From tobacco to tech: North Carolina triangle’s renaissance

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Start-ups and corporates are thriving in the southern US state’s rich research ecosystem

The FDI angle:

  • Raleigh, North Carolina, is one of the fastest growing tech ecosystems in the world. 
  • The city offers entrepreneurs access to the Research Triangle, as well as a vibrant local community.
  • The likes of Google, Meta and Apple all have operations in the area. 
  • Why does this matter? Raleigh is leading a group of rising US tech ecosystems challenging dominant coastal tech hubs to trigger a ‘reverse gold rush’. 

During the mid-1950s, North Carolina was in a quandary about how to revitalise its manufacturing-dependent economy. Leaders, including banker and legislator Robert Hanes, devised a plan to reduce reliance on legacy sectors including tobacco, textiles and forestry.

In 1959, they set up the Research Triangle Park (RTP), a 7000-acre centre for innovation between the state’s three main research universities of UNC-Chapel Hill, NC State and Duke University. 

Today, the RTP and its surrounding Triangle region — which includes the cities of Raleigh, Durham and Chapel Hill — has become one of the US’s foremost innovation hubs in areas such as tech, life sciences, agritech and cleantech. It stacks up well globally too.

Raleigh, which is home to NC State, was the fourth-fastest growing venture capital (VC) ecosystem worldwide, according to a PitchBook study on the five years up to the second quarter of 2023.

“The Triangle is the centre of gravity,” explains Thom Ruhe, the CEO of NC Idea, which supports entrepreneurship across North Carolina through grants and programmes.

As entrepreneurs have sought alternative locations to major US coastal tech hubs, North Carolina’s business-friendly environment and quality of life have been a draw to talent and companies. But insiders in the start-up ecosystem say more availability of later-stage funding is needed to maintain its growth trajectory.

From tobacco to tech

When David Rose moved to North Carolina from Atlanta in 1999, he remembers Durham to be a “rundown, tobacco town”. Once home to the world’s largest cigarette factory, the American Tobacco Company closed its operations in Durham in 1987 after declining sales due to concerns about the health risks of smoking.

“It was economically disadvantaged,” recalls Mr Rose, now CEO of US Expansion Partners, which helps foreign tech firms set up in the US market. Durham’s dilapidated downtown was then redeveloped by the local government, developers and the Capitol Broadcasting Company (CBC), a family-owned media company.

Today, the historic tobacco district has been revitalised. It is home to amenities including a performing arts centre, Durham Bulls Athletic Park and American Underground, a Google for Startups tech hub that is home to more than 250 early stage companies. Meta, Facebook’s parent company, also has an office with 100 people on the campus.

“Technology entrepreneurs in our region really started to gravitate to an environment like this that was highly authentic, historic and rooted in a real place and a sense of community,” says Adam Klein, a director at CBC and the American Tobacco Campus. 

The cigarette brand Lucky Strike’s water tower at the heart of the campus today serves as a reminder of Durham’s revival from a chequered bygone era. More people are employed in the tech industry on the campus today than in the tobacco industry’s peak in the 1960s, according to Mr Rose. 

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Research Triangle strength

Despite the Triangle region’s strengths, such as having the fourth-highest concentration of PhD graduates in the US, it has not been immune to tech layoffs and remote work shifts. In June 2023, cloud computing firm Citrix decided to vacate its office in Raleigh for these very reasons.

Nonetheless, major companies have maintained a presence and are expanding in the region, including Cisco, pharmaceutical giant Eli Lilly and Apple – the latter announced in 2021 that it will invest $1bn to build a campus in RTP and employ 3000 people. North Carolina’s corporate income tax rate features among the lowest in the US and offered Apple an incentive package of up to $845m for its planned campus.

“Talent, universities combined with space, and places to conduct innovation set our ecosystem apart,” says Kelly Rowell, the CEO of the Council for Entrepreneurial Development, an RTP-based non-profit support organisation for tech and biotech start-ups.

Foreign tech firms have also chosen the region as their launch pad into the US market. German–Austrian augmented reality start-up Hololight opened an office in Durham in May 2022, giving it close proximity to corporates like Lenovo and Epic Games, which is headquartered in the town of Cary in the Triangle region.

“It’s a good base from which you can easily reach your customers,” says Susanne Haspinger, the chief operations officer at Hololight, who notes flight connectivity as another benefit.

Flywheel effect

Serial entrepreneurs in the Research Triangle that have successfully exited local companies have also created a ‘flywheel’ effect, whereby new start-ups are founded and capital is reinvested into the ecosystem.

Scot Wingo, a serial entrepreneur and investor, is a case in point. After several profitable exits, including e-commerce company ChannelAdviser, he set up the Tweener Fund in 2022 to back early-stage start-ups in the Research Triangle region.

“We’ve got so many brain factories here that hiring young talent is so ridiculously easy and relatively inexpensive,” says Mr Wingo, referring to the region’s three top-tier universities within a 30-mile radius. “It is the perfect place to be,” he adds.

Several local start-ups have attracted significant investment, like Raleigh-based product-analytics platform Pendo, which has raised almost $470m, according to Crunchbase. However, investors and founders complain that there remains a dearth of later-stage funds and angel investors in the Triangle ecosystem.

“Unlike Silicon Valley or Boston, we don’t have enough of that engaged, angel capital at the right threshold to help our younger companies get the traction that they need,” says Bill Spruill, an investor and co-founder of Global Data Consortium, a verification platform sold to the London Stock Exchange Group in May 2022.

Reverse gold rush

Triangle region insiders are still bullish that funding will be more plentiful in the coming years. They also note that entrepreneurs and talent from higher cost and less business friendly locations such as Silicon Valley have flocked to the area.

“This is the ‘reverse gold rush’,” says David Gardner, a partner at local VC firm Cofounders Capital, likening the RTP ecosystem as the opposite to the historic migration of people to the west coast of the US in search of economic opportunities.

As the Research Triangle region has grown from strength to strength, its role in the future of North Carolina’s economy cannot be understated. Now it just needs more venture funds and angel investors to get the message.

Original Article Source: FDi Intelligence