THE STATE OF START-UPS℠ IN THE SOUTHEAST 03 OVERVIEW & METHODOLOGY 10 ALABAMA

NOTABLE DATA: 11 FLORIDA

04 STARTUP TRENDS 12 GEORGIA

05 INVESTMENTS 13 KENTUCKY

TABLE OF LOOKING THROUGH THE DATA: 14 MISSISSIPPI

CONTENTS 06 ANGELS & UNICORNS 15 NORTH CAROLINA

07 GROWTH & LOCATION 16 SOUTH CAROLINA

08 SEEING AROUND CORNERS 17 TENNESSEE

09 REGION SUMMARY 18 VIRGINIA

19 NOTABLE EXITS OVERVIEW

In this inaugural report, we have taken an in-depth look at startup activity throughout nine states in the southeastern United States over the time period 2012—2017 YTD. The purpose of the State of Start-ups℠ in the Southeast is to deliver a comprehensive overview of the and in this region. We hope this report will inform key investors and entrepreneurs of emerging trends to watch as well as highlight the area’s growth and future opportunities.

METHODOLOGY

To develop this year’s report, multiple data sources were compiled, including both primary and secondary research. We have interviewed people at multiple funds and have learned a great deal about the region directly from the entrepreneurs that reside there. We have also utilized independent third- party data aggregators to fill out the data across multiple vintage years. Startup companies were categorized into 10 sectors: Biotech/Pharma, Consumer Technology, Cybersecurity, FinTech, Healthcare IT, IT Infrastructure, Manufacturing/Industrial Tech, Media, SaaS and Other. Data is current as of August 31, 2017.

3 Over the past six years, the Southeast has seen an increasing number of startups and NOTABLE DATA venture capital funds in the region. This maturation of the startup ecosystem has been spurred by an increase in notable exits from the region over the last 10 years and an OBSERVATIONS: increased focus on developing the startup ecosystem by universities, state legislatures, local government and local financiers. STARTUP TRENDS

Atlanta, Miami, Nashville, Northern Virginia and Research Triangle are emerging as market-leading tech hubs.

This trend is especially strong in five locations—Atlanta, Miami, Nashville, Northern Virginia and Research Triangle (Raleigh-Durham). These geographic areas are emerging as market-leading tech innovation hubs, especially in certain sectors such as Healthcare IT, Cybersecurity, FinTech and MarTech. At the state level, Florida, North Carolina and Georgia lead southeastern states with respect to deal activity and total investment dollars.

4 More and more southeastern states, cities and individuals are participating in the development of startups, evidenced by the increasing amount of investment dollars—both public and private—being directed toward startups. At the same time, over the last two years investors seem to be NOTABLE DATA increasingly selective in choosing which companies to back. While the total dollars being invested have remained relatively steady over the past three OBSERVATIONS: years, the number of deals has declined for most states. INVESTMENTS

While the total dollars being invested have remained relatively steady over the past three years, the number of deals has declined for most states.

The most investments in the Southeast in a single year occurred in 2014. While most states in this study have experienced a decline in the number of deals over the last 2 ½ years, the number of dollars invested was equal to or greater than that of 2014 in five of nine states last year, showing the growth of the ecosystem. 2017 looks to be a strong year, outpacing last year’s total number of deals and dollars invested.

Our analysis shows that the largest decline in the number of deals has occurred in the early-stage market, which is interesting, given the increase in the number of angel investors entering the space.

5 LOOKING THROUGH THE DATA: ANGELS & UNICORNS

The venture capital and startup investment ecosystem is “democratizing” as more and more people see venture capital Out of 108 unicorns in the U.S., as not only an acceptable, but also an exciting, asset class. These investors are learning how to take risk by exposing a the following unicorns are based portion of their portfolio to the venture capital asset class in smarter ways, notably in Atlanta and Nashville. in the Southeast:

GEORGIA Investors are learning how to take risk by exposing a portion of GreenSky their portfolio to the venture capital asset class in smarter ways, Kabbage notably in Atlanta and Nashville. Rubicon Global FLORIDA Given the increase in the number of investors that are participating in venture capital, it is interesting to note the Fanatics following trends: JetSmarter • The number of angel investors in the Southeast has grown over the last six years.

