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Venture capitalists take a peek at S.C.


By Liz Segrist
lsegrist@scbiznews.com
Published Nov. 21, 2012

South Carolina traditionally has struggled to garner as much venture capital as densely urban, high-tech areas, such as Austin, Boston, New York City or Silicon Valley.

But one Silicon Valley investor has taken notice of Greenville, and a few Palmetto State startups have attracted capital recently.

Since 2002, venture capital firms have invested in 34 S.C. companies, totaling $364 million, according to statistics compiled by the National Venture Capital Association and PricewaterHouseCoopers.

Nationally, firms put together roughly 37,000 deals for $264 billion during the same period.

The lack of venture capital in the Palmetto State is partly because venture capital firms look to invest in later-stage companies seeking additional investment for growth. They seek companies situated among a hub of innovation and technology, supported by an entrepreneurial community and equipped workforce.

Many of the companies nurturing the sustainable and technology sectors in South Carolina are in the early stages of growth and development.

Part of the issue is logistics, said Gary Little, a partner with Menlo Park, Calif.-based Morgenthaler Ventures, the venture capital firm that invested $14 million in PeopleMatter, a Charleston software company, earlier this year. It was the firm’s first Lowcountry investment.

“The No. 1 thing we do when we invest is use some of the proceeds to invest in building out the company’s team and expanding their products into the marketplace,” said Little, who has been with the firm since 1997. “If the company is remote, we’re not in the best position to do that.”

Companies and regions can up their chances of securing out-of-state venture capital. Regions need to focus on creating technology hubs, such as Charleston’s Digital Corridor or Greenville’s manufacturing hub of international companies.

The regions also need to cultivate a skilled workforce, business community support and quality of life, venture capital executives said.

“Someone talented enough to start a successful company from scratch can go anywhere they want,” said Ryan Popple, a partner at Menlo Park, Calif.-based Kleiner Perkins Caufield & Byers, which invested in Greenville-based Proterra. “Greenville is a diverse place for companies to start. It should do anything to foster that diversity and its quality of life.”

Interest in Greenville
Kleiner Perkins has invested in two Greenville companies, including Proterra, and is now seeking more opportunities to invest in sustainable technology companies in the area.

“The technology alone doesn’t make a great product. You need a great team of entrepreneurs and an ecosystem for growth, that’s why we invested here, for the talent pool, business leaders, manufacturers and entrepreneurs,” Popple said at the InnoMobility conference earlier this month in Greenville. “The teams matter as much as the technology.”

The firm has invested in more than 300 information technology and life sciences companies during the past 40 years. It led the investment of $30 million in Proterra last year when it was based in Colorado. Proterra now manufactures electric, zero-emissions buses at its headquarters and manufacturing facility in Greenville.

The buses have been operating in Pomona, Calif. since 2010. Since the investment, Proterra has signed agreements to deploy its battery-powered EcoRide buses and charging stations to transit operations in Seneca, San Antonio, Tallahassee, Fla. and San Joaquin, Calif.

Kleiner Perkins also previously invested an undisclosed amount in Friedola-Tech, a recycled plastics processing and products company, when it was based in Germany in 2010.

Friedola-Tech’s subsidiary, Con-Pearl North America, a maker of lightweight recycled plastic boards, announced plans to establish its first North American production facility in Greenville in September.

Greenville’s global manufacturing base and entrepreneurial spirit entices Kleiner Perkins to potentially invest in more local companies, Popple said.

When considering a new investment in Greenville, recruitment could be an obstacle, but the quality of life and business success helps combat that, Popple said, noting the number of international business executives that have moved to the area.

“We’re proud of our portfolio and investments in the Greenville area and we’re looking to add more to the portfolio,” Popple said.

Success story
Since receiving its first investment from Intersouth Partners in 2009, PeopleMatter raised $28.2 million and the company plans to raise another round of capital next year. During its most recent capital raise, PeopleMatter narrowed its selection of venture capital firms and pitched to them on-site before securing investment from Morgenthaler.

“Any time we look at bringing on a new investor, we want to look at what value they bring besides the check,” said Nate DaPore, CEO of the company that creates software to hire, train and schedule workers in the service industry.

Morgenthaler has funded more than 300 information technology and life sciences companies, such as Apple and Siri, which was acquired by Apple.

Venture capital firms are more likely to invest in companies that have a CEO with a good track record of successful startups; an experienced collaborative team; a product that targets an underserved, large market; and the willingness of the CEO and team to travel often, Little said. These factors played a huge role in Morgenthaler’s decision to invest in PeopleMatter.

“When considering a company that’s not in a tech hub, it’s always a question as to the quality of both the management and the technical side,” Little said. “I’ve been pleasantly surprised. The bar is higher for us to make an investment so far away, and they met that by far.”

For companies seeking investment, DaPore said experience is essential to garnering venture capital. First time entrepreneurs should seek angel investors. He also said CEOs of startups need to network excessively, build an incredibly strong, experienced team and have perseverance through the capital seeking process.

“You have to be able to get in there and deal with the ‘no’s.’ It can be hard when you get lots of doors closed in your face every day, and you will, but you have to have perseverance and grit to get through it,” DaPore said.

Matt Tomsic contributed to this report.

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