Local & State Voices

At long last, Charlotte is joining the venture capital party

Michael Praeger, AvidXchange founder and chief executive officer, speaks during the groundbreaking ceremony for the new AvidXchange headquarters in 2015.
Michael Praeger, AvidXchange founder and chief executive officer, speaks during the groundbreaking ceremony for the new AvidXchange headquarters in 2015. Observer file photo

Charlotte just got some good economic news. According to a report by the Center for American Entrepreneurship, venture capital investment in Charlotte start-ups is growing at a rapid clip. It found there was almost a billion dollars of investment in Charlotte companies from 2015- 2017, making the city one of the top 50 global urban centers of venture capital growth. Although Charlotte still ranks well below innovation hubs like San Francisco and even the Triangle in both overall funding and share of global funding per capita, investment here is growing at a faster rate.

This is good news for Charlotte because technology jobs drive economic growth. According to the study’s author, every tech job creates more than four additional jobs. By way of comparison, a new manufacturing job creates 1.4 additional jobs. In other words, investing in the development of new technologies is a good way to drive economic development.

Is there a lesson here for policy makers? According to study author Ian Hathaway, the best magnet for venture capital is a talented workforce with good ideas. “Money always follows ideas, not the other way around”, he says. That’s why some of the world’s top venture capital cities are home to major research universities.

Charlotte tech entrepreneur Michael Praeger agrees. He credits University of North Carolina Charlotte with developing a “world class” workforce for big data analytics, and says he hires its graduates. Richard Maclean of Frontier Capital says Charlotte companies attract talent from UNC Chapel Hill, Duke and Davidson as well.

Good ideas draw capital from the rest of the world. Praeger, for example, says his company, AvidXchange, brought in funding from Singapore and Canada as well as the U.S. He predicts Charlotte will continue to benefit even after employees leave his company, because many will create their own start-ups.

But Charlotte’s good news comes with a warning for the United States. The study found America no longer has a virtual global monopoly on seeding new technologies. That’s a big change. Thirty years ago, almost all venture capital was invested here. Today, the U.S. accounts for just over half of the world’s venture capital. Although total investment in U.S. start-ups has continued to increase, the rest of the world has gotten smart. It has invested in education and research, and has begun to rapidly seed venture capital centers at home. Today, a quarter of global investment capital is in China, and half of the top global cities for venture capital are outside the United States.

As new start-ups and technologies take root abroad, those companies could have what’s known as the “first mover advantage,” which allows them to dominate the market in the same way the U.S. has dominated information technology. If you question how important that is, just think about the significance of the high tech FAANG companies (Facebook, Apple, Amazon, Netflix, and Google) to the U.S. economy.

What is the lesson for policy makers? Invest in education and skills. That’s what other countries have done. It’s probably no coincidence that China, now home to four of the top 20 global venture capital cities, has built up its universities and each year sends hundreds of thousands of students to U.S. and British schools. Singapore, which is also a top recipient of venture capital, is home to a world class university. Sadly North Carolina’s inflation-adjusted funding for its universities remains below pre-recession levels.

Another lesson? Attract the best global talent. The study authors worry that restrictive immigration policies could hurt U.S. growth. Already Canada has changed its laws so it can bring in foreign talent deterred by changes here, which is bolstering its growing tech industry.

But amidst this bad news, there’s more good news for Charlotte. Hathaway says that if you want to attract global capital, make your city a place young, educated people want to live. Ultimately top talent can go anywhere. Fortunately for us, Charlotte is rapidly becoming such a place.

Ervin is a former award winning journalist for 60 Minutes and Nightline as well as a policy and budget analyst. She would like to hear your feedback and ideas at dana_ervin@fastmail.net or @tinsel127