• Angel investors’ average check size has declined considerably, leading to fewer aggregate dollars NORTH being allocated to early-stage deals, even with additional participants. CAROLINA AvidXchange We believe this is the result of angel investors pulling back on investing as they prepare for an economic downturn, which limits the availability of later stage investment capital. This lack of future capital causes angel investors to pause because of the lack of a clear exit strategy for their investments. Out of 108 unicorns in the U.S., There are currently 108 unicorns (i.e., any privately owned tech startup company that reaches a of those startups are of $1 billion or greater) in the United States. 44% of the unicorns in the United States are 44% B2C companies. B2C companies. It is interesting to note that the percentage breakdown of B2C unicorns vs. B2B unicorns in the Southeast roughly mirrors national trends, even though only 25% of deals funded in the Southeast over the last six years were B2C focused. While the Southeast still lags behind other regions in the creation of unicorns, the number of unicorns is growing.

6 LOOKING THROUGH THE DATA: GROWTH & LOCATION

Another less obvious reason for the lower number of unicorns in the Southeast is that, throughout the almost six- year observation period, the Southeast lagged behind all other regions with respect to collaboration among regional venture firms. Limited collaboration among regional funds reduces the amount of private investment capital to help Major corporations growth-stage companies accelerate. This limited capital is holding the region back from maturing further and turning out larger exits. This lack of to accelerate our most promising startup companies creates a drag on are relocating wealth and net new job creation for the region. Companies end up either having smaller exits or moving elsewhere as they mature. some or all of

Major corporations are relocating some or all of their technology operations to Technology their technology Square in Atlanta. BIP Capital believes this is the direct result of investments made by the state over a decade ago into projects managed by (i.e., its Advanced Technology operations to Development Center). The multiplier effect of these investments continues to benefit Georgia (and Atlanta in particular) today. Georgia Tech, always pushing innovation forward, is now Technology Square involved in the development of CODA at Tech Square, a tech hub designed to promote innovation and collaboration, which is set to open in March 2019. This growth of startup office in Atlanta, a direct centers will accelerate as entrepreneurs and technologists are proving in large numbers their desire for office space near like-minded cohorts. result of investments

Southeastern corporations are allocating more of their balance sheets to venture activities as they look to keep made by the state up with the rapidly evolving business landscape. This investment activity is particularly strong in startups that are adjacent to or potentially threatening to large corporations’ core operations. This is one of the activities that is over a decade ago. making the Southeast increasingly competitive in B2B SaaS ventures, particularly in the areas of Healthcare IT, FinTech, MarTech and Cybersecurity. Surprisingly, despite rumors of potentially cooling off,Sales Automation and MarTech continue to surge.

7 The continued democratization of the venture capital asset class as retail investors increase their allocations to private market investment opportunities. This will increase the type and amount of private market investment products, including venture capital.

The increasing role of data and workflow improvement as the U.S. Healthcare sector continues SEEING AROUND to deconstruct and rebuild. The Southeast is poised to capitalize on this ongoing trend due to its CORNERS track record of success and immense talent pools coming out of Atlanta and Nashville.

National recognition of Atlanta as a market-leading innovation hub due to the convergence of Based on our analysis of historical data and many forces—government and university investment, the influx of Fortune 500 companies and interviews with various market participants, their innovation centers, the continued growth of established capital providers and the foundation we foresee the following in the coming year: of accelerators and incubators.

A growing number of innovative businesses in the following areas:

»» Artificial Intelligence that augments human functions

»» Tracking of a customer’s journey

»» The acceleration of enterprise adoption of (public, private and hybrid)

»» Machine learning in data analytics and visual processing

»» Robotics outside the factory and in the cloud

»» The monetization of social influencers

»» Voice/speech recognition 8 REGION Total dollars invested since 2012: Number of investments since 2012: Top area of investment: $23.4 billion 7,273 SaaS SUMMARY

With a growing presence of Fortune 500 companies located in the Southeast, B2B SaaS startups continue to attract large # of Investments 1,580 1,471 amounts of investor capital, commanding 4.8B $ invested 4.6B over $4.5 billion in more than 1,600 deals. 1,326 4.3B 1,201 Biotech/Pharma and Consumer Technology 3.8B are growing sectors in the Southeast, with 997 over $7 billion invested collectively. 2.9B 3.0B Atlanta and Raleigh/Durham continue to rank 698 highly in lists of top innovation centers based on activity, invested dollars and returns.

