’t understand the hurdles we face,” said Patrick Hill, founder of a Cultivated Mindset, a mobile app and web development firm in Charlotte. “In Silicon Valley, they accept six out of 10 checked boxes as far as ‘what they need’ from a startup. Maybe you don’t have the employees or traction; those investors will help you check those last four boxes. In Charlotte, you have to have all 10 boxes checked without any help from outside capital.”
Some investors argued that a lack of resources forces the founder to focus on making money, creating a powerful exercise to generate revenue more quickly. But a lack of capital and shift to conservative business practices can lead startup leaders to take fewer risks in the long run.
“I see a loop where founders with conservative investors will begin to make more conservative business decisions,” said Charles Hudson, managing partner and founder of Precursor Ventures. “When I speak to companies that don’t have a big vision and stop taking risks, I don’t get excited about investing in their startups.”
Obstacles faced by founders in the Queen City aren’t unique, but a few investors noted their surprise over the lack of angel investment activity in such a thriving metropolis.
“There is a reason there isn’t risk aversion in San Francisco. It’s because the founders and the investors in the area started out as misfits,” said Representative Ro Khanna, a Democrat who represents the Silicon Valley region. “They didn’t have the right look. They didn’t quite fit in. That fueled them and gave them a willingness to take risks.”
Bahat interjected, “But before the misfits, the government stepped up to help.”
The role of government
Congressman Tim Ryan, a Democrat that represents northeastern Ohio, may seem like an odd addition to the group, but he and Bahat organized the group’s inaugural trip in the Midwest last spring.
Ryan brought to the meeting the perspective of a local government official who is doing big things for the entrepreneurial ecosystem. A few hours before landing in Charlotte, Ryan announced that original tour led to the creation of the $2.25 million Comeback Capital Fund, created to bridge the divide between Silicon Valley investors and Midwestern startups. Investors in the fund included HighRidge Venture Partners, Bloomberg Beta, Gener8tor and 30 individual investors.
In Charlotte, Ryan focused in on how local officials could do something similar in the Queen City.
“With banking jobs becoming more automated, how can the local government prepare Charlotte for the disruptive companies that will continue to bring jobs to the region?” Ryan asked the group.
Tariq Bokhari, a representative on the Charlotte City Council and a spokesman for the Carolina Fintech Hub, was vocal in speaking for the cities fintech focus and the investment opportunity in Charlotte.
“One-third of banking jobs will be extinct over the next decade,” Bokhari said. ”No one wants to think about it, but it’s coming. If we just sit around, there will be a point of no return.”
At our dinner the night before, we couldn’t think of a prominent government official that actively advocates for Charlotte startups, or who creates incentives or opportunities to keep us excited about the region. The frustration also circled around the fact that capital is available but isn’t being deployed.
We discussed actionable items government officials could take to invigorate the ecosystem, including courting startups from San Francisco, New York and Boston to open second offices in Charlotte, deploying existing capital to assist early-stage organizations and providing tax incentives for research and development.
Who will lead the way?
The group of founders, investors and city officials sat in Johnson C. Smith University’s new science building in a circle on Oct. 17, sharing a profile of the typical Charlotte investor.
“I think there is something Charlotte is obviously missing, which is an active angel network,” said Patrick McKenna, founder of the Silicon Valley-based HighRidge Venture Partners. “There are three types of angels: A collective group of angels that pool money together, which tend to be the least valuable for the ecosystem; An institutional angel, who is a person focused on funding with an analytical eye; And a super angel, who is usually a sophisticated investor with some skin in the game. The super angel is the most important of the three.”
While discussing his fundraising experience, Hill mentioned working with Atlanta angel investor and entrepreneur Paul Judge.
“Who is the Paul Judge here? Who is the angel that can educate the wealthy people of Charlotte to become the next investors in the ecosystem?” said Tyson Clark, general partner at GV (previously known as Google Ventures).
Courting and educating more wealthy and diverse locals to invest in Charlotte is an achievable short-term action item. A big difference between Charlotte and the regions represented by the visiting congressmen: Our investors are more likely to invest elsewhere.
“Investors in Southern cities are not only the least likely to invest inside their own metro areas, they are also the least likely to invest in startups based in the same state,” according to Jason Rowley at Crunchbase.
When there is a lack of resources in a region, founders will agree to unattractive terms that weigh heavily in the investors’ favor and make it challenging for outside investors to jump in. The visiting investors mentioned multiple times that this is a big reason they have walked away from a deal outside of Silicon Valley.
What happens next
The final statement of the meeting was made by Bokhari, who challenged the visiting investors to get more involved in the Charlotte ecosystem.
I would instead challenge local founders, investors and politicians to consider the ideas discussed among the group. We need a leader to inspire and educate new players to become angel investors. We need to find a “startup czar” who will be a liaison between the government and entrepreneurs, advocating for incentives that assist new businesses and large corporations.
As the founder of Vishion and the local entrepreneurship group Collective Hustle, I am continuing an effort to build the bridge between Charlotte and Silicon Valley. Bahat extended an invitation to bring a group of founders to San Francisco to continue the conversation, which I intend to make happen.
If you are a founder, investor or government official looking to become more active in the startup community, come to the next Collective Hustle event on November 7.
And for those who are wondering how I was able to get a seat at the table, I’ll tell you the recipe: a truckload of effort, a smidge of luck and a pinch of Twitter.
The views and opinions expressed in this article are those of the authors and do not necessarily reflect those of StartCharlotte.
Sam Smith is the founder and CEO of Vishion, a mobile application that allows shoppers to search by color for décor. She created Collective Hustle with two other female founders, Mary Johnson and Aru Anavekar. The group brings investors and founders together to improve the Charlotte ecosystem.