Third Annual Report Reveals Market Maturation; $28 Billion Invested in Southeastern Startups Since 2014
BIP Capital, one of the most active venture capital firms in the southeastern United States, announced the availability of its 2019 The State of Startups in the Southeast eBook, which delivers a comprehensive overview of the venture capital and startup ecosystem in the region. This third annual report takes an in-depth look at startup activity throughout nine southeastern U.S. states over the five-and-a-half-year time period from January 1, 2014 through June 30, 2019. The report is free and can be read online.
Report Focuses on Market Maturation
“Last year’s research revealed the Southeast as an attractive place to invest relative to the more established and capital-intensive Innovation Hubs of Boston, the San Francisco Bay Area, and New York City,” said Mark Buffington, CEO at BIP Capital. “With that in mind, we wanted to know for our 2019 report exactly how mature the Southeast’s venture ecosystem has become. Macroeconomic trends tell us to expect increasing valuations. Therefore, using pre-money valuation as a proxy for maturity, we examined how stable the pre-money valuation is in each region. We were pleased to find that the overall rate of maturation in the Southeast is exceeding that of the Innovation Hubs. In addition, the amount of dollars flowing into the private markets as a whole is on the rise, with more dollars than ever being invested in early and growth-stage southeastern companies.”
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The State of Startups in the Southeast report reveals that:
- The gap in revenue multiples between the Southeast and the Innovation Hubs is closing, with revenue multiples increasing at a faster pace in the Southeast.
- More capital is being deployed by Southeast investors than ever before, creating less opportunity for outside funds to invest in the region.
- Looking at Atlanta, Charlotte, Nashville, and the Research Triangle in comparison to Boston, the San Francisco Bay Area, and New York City, Atlanta and the Research Triangle are showing signs of maturity, while Charlotte and Nashville are still maturing at a rate far exceeding that of the Innovation Hubs.
Notable trends and observations by state include:
- Of the nine most active VC firms that have invested in Alabama since 2014, five are located in the Southeast.
- Media companies remain number one in Florida for attracting investors, with $2.7 billion raised over the time period reviewed. However, $2.3 billion of that was raised by industry unicorn Magic Leap. Other industries continue to attract sizable investments in the state.
- Georgia remains the Southeast’s SaaS innovation leader, with 349 deals totaling $1.7 billion over the time period reviewed.
- Biotech/Pharma in Kentucky is the most popular category again, bringing in 62 deals worth a total of $327 million since 2014.
- Venture activity in Mississippi is still slow, and 2019 is showing signs of being another flat year.
- 2019 is shaping up to be a slower year than 2018 for North Carolina. At the half-year point, total dollars invested in 2019 are only 14 percent of 2018.
- South Carolina is having a very good 2019, with the total invested dollars already higher than all of 2018.
- Healthcare IT continues to lead the pack in Tennessee, with 158 deals totaling $466 million over the five-and-a-half-year period.
- 2019 is shaping up to be another strong year for SaaS investments in Virginia, with deals and dollars on track to equal 2018.
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What the Future Holds
BIP Capital draws several conclusions in the report in regard to what investors can likely expect to see in the coming months and years, including:
- Without government intervention to make going public more favorable, continued growth in the amount of capital being raised and invested in the private markets is expected.
- As capital supply increases, the demand to put that capital to work will outpace the growth in the number of quality startups to invest in. This will create higher valuations and larger rounds of capital.
- While the Southeast is definitely on the right path, there is still room to grow, particularly in regard to the opportunity to raise large rounds.
“The research confirms that there is more innovation and more competitive early-stage deals happening in this region than ever before,” said Buffington. “While it’s clear we still have a long way to go in terms of attracting ‘category defining’ large rounds, the data shows the Southeast is still a great environment for both investors and entrepreneurs in the early stages of building a business.”