Why You Should Start a Company in... Raleigh-Durham

It used to be, if you were serious about starting a tech company, you went to Silicon Valley. But emerging entrepreneurial hubs around the country are giving startup aspirants options. In this series, we talk to leading figures in those communities about what makes them tick.

Most cities are lucky to have one tech startup accelerator, like TechStars or Y Combinator. Raleigh-Durham has four. One, Joystick Labs, focuses on the area’s burgeoning gaming community; Launchbox Digital is a standard franchised incubator; and Bull City Forward and Durham Coworking are local efforts.

It’s a lot of startup activity for an area that has long been known as Research Triangle Park (RTP), marked by Raleigh, Durham and Chapel Hill at each of its points, where tech giants have established major hubs, including IBM, Cisco, Nortel, Sony Ericsson, GlaxoSmithKline and others.

This legacy of tech giants, especially in the life sciences community, gives RTP a leg up on other areas when it comes to talent and intellectual capital. And Durham is where much of the latest startup activity is clustered, beginning with the conversion of the American Tobacco Campus building into an entrepreneurial hub. Adam Smith, vice president at Square 1 Bank and director of its early-stage banking arm Square Roots, spoke with Fast Company.com about what makes Raleigh-Durham’s startup scene unique.

What makes Raleigh-Durham a great place for startups?

First and foremost, it’s an attitude of collaboration. The community—entrepreneurs, service providers, academia, big industry, non-profits—they really do rally around our startups. It makes it easy for a founder to get integrated into the entrepreneurial ecosystem here. There aren’t really social barriers or cliques that I think you may find in certain areas. A young first time transplant if they were coming from California, or New York, or wherever, I think they’d find within a few conversations they’d have access to a really broad range of resources, people, talent and advice, and everyone would be active and eager to help.

What’s happening in Raleigh-Durham that makes the startup ecosystem sustainable?

The area has a pretty strong infrastructure for young companies. It’s a small enough community where it’s possible to get connected to everyone or anyone, but it’s large enough so that there are plenty of people actually worth connecting to. And I think you combine the openness attitude with the fact that there’s a vast supply of really strong technical expertise on the technology side and the life sciences side and that talent is really much more affordable to acquire than in most other markets.

But when you think about a successful startup market, you always think about three things that market has to have: talent, technology and capital. I think we do really well on the first two and we’re coming along on the third. We are home to three world class universities, Duke, University of North Carolina, and North Carolina State. So out of those we get a continuous stream of fresh young talent in engineering and many other key technology areas. Those schools also conduct over a billion annually in R&D. In the actual park itself, in RTP, you have a lot of big companies: IBM, Cisco, GlaxoSmithKline. That enterprise infrastructure is great for young talent. We also have some companies that have actually grown and scaled here, like Red Hat and SAS.

On the capital side, Intersouth Partners is here, it’s the largest firm in the Southeast. But capital in general is an issue we’ve struggled with. There’s some interesting stuff going on, including NC Idea, which is a local firm here that has a nice program where they give away $50,000 grants, about six to ten a year. The state has a $250 million fund where they’re investing in VCs and companies. They’re also one of the first states to do a matching program. Small Business Innovation Research grants are good for our life science companies. And we’ve seen more and more California and Boston firms investing in A rounds here and some of them are investing in second and third rounds too. It’s moving along, but like every market in the southeast we could use syndicating more capital here and having more capital housed here. But it has definitely come a long way.

How is Raleigh-Durham better or different for entrepreneurs than other cities?

I think part of it goes to having three universities within eight to ten miles of each other. I think it’s easier to keep a team together in RTP. Certainly, when you compare to Silicon Valley it’s much easier to be an entrepreneur with a family here because of the low cost of living. Fort the price of a 900 square foot apartment in San Francisco and New York, or some other places, you could own a 4,000 square foot house here. So you’re an hour drive to the beach or a two hour drive to the mountains. It’s a vibrant, outdoor community. So when the business marks are checked off, the standard of living goes a long way. Obviously, that’s not the whole thing, but I do think we check off those other marks, so the standard of living does come into play.

