Frontier Capital’s Richard Maclean says Charlotte’s tech scene is on the rise

March 03, 2016

RTMTECHFLASH – Mar 1, 2016, 12:56pm EST

Richard Maclean is optimistic about Charlotte’s tech scene. The city’s entrepreneurial ecosystem is growing up, and Maclean thinks the Queen City can hold its own against markets like Denver, Atlanta, Dallas and Salt Lake City.

Maclean, managing partner at Frontier Capital, points to a few “really big” tech success stories in the area.

“I think we have at least a half dozen of those (success stories), which proves you can do it here,” Maclean told me.

Frontier Capital is a Charlotte-based private equity firm that invests in lower middle-market software and technology-enabled business-services companies, usually with $10 million to $20 million in revenue.

Today, Frontier is about a third of the way through a $390 million fund they closed last year. So far the firm has used capital from that fund to invest in tech companies in Arizona, Indiana, Utah and Texas.

“We are big on these fly-over, tier two markets,” Maclean says. “We are not investing in San Francisco or Boston.”

I sat down with Maclean in Frontier Capital’s new offices in uptown to talk about Charlotte’s tech scene, why he is feeling optimistic and how the Queen City compares to other markets. Here are excerpts from the conversation, (edited for brevity and clarity):

Where are the companies Frontier Capital invests in?

Our focus is in the Midwest, Southeast and western U.S. Those markets are different. They typically have companies that are more bootstrapped versus raising $100 million for a big idea. They are a little more block-and-tackle markets where the companies and the leadership teams are more focused on execution versus revolution. B-to-B businesses that are good businesses, but not as sexy as some of the higher profile fundings that you read about in Silicon Valley and the other major tech markets.

What do you think of Charlotte’s tech scene?

We have a little window into that world. I think Charlotte has lagged a little bit, but is getting much better. If you look at Charlotte, there are some really big tech success stories, but they just don’t seem to get the attention. Peak 10, LendingTree and AvidXchange — those are some really great companies. I think the Charlotte market has been so dominated by financial services and real estate that the tech companies have played second or third fiddle. I think they are catching up. A lot of young people historically moved here to work for the banks, and I think that is changing. They are moving here to work in the tech scene, which is really good. Look at what they are doing at the Music Factory with AvidXchange — it’s fantastic.

Why focus on the fly over markets?

We grew up in one of those markets here in Charlotte. We think those markets are more relationship-based and you’ve got this cultural fit and alignment with founding teams in those markets. We felt like we had more of an advantage in those markets than in Silicon Valley or Boston. Our story resonates more in those markets.

Have you invested much in North Carolina companies?

We have. We were investors in a couple North Carolina companies. Peak 10, a company here called Cash Cycle Solutions and a software company in Raleigh called Accipiter.

What stood out about Peak 10?

We were early investors in Peak 10. Everything we do is B-to-B, so we really like recurring revenue businesses that are selling a sticky solution. We liked their business model. Peak 10 also had a focus selling data center services in tier two markets. They didn’t build centers in New York or DC — they were in Nashville, Louisville, Tampa and Charlotte. We liked that and we loved the team there. We had no idea how big it would be.

Why are you optimistic about Charlotte’s tech ecosystem?

I think it’s the talent. And look at these successes at the bigger companies — I feel like they are going to start spinning out executives from tech companies to start their own businesses. If we were looking to move a software company, Charlotte would be completely at the top of that list.

Do you see similarities between Charlotte and the other markets you invest in?

I think Charlotte and Dallas are really similar, and Atlanta. If we were competing with someone about where you would want to move a software company to grow it, you compete with all those – Denver, Salt Lake City, Dallas and Atlanta. Charlotte is now starting to be in that consideration. I think we can hold our own against any of those markets.

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