This is the second in a series of special features on some of the US’ unsung startup hubs. Our first examined Oklahoma City and the ‘Silicon Prairie’. Stay up-to-date here and on the Red Herring Twitter feed for more stories.
Last year, some would argue, Raleigh celebrated its 40th year as a bona fide tech hub. 1976 was the year when James ‘Jim’ Goodnight, left North Carolina State University to go it alone in software. Today his company, SAS Institute, is worth over $3 billion and employs 14,052 people worldwide.
“Until that point we had the global players like IBM and Northern Telecom, but SAS was our first homegrown technology company of significant size,” says Ben Brooks, founder of investor Southcap. “It put us on the map.”
North Carolina’s sprawling capital has long been a destination for leading technology brands. In fact it is the biggest part of The Research Triangle, a metro area comprising itself, Durham and Chapel Hill, and including Goodnight’s alma mater NCSU, Duke University and the University of North Carolina at Chapel Hill.
Cisco, IBM, RedHat and Glaxo Smith-Kline all have significant presences in the Triangle thanks to low real estate costs and a long line of student talent (the area is in the top five nationally for PhDs obtained, and 36% of local graduates have a STEM background).
But in recent years the city has become a hotspot for early-stage startup companies as well as the industry’s big players. And unlike other hubs, which appear to have been taken by surprise by their tech booms, Raleigh has plenty in place to ensure it scales quickly – and easily.
Cigarettes have played an unlikely role in Raleigh’s tech renaissance. American Tobacco once dominated Durham’s economic landscape but by the 1980s fewer Americans were smoking, and the company left town. Its million square-foot campus would be acquired by the Capital Broadcasting Company in 2000, with a view to turn it into a mixed-use center.
Now its red-brick buildings have been transformed into a hip office/lifestyle destination with $30m invested by the City of Durham. Accelerators have flourished and their charges are now becoming renowned brands in their own right.
The Startup Factory was the most highly capitalized tech accelerator in the American southeast, before it shuttered last September. American Underground is part of the Google for Entrepreneurs network.
HQ Raleigh was founded five years ago. Within seven months the space was absolutely full – and there was a two-year waiting list which spurred a recent growth project. “We even have competition in the coworking space, so it really speaks to the area as a whole,” says director Liz Tracy.
The Triangle’s low cost of living–rents are 71% cheaper than in San Francisco–has helped young entrepreneurs find their feet. Google announced that it would roll out its Fiber service in the Triangle almost two years ago. Work is ongoing, but the firm has not yet said when it will be finished in the region.
A city transportation bill was recently passed that will allow Raleigh to scale “in a strategic way,” says Tracy. “We’re not going to turn into Austin in ten years’ time, where there’s growth clustered and it’s really hard to get around.”
Social entrepreneurship and sustainability have become big in the Triangle. Brands like Patagonia and Ben & Jerrys have been joined by young firms such as VoteBash, an awards-based survey platform, and Vital Plan, which sells a variety of physician formulated health supplements.
The challenge for e-commerce, says Vital Plan CEO and co-founder Braden Rawls, “is finding space that is economical for operations but also serves to attract top marketing talent.” Until December its product storage was outsourced to a third party, but now the company is moving to a 6,000 sq ft space in Morrisville, near Raleigh-Durham International Airport.
“The move to Morrisville has taken us out of our prime downtown Raleigh location, but parking is much easier and the central location in Morrisville will allow us to attract talent from all over the Triangle,” Rawls adds.
Finding capital in-state has been a traditional worry for Triangle-based firms. Now, however, it is far less of a problem. HQ Raleigh, Industrious Raleigh, American Underground and other groups are linking more and more entrepreneurs with funding, and the City of Raleigh has been a vocal supporter.
VC firms like Southcap are joined by local players including SJF Ventures; Cato BioVentures; River Cities Capital Funds; Pappas Ventures and Idea Fund Partners. Their investment power is growing. But 80% of money is still found outside North Carolina. “Seed funding has become more readily available in the Triangle in recent years, but many tech entrepreneurs still seem to be looking outside of the state for their larger rounds,” says Rawls.
That includes Pendo, a software firm headed by Todd Olson and founded out of HQ Raleigh. “Despite having four founders all with prior successes and startup experience, we struggled to raise capital locally,” Olson says.
“Thankfully an investor that had previously invested in us from outside the region stepped up to lead the round which helped us get to our first institutional round,” he adds. “We wanted to raise $1m to ensure we had enough runway to achieve important milestones, and it was extremely difficult.”
Mentorship, in such a tech-rich region, is not difficult to come by. Tatiana Birgisson is founder and CEO of MATI Energy, a healthy energy drinks brand. When she was interviewed by Duke this summer she had three employees. Now MATI has 20 staff, over 500 retail outlets and has even built a 30,000 sq ft manufacturing facility.
“Being in Raleigh-Durham has allowed us to have a powerful combination of access to talent, low cost of living, and the ability to bring manufacturing in-house, from a real estate and infrastructure perspective,” says Birgisson. “As a Duke grad, an American Underground member, and part of Soar Triangle (Google for Entrepreneurs and NC Idea Fund partnership), I’ve had unparalleled access to A-plus mentors and advisors.”
The Triangle is also a great place to live. There are several museums, galleries and cultural events including the Hopscotch Festival, which last year brought dozens of acts across a wide range of genres to perform across Raleigh.
There is also no shortage of sports, with the NHL’s Carolina Hurricanes, minor-league baseball outfit the Bulls and the North Carolina FC soccer team. The Atlantic Ocean is a two-hour drive while the Great Smoky Mountains are three hours away. “You’ve kind of got all of the pieces at your fingertips to go away and enjoy a weekend,” says Tracy.
“Raleigh is an area where it’s easy to be outdoors,” adds Olson. “It has many of the amenities of a larger metropolitan area yet offers an escape that only minutes away from anywhere in the area. All of this, coupled with a diverse array of affordable areas to reside and strong education, make it a great place to live and raise a family.”