Which types of startups do better in Raleigh-Durham?

Life science and medical device companies have always done well. We have strong clusters in technology; there’s activity in gaming, enterprise software, mobile and virtualization related companies, data centers, and there’s a growing group of Web-based startups. We also have some clean tech in the area.

On the gaming front, that’s something that’s good to point out because I think most people don’t know about the gaming cluster here. It’s been a really strong area for us since the early 90s: Epic Games, EA, Emergent Game Technologies, Red Storm Entertainment, they’ve all either been based here, have presences here, or were founded here. I think at last count there’s something like 30 gaming industry related companies here. One cool thing about that, too, is that the community kind of recently came together and angel funded and launched Joystick Labs, which is an incubator.

What are some of tech companies of note in the area?

On the enterprise software side: SciQuest, which recently IPO’d, and StrikeIron and Red Hat. Another well-known company here is ChannelAdvisor. On the mobile side, Motricity was founded here. It has since moved. Pocket Gear, which has raised a significant amount of money. You also have companies like Bandwidth, which has grown organically to a very large size and successful, working with Google Voice and other things. On the systems management and virtualization side we’ve had a couple companies raise significant rounds: Blue Stripe Software, Medfusion. IBM, Tivoli and Cisco all have such strong presences in the Park. I think a little known fact is we’re the number one location in the U.S. for data centers. On the Web based startup side we’ve recently had a number of companies funded this year: Stat Sheet, Netsertive, ReverbNation, Zift, iContact, Sharefile.

Is Raleigh-Durham a billion-dollar exit playing field?

I think it’s possible here. There’s Red Hat and SAS, obviously, if they ever decided to exit would be a billion plus. They are already that big, but they’re private. I don’t see that’s something our community is particularly focused on, having a billion dollar exit. It’s more focused on long-term, sustainable businesses. Sometimes focusing on the exit in the beginning gets you into trouble anyway. That being said, we did have Syquest IPO recently. There’s several life science companies that have S1’s ready to file, just waiting for the right time. So we’ll have a few more exits in the near future. On the acquisition front Canvas on Demand was bought by Café Press, Medfusion bought by Intuit. There’s a couple of companies that have organically grown, like Bandwidth, to a really significant size. So I think you can build a strong sustainable company here, I don’t think we are a billion dollar exit market now, but I think there’s definitely an uptick going on and there’s a possibility.

For more from this series:

  • Why you Should Start a Company in...Austin
  • Why you Should Start a Company in...New York
  • Why you Should Start a Company in...Los Angeles
  • Why you Should Start a Company in...Chicago
  • Why you Should Start a Company in...Boston

Laura Rich is a freelance writer and co-founder of Recessionwire.

[photo by Suzie T]

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4 Comments

  • Eric Calhoun

    This is outdated, but still essentially true. Launchbox, Joystick, and Bull City Forward are all gone or reorganized. But as a Durham-based entrepreneur, Klein is right that the spirit of collaboration that defines the community. I like to say in only slight exaggeration that when we pitch in Raleigh-Durham, we'll hear that the person isn't interested but is happy to introduce you to 3 people they think can help you. When we talk to people in NYC, they'll say they know exactly who we should talk to... and if we do enough googling we can probably figure out who that is.

  • zackmansfield

    nice overview of RTP, i think Adam did a good job of covering a lot of ground.

    While not sure if the region is able to support the $1B exit, i found it interesting that Hosted Solutions announced a $300MM+ exit today - a nice win for the region for sure!

    http://www.hostedsolutions.com...

  • Reyn Bowman

    Nice overview but please permit me to suggest some clarifications. The others in this series appear to deal with cities. By using the airport name, Raleigh-Durham, you're asking the readers to shift gears and consider a vast polycentric region with many cities and no dominant center.

    When you mention "points" that is in reference to what we locally call the Research Triangle Region but you have it referencing the Research Triangle Park which is a specific facility based in Durham and located midway between Raleigh and Chapel Hill. The Park is four miles from Downtown Durham, the base of Bull City Forward and encompassed on three sides by the City of Durham but the park itself exists in a special county district.