2012 2013 2014 2015 2016 2017 (YTD)

9 STATE SUMMARY The State of Start-ups℠ In Total dollars invested since 2012: ALABAMA $551 million Number of investments since 2012:

169 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment: Biotech/Pharma 2 Partners Huntsville Angel Network

2 e.ventures Auburn Angel AIM • Biotech remains Alabama’s hottest Network 5 Group market, drawing almost three times more 2 Bonaventure Capital dollars than the second biggest sector, Atlanta 3 3 Consumer Technology. Technology 2 Presidio Partners Angels Tom • Manufacturing/Industrial Tech and Ziegenfelder SaaS are also garnering attention from 2 Noro-Moseley Partners 2 investors. 1

• Alabama has seen a decline in deals since 2014, but 2017 is showing strong growth, having already passed both 2015 and 2016 in dollars invested. INCUBATOR ACTIVITY

Alabama Innovation Launchpad Depot Gigtank 6 365 5 Capital Vertical Factory 3 Accelerator 2 1 Lists represent investments made 10 into Alabama. STATE SUMMARY The State of Start-ups℠ In

Total dollars invested since 2012: $7.0 billion FLORIDA Number of investments since 2012:

1,750 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment:

Media Westlake Ventures 12 AGP Miami • Consumer Technology is the dominant 11 Florida Funders New World Tamiami startup sector with 358 deals over the Angels 16 Angel Funds six-year period but is second to Media in 10 FAN Fund terms of dollars invested ($1.3 billion). Florida Angel 15 Nexus 12 • Media companies attracted $1.7 billion in 10 Insight Venture Partners Peter investment since 2012, with more than Livingston $1.3 billion going into one company, 10 Krillion Ventures 8 Magic Leap. 5

• Biotech/Pharma holds a steady third place with $1.2 billion invested over 256 deals.

• With 3 unicorns in residence, Florida INCUBATOR ACTIVITY has commanded more investment than GOVERNMENT BACKED Venture any other state in this report. The three Hive unicorns—Fanatics, JetSmarter and Magic Florida Institute for the Leap—have raised more than $2 billion 27 44 Commercialization of combined. (Editor’s Note: After the close Public Research of this study on August 31, 2017, Fanatics venVelo Healthbox Techstars raised another $1 billion). 500 Startups 15 15 15 15 University of Central Florida Lists represent investments made 18 Business Incubation Program 11 into Florida. STATE SUMMARY The State of Start-ups℠ In

Total dollars invested since 2012: $5.0 billion GEORGIA Number of investments since 2012:

1,208 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment:

SaaS 34 BIP Capital Atlanta Technology Angels • Georgia is the Southeast’s leader in SaaS BLH Venture Partners 37 innovation and interest, with 365 deals 16 worth almost $1.5 billion. 16 Atlanta Ventures Tom • While not garnering as many deals as the Management Group Noonan Consumer Technology sector, the FinTech TechOperators 14 Ashish sector remains active, coming in second Mistry with $762 million invested. 10 Sig 14 Ellis Capital Mosley 9 9 • 2016 saw a marked decrease in 6 investment from 2015’s $1.1 billion invested, but 2017 seems to be back on Advanced track with more than $760 million invested Technology in the first half of the year. INCUBATOR ACTIVITY Development Center GOVERNMENT BACKED 46 Flashpoint at Georgia Tech Georgia Tech GRA Venture Fund VentureLab 39 18 28 TechSquare Labs Techstars 10 12 Lists represent investments made 12 into Georgia. STATE SUMMARY The State of Start-ups℠ In

Total dollars invested since 2012: $406 million KENTUCKY Number of investments since 2012:

312 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment:

Biotech/Pharma Yearling Management 7 Northern Kentucky Angels • Consumer Technology and SaaS startups 7 The Sequel Fund Enterprise Angels in the Bluegrass State garnered the Community Fund 8 Bluegrass highest number of deals (60 and 67, Angels 5 Kentucky Enterprise Fund respectively), but only an average amount 6 of dollars invested ($34 million and $42 5 5 The JumpFund million, respectively). 4 Queen City Angels • Biotech/Pharma secured the most dollars Louisville Enterprise 4 KTECH Capital Angel Network invested with $220 million, which is $32 3 million more than all the other sectors combined.

