Myth #8: There aren’t enough unicorns in the southeast

This “myth” is true – there aren’t many unicorns in the south east, and none in the Carolinas. There are also virtually no IPOs in the south east – perhaps six in North Carolina and one in South Carolina each year.

Certainly if your investment thesis is to find the next unicorn, Greenville SC is not the best place to do it. But that is not what we are looking for.

We do have a couple of companies where an IPO is a reported goal or a feasible exit. Proterra, for example, just raised $140MM from VCs and has incredible momentum – and an IPO is an obvious possibility.

But those are the exceptions not the goals. As I outlined in “Stand-up comedian entrepreneurs in America,” we aim for companies whose goal is be acquired for $20 million to $50 million (and perhaps more if things go very well). If we can turn an investment at a $2 million pre-money valuation into a $20 million exit, investors are very pleased with their 10x return.

This is absolutely feasible in the southeast. The Carolinas are good at business formation: for example, NC is ranked #8 and SC #14 for startup formation by the Kauffman Foundation, and entrepreneurs (and everyone!) are moving to the Carolinas from everywhere else. We pride ourselves on a tradition of lighter regulation (SC ranks #14 for lightness of small business regulation according to Pacific Research) – though perhaps more than we deserve (NC ranks in the worst half). So there are plenty of candidates and a business climate supportive of growth.

And on exits the regime is also good. “Small cap” M&A (deals of, say, $25 million or less) generally doesn’t make headlines, but it happens often. According to Watermark Advisors’s December 2016 “Watermark Wire” report, the median deal size in South Carolina in 2016 was $31 million and in North Carolina, $27 million – that is, most deals are done at values of $30 million or less.

And there are a lot of them. Watermark tracked $900 million-worth of M&A where information was disclosed. By number of deals these were around 25% of the volume, so the total acquisition activity in SC alone could be $3 billion a year. For North Carolina, it was multiples of that.

This is the exit process for our companies. Acquisitions for $35 million, undisclosed amounts of similar sizes in private transactions that do not make TechCrunch headlines but do generate positive investment returns.