This is one of my favorite phrases. It can bring a succinct wisdom in a host of situations. For example:
"Drinking that much Diet Mountain Dew can't be good for you." "Maybe. But it's all relative."
"Given the effects of recent events on global dynamics, do you think the U.S. can play a successful role negotiating peace talks in the Middle East?" "Well. I think it's all relative."
I find it most useful, though, when used to actually analyze something. So when I started to write about Triangle angel investing, I approached it from a perspective of relativity.
The obvious transition here is to compare the Triangle's angel activity to that of, say, Silicon Valley. I'll get to that later.
But first, I want to compare our region with itself. Angel Craig Stone and I recently talked about how Triangle angel activity has changed substantially in a pretty short period of time. Here's his perspective:
Triangle Angel Flashback
It's 2005 in the Triangle. Stone has already invested in Durham's Atlantis Group (a now-closed angel group that was an early ChannelAdvisor investor), and wants to continue investing in early-stage Triangle startups. But there are no local angel funds raising. So instead, Stone puts his money in the later-stage Southern Capitol Ventures Fund II.
Fast forward to 2008. Stone still wants to do angel investing but continues to see no outlet to do so. He talks to a friend about starting a new angel fund; his friend is in; and the pair finds a few other founding members.
The problem is that it's 2008. The market plunges. Stone's wife has a baby. The fund is put on pause.
It's 2010. The angel market is beginning an upward trajectory that will continue for the next few years. Stone returns to the fund he started to organize in 2008 and Triangle Angel Partners (TAP) comes to fruition.
A year later, TAP has raised its first fund, and by 2012, the group is investing in local startups.
Today, the Angel Capital Association lists four angel groups in the Research Triangle region: Excelerate Health Ventures, RTP Capital, TAP and Inception Micro Angel Funds. A fifth is Investors' Circle, a national group with a local presence investing in startups with environmental or social impact.
So we've come a long way since 2005. The past few years, in particular, have brought consistent growth in the national angel investing market and our region has kept pace with the country.
The Southeast ranked fourth among 10 U.S. regions in both total angel dollars and deals done in the most recent quarter covered by the Halo Report, quarter three of 2013. (California and New England had more angel deals and dollars invested; the Great Lakes region had more deals but less dollars; New York state had more dollars but less deals.) And of the 11 states in the Southeast region, North Carolina and Florida have the greatest number of angel groups active in the Angel Capital Association.
All of this is good news for early-stage Triangle startups that have exhausted friends and family funding. But as the angel market has evolved, so have the expectations of local angels.
Since 2012, TAP's portfolio has grown to include Windsor Circle, WedPics, Entigral Systems, Physcient, and most recently, Adzerk. Stone told me that TAP not only looked at hundreds of local startups before making these investments, but that several of them were made TAP's second time around.
The partners were looking for traction.
"Today, there has to be more proof," Stone said. "[Angels] are more likely to wait 6 months and pay a little more but have a lot less risk."
Having more traction when your startup closes an angel round has its upsides: you might get a larger dollar amount in exchange for less equity. It also means you could have a longer runway before raising venture capital. Crunchbase data from 2013 shows that startups are indeed taking longer between angel and VC rounds.
Growing in Numbers and Size
I also caught up with Elaine Bolle (pictured above, top) last week. As president at RTP Capital, she's investing in startups that can offer a liquidity event in three to five years. The group is different from other angel groups in that it doesn't have a fund. Members choose on an individual basis which deals to join and how much to invest.
Bolle became president in 2013 and focused on growing the organization, which was founded in 2010. Last year, membership grew from 27 to 42 angels. They invested in over 15 startups.
"In the last 6-8 months, we have aggressively expanded membership on a very selective basis," she told me. RTP Capital's investments include SyncHear, Tuee, Validic, Filter Easy, and, interestingly, Excelerate Health Ventures.
After working at a few large corporations, Bolle became a serial CEO who worked with several VC and private equity firms leading, growing, selling and buying companies. Prior to moving to the Triangle in 2010, she was based in San Francisco and Philadelphia. So I asked her how she thought the Triangle compared to other regions.
She pointed out that while San Francisco has more money and potential opportunities, many of the Bay area's success stories can be linked to the same limited number of sources (e.g. Google, PayPal, Apple, etc.). In the Triangle, on the other hand, our large tech companies haven't spawned as many startups. As she put it, "We're lacking that network effect."
But she also knows it's a fertile region for continued startup growth given assets like the universities in the region, the presence of potential startup acquirers and organizations such as CED.
Moving Up the Food Chain
The critical metric of a startup ecosystem is the number of successful exits. Bolle said that while the Triangle has developed many resources for early stage startups, it needs more support for growing companies.
"As a community, we've done a good job at helping companies get started. Now we have to move up that food chain. We need to focus more on the growth stage," she said. "There are less resources for those in this stage—those getting to $2 or $5 million in revenue."
Angels naturally need to be confident that their early stage investments will become growing companies, and, eventually, attractive acquisitions. And both Bolle and Stone agreed they'd like to see an environment that stays supportive beyond launch and finding product-market fit.
Right now, as Stone and Bolle pointed out, the Triangle is in a low-VC funding cycle and we need to build out resources for growth stage companies.
So while our angel market has come a long way, to continue its growth—and that of the overall startup community—we need to make sure companies keep moving up the food chain.