• Kentucky has stayed fairly consistent INCUBATOR ACTIVITY since 2012 with the number of annual UpTech deals but is experiencing an uptick in dollars invested with more than $81 million 18 already invested in the first half of 2017. XLerateHealth Velocity Indiana 15

Plug and Play Awesome 13 Tech Center (Incubator) 3 5 Lists represent investments made 13 into Kentucky. STATE SUMMARY The State of Start-ups℠ In

Total dollars invested since 2012: $76 million MISSISSIPPI Number of investments since 2012:

46 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment: Technology Advantage Capital 3 Partners Jim Barksdale

• Consumer Technology is the hottest sector South Coast Capital Paul Mai in Mississippi with 11 deals since 2012 1 Management South Mississippi totaling $43 million—over $10 million more Angel Network Noro-Moseley Partners Michael than all other sectors combined. 1 Caracci Richard 2 Biedenharn • Investment interest has been on a 1 Mountain Group Partners 1 1 1 1 downward trend since 2012, particularly in dollars invested. 2017 is on track to garner 1 Meritus Ventures less than half of what 2016 brought to the startup community.

INCUBATOR ACTIVITY

Mississippi Business Incubators 1 Lists represent investments made 14 into Mississippi. STATE SUMMARY The State of Start-ups℠ In

Total dollars invested since 2012: $4.6 billion NORTH CAROLINA Number of investments since 2012:

1,247 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment: 36 Biotech/Pharma IDEA Fund Partners 30 RTP Capital Associates • Biotech/Pharma leads the way in North Hatteras Venture Carolina, attracting more than $1.6 billion 24 Partners in investment dollars over 272 deals Intersouth Partners since 2012. 14 Triangle Angel Partners Upstate Carolina • Only 61 deals have been closed in Fintech, 13 Cofounders Capital Angel Network but those deals were worth a total of $814 Charlotte million (second only to Biotech/Pharma). 10 12 Investors’ Circle 10 Angel Fund David 8 Gardner • The SaaS sector has also been strong, 7 with 239 deals totaling $648 million invested over the past six years. INCUBATOR • Overall, 2017 is shaping up to be a good 48 ACTIVITY Launch year with $736 million invested in the first Chapel HIll Groundwork six months, which is on track to be the The Startup Labs state’s best year yet in terms of dollars Factory 28 invested in innovation. RevTech Labs 20 15 First Flight Venture Center

Lists represent investments made 6 15 into North Carolina. STATE SUMMARY The State of Start-ups℠ In

Total dollars invested since 2012: $445 million SOUTH CAROLINA Number of investments since 2012:

348 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment: SaaS 5 Capital A Partners 17 • The B2B SaaS sector stands out as the Upstate Carolina Angel Network OPENAIR Equity Partners leading sector with 71 deals totaling $146 3 million since 2012. 3 Noro-Moseley Partners Don Angel Capital • Manufacturing/Industrial Tech comes in Florida Angel Byrne Group second after securing $84 million. Morgenthaler Ventures Nexus 3 Walter Alessandrini • A strong first half of 2017 almost 4 3 Intersouth Partners 3 3 surpassed the amount of investment seen 2 in all of 2016. If the trend continues, 2017 will be the best year for startup investing since 2014. Iron Yard INCUBATOR Ventures ACTIVITY GOVERNMENT BACKED The Harbor Entrepreneur 21 Center 83 SCRA Technology 20 Ventures

The Iron Yard 3 Lists represent investments made 16 into South Carolina. STATE SUMMARY The State of Start-ups℠ In

