20 years later, a big bet on tech pays off
Sign up for free:
Nearly 100 business leaders put money into Charlotte start-up AvidXchange in 2002; a patient wait for a rare tech ‘home run’
AvidXchange’s headquarters north of uptown Charlotte. The company plans to list its shares publicly for the first time on Wednesday, nearly 20 years after collecting an early investment from local business leaders. (Photo courtesy of AvidXchange)
by Tony Mecia
At the end of the dot-com boom, a group of several dozen successful Charlotte business figures started meeting monthly in a room inside Queens University’s McColl School of Business.
It was composed of nearly 100 leaders from sectors such as banking and finance, accounting and law, real estate and healthcare — each of whom had put $50,000 into a fund aimed at finding big returns by investing in young companies.
Members of the fund, known as Charlotte Angel Partners, knew that each investment was a gamble. No matter how much research they did into a company, the reality of pumping money into small companies just getting off the ground is that most investments don’t pan out. Like putting chips on a roulette table, the idea is you invest in a number of companies, hoping for one “home run” that more than covers any losses from the other investments.
Now, nearly 20 years later, those investors are on the verge of realizing that single, staggering return they all hoped for.
Each month, the group would assemble at Queens to hear investment pitches from executives of new companies.
In 2002, two founders of a two-year-old start-up, Mike Praeger and David Miller, went before the group at Queens and presented their idea: a company that would handle payments for the real estate industry.
According to people in the room, the idea itself didn’t blow investors away. But they liked the background of the founders and the idea enough to invest $250,000, which was some of the first outside money the start-up raised. The company’s name was AvidXchange.
Next week, AvidXchange is expected to have its shares of stock start trading publicly on the Nasdaq. The initial public offering (IPO) is a big boost for Charlotte’s growing tech scene. It will allow AvidXchange to raise more than $500M as it continues expanding and to add to its 1,500-member workforce. Its headquarters is north of uptown, near the AvidXchange Music Factory.
It’s also a rare example of a successful homegrown tech company that got an early assist from local investors. Charlotte is not known as a hub of software development or for risky early-stage investing.
Those early investors will share in the company’s financial prosperity, too: That initial $250,000 is expected to be worth many millions when the IPO is priced next week — probably more than 50 times as much.
“It’s very exciting, both for us and for Charlotte, to see something like this happen,” said Brent Kulman, one of the fund’s organizers, who worked in investment banking at Wachovia Securities at the time and is now with private equity group Five Points Capital in Winston-Salem.
Praeger, a Georgetown University grad, had a background in venture capital and, while in his late 20s, ran a software company in Boston that automated tax collection for municipalities. After selling that company in 1996, he started looking for a new home somewhere with less brutal winters than those in Boston or in his home state of Wisconsin.
He and his wife settled on the Charlotte area. “Whenever we would run into people around the country from Charlotte, everyone was always super positive about the city,” Praeger told The Charlotte Observer last year. “… We wanted to do something entrepreneurial. But we wanted to do so in a city that had a great airport, had great weather, low cost of living — kind of all the traits that Charlotte had.”
They bought a lot on Lake Norman.
In 2000, he and Miller started AvidXchange, which was envisioned as a reverse-auction site for property management companies. An Observer article at the time described the business like this: “Property managers can post requests for proposals for such things as roofing, heating/air-conditioning service and lawn maintenance, and contractors can compete online for the business by submitting bids.”
It signed a lease for its eight employees in 4,200 s.f. of space in a 1950s building in uptown’s First Ward, at Ninth and Brevard streets. One of its first customers was Levine Properties.
Levine Properties president Daniel Levine told The Ledger he recalls meeting Praeger and Miller in a local young entrepreneurs organization and was impressed with their knowledge and hard work.
“Mike was always very focused on building a sustainable, technology-based company,” he said. Levine said he invested $125,000 in AvidXchange early on, “the one and only investment I ever made in start-up companies.”
Around the same time, a group of investors was forming in Charlotte. It was toward the end of the dot-com boom, and the market had peaked and headed downward. For several years in the late 1990s, it seemed as though almost every tech company was a winner, with the Nasdaq quintupling in value in the second half of the decade. But by 2000, the seeming easy success of tech companies was hitting the reality that many would run out of money.
Still, a group in Charlotte had seen early-stage investment funds crop up in the Triangle and elsewhere and figured it might be profitable and fun to create something similar here. Charlotte is a banking center, but there were few organized investment funds for companies seeking their first rounds of capital. Established investment firms preferred offering bigger sums to companies with longer track records, as opposed to young companies seeking money to rent office space and hire their first waves of workers.
“We had an interest in helping early-stage entrepreneurs, and we thought this was a good, healthy thing for Charlotte to have, in terms of access to capital,” said David Yarborough, who had a background in the iron and steel business and later became involved in the Olympic movement and in the development of Charlotte’s U.S. National Whitewater Center. “We had big banks, and we had big pension funds, insurance companies, venture capital funds. The saying was, ‘If you wanted to raise $5 million, it was pretty easy. But if you wanted to raise half a million dollars, it was impossible.’”
