Study shows Charlotte lags in start-ups, venture capital

Daniel Bliley, left, director of marketing, and Emily Wilson, marketing specialist, at the offices of Passport on Thursday, October 29, 2015. The Charlotte company specializes in developing software to manage mobile payments for parking and transit in cities. They are one of the few companies in Charlotte that has received venture capital funding.
Daniel Bliley, left, director of marketing, and Emily Wilson, marketing specialist, at the offices of Passport on Thursday, October 29, 2015. The Charlotte company specializes in developing software to manage mobile payments for parking and transit in cities. They are one of the few companies in Charlotte that has received venture capital funding.

Charlotte is far behind peer cities such as Tampa, Nashville and Atlanta in attracting venture capital and nurturing start-ups, according to a recent study partially funded by the city.

It’s no secret Charlotte is built on big banks and other large companies.

But, the study explores the link between the area’s lack of higher education and a medical school with its small number of inventions and patents, as well as venture capital, research and development money.

From 2011 to 2013, for instance, Charlotte averaged 42 inventions and 12 patents. By comparison, Atlanta averaged 494 inventions and 100 patents. Nashville had 178 inventions and 37 patents a year.

For a four-year period starting in 2011, about four Charlotte companies received venture capital annually, for $8 million. That’s $3 per capita. By comparison:

▪ Austin, Texas’s per-capita venture capital funding was $312 per resident.

▪ Tampa’s funding was $18 per person.

▪ Atlanta did 55 deals for $391 million total. That’s $70 per capita.

“It was shocking to me how low Charlotte really was,” said Paul Wetenhall at UNC Charlotte’s Ventureprise Inc., a non-profit that helped conduct the study at the request of the City of Charlotte and the Foundation for the Carolinas. “If you talk to an entrepreneur, they would say, ‘Gee, Charlotte doesn’t have any venture capitalists.’ The capitalist would say, ‘I’m not here because there aren’t any start-ups here.’ 

Dan Roselli, a co-founder of Packard Place, which nurtures about 100 start-ups from its uptown home on South Church Street, said he hopes the report acts as a reminder of how much more Charlotte needs to do.

“We have grown as fast and dynamically as anywhere,” he said. “But the reality is we were starting from a dead-stop. We are now playing really good AA baseball. But we want to play in the Major Leagues, and before we weren’t playing at all.”

Michael Praeger is the co-founder of AvidXchange, a Charlotte-based technology payment company that has grown significantly since its founding in 2000. AvidXchange, which rents space at the Metropolitan building in midtown, now has 460 employees and is building a headquarters at the N.C. Music Factory.

Praeger came to Charlotte from Boston 18 years ago, where he worked in venture capital and for a software company. When asked about the city’s start-up culture, he cited a meeting he attended at Packard Place five years ago for people interested in harnessing technology for bill payments.

Of the 75 people who attended, 73 worked in banking – mostly Bank of America, Wells Fargo and BB&T. Only two wereentrepreneurs, including himself.

But Praeger said there are more and more people trying their own start-ups today. He said those companies are making money, and will in turn look to re-invest.

“They will create capital and redeploy it,” he said.

City wants to nurture start-ups

The report was commissioned by the Charlotte Regional Fund for Entrepreneurship. It was partially paid for by the City of Charlotte, which has committed up to $500,000 in matched funds to promote entrepreneurship.

The City Council’s economic development committee heard a presentation on the study earlier this month.

▪ The report examined how Charlotte fared in a comparison of start-ups compiled by the Kauffman Foundation. That list looked at all new businesses, which would include everything from tech companies to dentist offices.

Among the top 40 metros in the nation, Charlotte ranked 25th.

“That position has been pretty consistent over the last 20 years,” Wetenhall said. “You would expect that Charlotte as a rapidly growing city would do better. You would expect new entries to open to meet that demand.”

▪ A key part of the report was how Charlotte’s lack of universities is a handicap.

Charlotte has 1,334 students per 100,000 people. Atlanta has 1,642 and the Research Triangle Park area has 3,901.

In 2013, Charlotte’s universities and colleges – primarily UNC Charlotte, Davidson and Winthrop – received $40 million in research and development funding. That’s $17 per capita.

In the Triangle, the number is $1,174 per capita. In Kansas City, it’s $137 per capita.

The peer cities in the study were: Atlanta, Austin, Kansas City, Nashville, Research Triangle, San Francisco and Tampa.

Charlotte and Austin were the only peer cities without medical schools, though one is opening in Austin next year.

▪ In the study, an “invention” was defined as when a university or researcher submits what’s known as “invention disclosure.” A patent is granted by the U.S. Patent and Trademark Office or by a similar organization in another country.

Though Charlotte lags behind many peer cities, the number of patents issued here is up 78 percent from 2001 to 2010.

▪  If Charlotte received venture capital at the same rate as Atlanta, it would mean an additional $158 million into the local economy, according to the study.

One of the companies to receive venture capital since 2011 is Passport, which allows customers to pay for street parking, and bus and train fares from their smartphones. The company, founded by a former Wells Fargo vice president, Bob Youakim, and Charlie Youakim, has recently won contracts with the cities of Columbia, S.C.; Tucson, Ariz.; and Chicago.

The company, whose office is on South Mint Street, said if the Charlotte City Council wants to promote entrepreneurship locally, it should give Passport a better chance to win the city’s own contract for local mobile parking payments. It said it didn’t make a recent short list.

“We are headquartered here,” said Daniel Bliley, the company’s director of marketing. “The city talks a lot about job creation. We have brought in 30 employees here.”

He said the company costs more than others, but he said its economic impact it has more than offsets that. The city had issued a Request for Proposal, which gives it latitude in who it selects.

Bliley and Emily Wilson, who works in marketing at Passport, said the city has made strides in how friendly it is for start-ups.

But they both said it can be challenging to overcome Charlotte’s reputation as a banking center.

“If you aren’t in Silicon Valley, it can be hard to get people interested,” Bliley said.

Path forward

The study didn’t detail what the city should do. It only focused on how Charlotte compares.

The city is already trying to convert a distressed area north of uptown into the “Applied Innovation Corridor,” a home for start-ups.

Praeger of AvidXchange said UNC Charlotte is making strides in computer science and big data.

“Venture capital now goes to RTP,” Praeger said. “But UNC Charlotte is doing phenomenal things.

City staff had proposed spending $10 million to bolster UNC Charlotte’s College of Computing and Informatics.

But council members voted to kill that funding in 2013. At the time, council member LaWana Mayfield said the business community should pay for the $10 million. And council member Patsy Kinsey said the city’s investment in the university would make her uncomfortable.

Roselli of Packard Place said he’s trying to connect what he said are two parts of Charlotte.

“There is the old-school traditional Charlotte, and there is a robust entrepreneurial community,” he said. “And right now there is little connective tissue.”

He added: “As a community we don’t have a lot of experience, but we’re heading in the right direction.”

Steve Harrison: 704-358-5160, @Sharrison_Obs

Lagging on entrepreneurship

Here is how the Charlotte area compares with other cities in the number of patents issued from 2011-2013:

Nashville: 37 patents

Charlotte: 12 patents

Atlanta: 100 patents