Total dollars invested since 2012: $1.9 billion TENNESSEE Number of investments since 2012:

1,006 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment:

Healthcare IT 59 Innova Memphis NueCura Partners • B2B SaaS is very hot, drawing the most InCrowd Angel Capital 42 Solidus Capital 8 Group deals (215) and $432 million of funding The since 2012. Lighthouse Jumpstart Foundry Jo 6 38 Glaser 6 Fund • Healthcare IT and Biotech/Pharma also 4 have investors’ attention, with Healthcare 37 MB Venture Partners Nashville 3 Entrepreneur IT totaling $435 million—the most in the Center state—and Biotech/Pharma earning 36 Chattanooga $361 million. Renaissance Fund 56

• 2017 is on track to come in quite a bit lower than the growth years of 2015 and 2016, signaling a possible slowdown in investor interest. INCUBATOR ACTIVITY GOVERNMENT BACKED Start Co. (VC)

GIGTANK 24 365 The TENN Master 78 Launch Tennessee ZeroTo Accelerator 20 510 15 17 Lists represent investments made 17 into Tennessee. STATE SUMMARY The State of Start-ups℠ In

Total dollars invested since 2012: $3.4 billion VIRGINIA Number of investments since 2012:

1,187 VENTURE CAPITAL FUNDS ANGEL INVESTORS Top area of investment: SaaS Blu Venture Jennifer O’Daniel 26 Investors Dingman Center • The SaaS sector is drawing great attention Angels Columbia Capital 13 from investors with 314 deals worth a total 18 of $893 million in the sector since 2012. 12 New Dominion 15 NRV Angels • Cybersecurity stands out as a key sector, Charlottesville Baltimore Angel Network securing $584 million in funding since New Enterprise 7 Angels 14 Associates 2012, driven in part by the region’s proximity to Washington, D.C. NextGen Venture 5 5 9 Partners • Overall, Virginia follows the general trend of a declining number of deals countered by an increase in the amount of dollars per MACH37 deal. 2017 is on track to garner 40% more investment dollars than 2016. INCUBATOR Lighthouse 33 ACTIVITY Labs GOVERNMENT BACKED 24 i.Lab at UVA 13 74 Center for Innovative 500 Tech.Co Technology Gap Funds Startups 8 8 Lists represent investments made 18 into Virginia. NOTABLE EXITS COMPANY BUYER YEAR VALUE

COMPANY BUYER YEAR VALUE NORTH CAROLINA

Bristol-Myers Cardioxyl 2016 FLORIDA Pharmaceuticals Squibb $2.07B Amicus 2017 Chewy PetSmart 2017 $3.35B Scioderm Therapeutics $847M Altor BioScience NantCell 2017 $1.08B MaxPoint Interactive IPO 2015 $294M Hitachi Data Bamboo Therapeutics Pfizer 2017 $645M Pentaho 2015 Systems $600M

SOUTH CAROLINA GEORGIA Benefitfocus IPO 2013 $644M SecureWorks IPO 2016 $1.87B AirWatch Vmware 2014 $1.55B Greenway Health IPO 2012 $278M VIRGINIA Vitera Healthcare Cvent Lanyon 2016 Greenway Health 2015 $1.65B Solutions $644M Cvent IPO 2013 $812M Paymetric Vantiv 2017 $550M Eloqua IPO 2012 $368M Cloud Sherpas Accenture 2015 $400M Eloqua Oracle 2013 $871M Silverpop IBM 2016 $275M Appian IPO 2017 $704M Evolent Health IPO 2015 $973M 19 Our intent is for this report to further educate investors in our space, based on our ten years of experience. We look forward to providing this book to our audience every year.

This report was generated using data from: Although believed to be accurate, neither BIP Capital nor any of its members, officers, employees, affiliates or subsidiaries make any • Pitchbook warranties regarding the information described herein. Neither the information, nor any opinion expressed or implied in this report, • CB Insights constitutes a solicitation by BIP Capital for the purchase or sale of any • Interviews with entrepreneurs and investors in the region securities.

• BIP Capital knowledge and experience

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