North Carolina to Start Statewide Micro Angel Fund

North Carolina does not, at first glance, seem to be a venture capital underperformer. In 2006, venture capitalists invested close to $510 million in North Carolina, almost $60 million of which was invested in seed and early-stage businesses, according to the Pricewaterhouse Coopers Moneytree Survey of VC investment.

However, while the state ranks 12th in seed/early-stage investment, many in the state perceive the lack of seed funding to be a major obstacle to economic growth.

Earlier this year, a survey conducted by the Wilmington-based Council on Entrepreneurial Development (CED) revealed that access to capital, particularly to seed-stage equity investment, was one of the top concerns of entrepreneurs in the state.

Last week, the North Carolina Small Business and Technology Development Center (SBTDC) announced a new plan to make capital available to entrepreneurs and begin building a stronger early-stage investment industry. In 2003, SBTDC launched the Inception Micro Angel Fund (IMAF) in the Piedmont Triad area of North Carolina, with an investment zone that included Greater North Carolina and selected areas of South Carolina and Virginia. SBTDC now plans to build on the success of IMAF-Triad by creating a statewide network of six angel funds that will provide capital to new businesses in every part of the state.

The new funds will be able to provide local support for nascent businesses and improve the stream of promising mid-to-late-stage companies for venture capital investment. This family of seed-stage funds will target technology-based companies and will provide mentoring, counseling, and networking opportunities to their investees.

Each of the six funds will use a similar, member-managed structure and will seek investments from larger angel funds, venture funds and individual angel investors. The IMAF-Triad fund is now in the process of raising $2 million for its second round and primarily engages with investors from the medical and dental fields. Individual angels can buy into the fund with a minimum investment of $15,000; the level is $30,000 for angel groups and VC firms. Typical investments will range between $25,000 and $100,000. The IMAF Source Capital Fund will provide the capital for each local fund and will follow up on successful local investments with additional financial and advisory support.

One of the new funds (ITAF-RTP) will focus on investments in the Research Triangle Park region, including spin out companies from Duke University, UNC Chapel Hill, the associated medical schools from both of those universities, North Carolina Central University, and NC State University. In 2005, CED reported that the Research Triangle region raised 81 percent of all venture investment in the state, including seven of the top 10 deals that year.

The areas of the state outside of the Research Triangle and Piedmont Triad regions, which will be served by the other four new funds (IMAF-West, IMAF-East, IMAF-Coastal, and IMAF-Kannapolis), received only 18.5 percent of venture capital investment that year. SBTDC officials hope that the new family of funds will provide a more even distribution of capital and other business resources across the state.

One of North Carolina’s previous efforts to build a strong statewide angel marketplace is now up for extension at the state assembly. The Qualified Business Venture Tax Credit (QBV) is estimated to have raised $1.7 billion in equity financing from when its creation in 1999 through last year, according to data from the North Carolina Biosciences Organization and the North Carolina Entrepreneurial Association. The credit is scheduled to expire at the end of this year.

Under the current legislation, angel investors may receive a 25 percent personal income tax credit for individual investments in businesses with less than $5 million in annual revenue. The QBV credit encourages investment in new businesses engaged primarily in manufacturing, processing, warehousing, wholesaling, or R&D. State Representative Bill Daughtridge recently introduced a bill extending the credit through 2010, noting that before it existed the state frequently lost entrepreneurs and small businesses to other states. Though angel investment fell dramatically in North Carolina following the tech bust in the early part of the decade, investment in QBV-eligible companies has grown more than 60 percent since 2004.

Read more about the new angel network at: http://www.inceptionmicroangelfund.com

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