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Venture Capital In Western North Carolina

From Asheville Citizen Times
ASHEVILLE - The secret to success isn't just a bright new idea, but the dollar
signs to back it up.

Ask Tom Fisher, a native North Carolinian who has made his mark in new
technologies at such companies as Gateway, eBay and Qualcomm.

"Creativity and innovation are like water to technology companies, but money is
like air. Technology companies can't last without it," Fisher told local
investors and entrepreneurs on a recent visit to UNC Asheville. "Venture
capital business is abysmally short here."

Asheville entrepreneurs aren't getting venture capital yet, but they also
aren't just holding their breath, said local investors and business leaders.

"There's a lot of money here," said Tryon investment banker Terry Ackerman,
referring to wealthy residents living in WNC. "We just have to get them
acclimated to investing in these companies."

Venture capital bets on the potential for tremendous growth in new companies
that are too risky for private equity or traditional bank loans. The lion's
share of venture capital goes to the Bay area of California, home to Silicon
Valley and the nation's leading tech companies, followed by New England. In the
Southeast, North Carolina leads in venture capital investment, mainly
concentrated in the Research Triangle Park and with some in Charlotte.

But with a lagging economy in the last three years, North Carolina has seen a
decline in venture capital, according to the Council for Entrepreneurial
Development's annual North Carolina Venture Report. In 2003, 82 North Carolina
companies raised a total of $442.3 million, 22 percent less than in 2002.

"North Carolina has all of the assets to become the next great place for
innovation companies, but if we don't start investing additional resources in
our fledgling companies, the pipeline will dry up," said Monica Doss, president
of the Raleigh-based CED. "Other states are aggressively looking at new
approaches to seed capital that could diminish the lead we've been building
over the last 20 years."

"The VC money's not looking at Asheville right now," said Bill Ward of
BUILDERadius, a new start-up technology firm in Asheville. "Even RTP and
Atlanta are second-tier places, so Asheville's way down the list. But I think
five years from now, I don't think you're going to recognize Asheville. You're
going to have technology companies under every bush."

At BUILDERadius, Ward has raised some $2 million from 125 investors, mostly in
Western North Carolina and upstate South Carolina. "These are
the people who I call blue-collar millionaires," he said. "They earned their
money by running a business."

Higher risk can equal greater payback

Working through the Blue Ridge Angel Investor Network, these individuals who
have traditionally made money in real estate or the stock market are taking on
higher risk but increased rewards of seeding start-up companies. In the past
year, angel investors have put some $600,000 into new local companies, said Jim
Roberts, executive director of BRAIN, an initiative of AdvantageWest, the
regional economic development agency for 23 WNC counties.

And they got Ward's newest venture up and running. BUILDERadius supplies online
permit and inspection information for municipal building departments around the
country. A national map in their Pack Square office shows a growing number of
red markers in cities where their software has been installed.

BUILDERadius has already turned down deals with two venture capitalists.

"All money has a cost. We just didn't like those deals," Ward said.

But that may be about to change.

Fisher paid a visit to BUILDERadius's offices during his Asheville trip and was
very impressed, Ward said. Besides his duties as vice president of information
technology at Qualcomm, Fisher also runs his own venture capital fund,
investing in companies developing chip technology.

"Tom (Fisher) also wants to introduce us to the lady at Qualcomm who manages
their $1 billion venture fund," Ward said. "He says she'll also be very excited
about what we're doing."

With the growth of companies like BUILDERadius, venture capitalists are
becoming aware of Asheville as a potential region for investment. The Blue
Ridge Entrepreneurial Network, the counterpart of BRAIN, will be featured in
the July issue of Entrepreneur magazine, reaching some 2 million readers,
Roberts said.

BRAIN has also received a $100,000 grant from the Appalachian Regional
Commission to study and market a new angel-investor fund of $5 million for
Western North Carolina. Roberts sees BRAIN Fund 1 starting to collect money by
Labor Day, relying on 100 subscriptions of $50,000 apiece.

In September, BREC and BRAIN also will host the second annual Carolina Connect
conference, bringing venture capital firms from Charlotte and
Raleigh up to Asheville. Last year's event attracted representatives of $1
billion in funds to look at area business ventures. WNC's other private
investor opportunities

Beyond venture capital, other levels of capital do exist locally. For the past
year, Sweetwater Capital has operated in Asheville, looking for deals with more
mature companies with $5 million in sales. Sweetwater is a partner with the
Raleigh-based Dogwood Equities, which invests from a $74 million fund.

"Private equity provides capital to more established businesses," said Scott
Sonnone of Sweetwater Capital. "There's been a lot of focus in our region about
getting money to knowledge-based companies as we transition our economy. And
there's been a lot of focus in attracting companies outside the area, but I
think what's been missing is a program to work with our established companies."

A traditional bank might provide only part of the financing for an acquisition
or an expansion that a regional company might need to take its product to a
global market, Sonnone said. Private equity can step in and fill the gap where
banks might shy away from the risk. "We can educate these companies as to the
opportunities for nonbank capital," said Sonnone.

In Tryon, Ackerman's Middleton Group acts as an investment bank at a stage
between angel investing and venture capital. Middleton has secured some $2.4
million for Navigational Sciences, a shipping technology firm out of
Charleston, S.C., which wants to build a backup data center in Asheville.

"They're the best company I've worked with and I've been in the business 30
years," said Ackerman, who also serves on the board of advisors for BRAIN.

The rewards of a venture capital fund can be handsome with investors getting up
to 10,000 percent return on their investment. "It sounds crazy," said Ackerman,
but the reward comes with the equally high risk that most start-up companies
won't get off the ground. Most venture capital firms try to get a 20 percent
return on their funds, with two of their companies succeeding out of 10
investments.

But money follows success. If a company like BUILDERadius or Navigational
Sciences succeeds in the next few years, rewarding its early investors either
by going public or being acquired by a larger firm, then venture capitalists
will start looking at Asheville as a place to invest their money, not just
spend their vacations.

Meanwhile, Asheville's investment community seems to be on the right path,
Roberts said. The last BRAIN meeting in March attracted some 70
investors.

"We have come a long way in a short amount of time. In hindsight, I hadn't
expected us to have $600,000 in investments in the first year," said Roberts.
"Investors locally are understanding the need for job creation in our area.
It's very fulfilling when you realize you're doing something to bring jobs
here."

Contact Neal at 232-5970 or DNeal@CITIZEN-TIMES.com.