In informal gatherings over beers and small meetings, organizers spread the word to friends and to friends of friends. The buy-in was $50,000, and some bought multiple stakes. With 100 shares, the fund had $5M to invest. According to several members, the investors included some big names, such as Hugh McColl Jr., the former CEO of Bank of America; and Bill McGuire, the former president of Duke Power. Others were well-known in their industries but not necessarily household names and were a mix of older, retired executives and younger entrepreneurs, according to members. Some would go on to be better-known, like Red Ventures co-founder Ric Elias. One key organizer was Bill Whitley, co-founder of a Charlotte tech company called MindBlazer, which specialized in corporate webcasting.
The Ledger interviewed a handful of people who said they were present for Praeger’s investment pitch, but none seemed to recall it with specificity. The consensus seems to be that members approved the investment on the strength of Praeger’s background, which was both in venture capital and software — unlike many founders who have a good idea but little experience. By then, Praeger and company had refocused the start-up away from a reverse-auction bid site and more toward automating payments. “The business you think you’re going to be in isn’t always the business you end up in,” Praeger told the Charlotte Business Journal in 2014. (AvidXchange declined to comment for this article or make any longtime employees available.)
Some of the fund’s members kicked in additional personal money.
The fund wound up investing in around a dozen companies. None of them panned out the way the AvidXchange investment has, but many of them sounded similarly plausible. According to news reports at the time, other companies receiving Charlotte Angel Partners cash included NuTech, which used software to analyze data and predict outcomes; Bright View Technologies, which created optical films that improved the resolution of TV screens; Zoom Culture, which hired young people as directors to capture video clips around the country; SmartPath, which made marketing software; and Cropsolution, an agricultural biotechnology firm.
Kulman, the fund organizer, recalls that some investments made money, some broke even and a few were total losses.
The investment in AvidXchange promises to cover all of that, and then some. Members said that it became apparent only in the last few years that the investment would be a big winner, as AvidXchange attracted rounds of funding that valued the company at more than $1B, a status known in tech and investing circles as being a “unicorn” because it is so rare. In securities documents filed last month, AvidXchange said it isn’t profitable — it lost $101M last year — but investors are encouraged by its strong revenue growth.
The investment fund ended years ago, and the members split the remaining stock. Several members didn’t want to discuss how well they and others stand to do financially, and others said they didn’t know for certain, because some invested additional money in later rounds, while others have already sold their stakes back to the company.
But it seems like the $50,000 investment on the entire fund will be worth nearly 10 times that amount, according to one participant.
Another said: “I would be surprised if there’s not a handful that will have well over a million in value.”
Kulman said in an email that at the projected IPO price, the amount “would return the entire fund several times over.” Looking specifically at the fund’s return on AvidXchange, he wrote, “I think you could safely say it was well over 50x.”
In contrast, an investment in the S&P 500, with dividends reinvested, would amount to a return of about six times between 2002 and today.
When the company starts trading publicly, scheduled for Wednesday, longtime shareholders won’t be able to sell immediately. They are typically prohibited from offloading their shares for a number of months, during which time the value of the shares could drop. Or it could go higher, making their investments worth more.
Praeger, the CEO, owns 8.5% of the company, which would be worth an estimated $310M.
Legacy of early investing
Though the fund no longer operates, some of its old members are pleased to play a role in helping a tech company grow in Charlotte.
And while Charlotte still lags behind tech cities in early-stage investing, the experience shows what is possible here — which could encourage other companies to put roots and create more of a culture of entrepreneurship and risk-taking.
Greg Brown, the administrator of Charlotte Angel Fund, says interest in early-stage investing in Charlotte could spread as the returns from AvidXchange start flowing into the community. Maybe some of those investors will feel the urge to reinvest their returns into newer companies. Or perhaps word will get out about successful AvidXchange investors buying new mountain houses.
“There might be a little bit of, ‘Oh, maybe I should start doing that, too,’” he said.
Need to sign up for this e-newsletter? We offer a free version, as well as paid memberships for full access to all 3 of our local newsletters:
➡️ Learn more about The Charlotte Ledger
The Charlotte Ledger is a locally owned media company that delivers smart and essential news through e-newsletters and on a website. We strive for fairness and accuracy and will correct all known errors. The content reflects the independent editorial judgment of The Charlotte Ledger. Any advertising, paid marketing, or sponsored content will be clearly labeled.
Like what we are doing? Feel free to forward this along and to tell a friend.
Sponsorship information: email firstname.lastname@example.org.
Executive editor: Tony Mecia; Managing editor: Cristina Bolling; Contributing editor: Tim Whitmire, CXN Advisory