Regional Undercapitalization

Historically, the Southeast has attracted approximately 8% of U.S. venture investment--far behind Silicon Valley, slightly behind New England and the New York area, but ahead of Southern California, Texas, the Midwest, and the DC Metroplex... and still growing.

But local capital tells a different story. Only 2.4% of U.S. venture capital is headquartered in the region. This ratio has remained relatively constant since 1995. Simply stated, there is not enough local capital in the region to serve the number of prospects available.

Clearly, most of the dollars being invested in the Southeast are coming from out of the region. Money will follow opportunity, and out-of-region investors are pursuing deals in the Southeast. From 2001 to 2003, for example, out of over 1500 transactions, over 70% of the investors in venture-backed companies came from outside the region.

This is a strong endorsement of the business opportunities available in the Southeast. At the same time, it highlights the opportunities available to local venture capital firms—in most cases, companies would prefer to have local investors, especially in the earliest stages of development.

Another interesting metric is the ratio of venture investment to university R&D investment. The Southeast actually has more university R&D activity than Silicon Valley, and an amount that is comparable to the Northeast:

Source: Venture Economics

Each dollar of university R&D in Silicon Valley attracts $21 of venture investment. In the Northeast, each dollar attracts over $9.00. But, in the Southeast, each dollar of university R&D attracts only $1.60 of venture investment. This disparity represents a significant opportunity for EGL Ventures.