MetaCapita seeks $150M to dig its heels in N.C.: Boston-based firm to invest in digital media, energy management and life sciences

Boston-based MetaCapita Venture Partners is seeking to raise $150 million to invest in early stage companies in North Carolina.

The fund is one of the first early stage investment vehicles in the Winston-Salem region, which includes the Triad cities of Winston-Salem, Greensboro and High Point.

The MetaCapita First Response Fund will focus on digital media and related communications technologies, life sciences and energy management. The fund will invest in startups that develop products and technologies that have applications with government users as well as the private sector.

Because MetaCapita is in the midst of fund-raising, the firm’s five managing directors – Bruce Bradley, Steven Durante, Peter Fasciano, Ron Finlayson and Brad Walters – declined to comment. MetaCapita, which also has an office in Washington, D.C., plans to set up a Winston-Salem office, which will be managed by Finlayson and Walters, as reported by The Business Journal of the Greater Triad Area.

The area is already home to several later-stage firms focused on investing in manufacturing, such as BB&T Capital Partners, Salem Capital Partners and Geneva Merchant Banking Partners.

The Raleigh, N.C.-based Council for Entrepreneurial Development (CED) – a non-profit organization formed in 1984 to help match startups with funding – says that it isn’t surprised that a venture firm is setting up shop in its backyard.

The organization estimates that its state-based entrepreneurs raised $530 million last year, up from $380 million in 2004. And the average deal size leapt from $5.5 million in 2004 to $9 million last year, the CED reports, based on information from the MoneyTree Survey – by PricewaterhouseCoopers, Thomson Venture Economics (publisher of PE Week) and the National Venture Capital Association – coupled with additional survey data from area angel investors and entrepreneurs who haven’t publicly disclosed their financings.

“We’re seeing much more money going to later-stage companies, which suggests to us that our local startup economy is growing more mature and that companies are meeting their milestones,” says CED spokesman Robert Albright.

The Research Triangle Park, roughly 75 miles west of the Triad area, is by far the state’s most fertile area for investments. The Park, a public-private planned research consortium created in 1959, includes Duke University in Durham; North Carolina State University in Raleigh; and the University of North Carolina at Chapel Hill. Also in the Park is the North Carolina Biotechnology Center, a state-supported initiative that provides grants and creative services to support biotech companies. The CED estimates that 80% of the startups attracting capital each year are located in the park. So are the vast majority of the state’s venture investors.

But, clearly, MetaCapita sees opportunities in its area of the Tar Heel State, despite some setbacks well known to Walters. He was formerly a partner at Academy Funds, a North Carolina venture firm with offices in Charlotte and Raleigh.

Academy, which manages a $36 million fund, closed a Winston-Salem office a year-and-a-half ago, after investing in several Triad-based startups, several of which went out of business. Another of Academy’s investments, Targacept, a biotech company focused on nicotine research, was spun out of R.J. Reynolds Tobacco in 2000, and launched an IPO a couple of weeks ago in a $45 million offering. Targacept had raised slightly more than $120 million from more than a dozen investors, including Academy, New Enterprise Associates, JAFCO and Advent Venture Partners.

Not that Winston-Salem itself will be an enormous obstacle. Both the CED and Managing Director Garheng Kong of InterSouth Partners in Durham say that, similar to the Silicon Valley area in California, firms from around North Carolina compete and connect on deals in the area.

The 21-year-old InterSouth – one of North Carolina’s oldest firms – employs 10 partners and is currently investing its sixth fund, a $205 million vehicle raised in 2003.

“We look at plenty of deals in the Triad area,” Kong says. ” It’s just an hour-and-a-half away. It’s sort of like a San Francisco-based firm investing in a startup in San Jose.”

But, North Carolina hasn’t been as financially friendly to information technology startups as those in life sciences.

Kong points out that the state annually spends more than a $1 billion on life sciences research, and that as recently as a decade ago, Research Triangle once had more scientists and Ph.D.s per capita than elsewhere in the nation. Meanwhile, Albright says that of the $530 million raised by North Carolina-based startups last year, $288 million went to biotech startups.

But the tide may be turning. Albright notes that cities such as Asheville, located west of the Triad, are an emerging market for tech investments.

Although North Carolina has long been a hotbed for biotech activity, open source, nanotech and smart materials, among other IT-focused sectors, are increasingly appearing on the scene. Among them is UNC spinout in Research Triangle, which produces fluoropolymers. It has yet to announce funding.

Thermoelectric management startup Nextream Thermal Solutions, spun out of R&D giant RTI International, has also received attention, including from In-Q-Tel, which formed a strategic agreement with the startup in January on the heels of an $8 million Series A last year. Nextream raised the money from Aurora Funds, a Durham-based VC firm; Harris and Harris Group, in New York; and SpaceVest, in Reston, Va.

In January, Raleigh-based startup rPath, which creates a customized platform for Linux applications, raised $6.45 million from General Catalyst Partners and North Bridge Venture Partners, both of which are based in Massachusetts.

Kong says that 80% of the funding that North Carolina’s startups raise comes from outside the state, owing to the small size of its VC industry.

“Originally, when I picked up the phone and tried getting a startup funded, people weren’t familiar with what this region has to offer,” says Kong, an 11-year veteran with InterSouth, who earned his MBA degree from Duke. “Now, when we pick up the phone and call someone in the Bay Area of Boston, we’re already on the map.