CARY- Local corporations, consider yourselves forewarned.

Fail to invest in local startups, and you’ll most likely find yourself on the wrong side of innovation – as the disrupted, not the disruptors.

“It’s time to put our local corporations on notice,” said David Gardner, chairman of Cary-based Cofounders Capital.

“I work with over 40 local startups every week, and I can tell you [corporations] that they are coming for you. They are smart, coachable, tenacious, efficient and full of ideas.  They have a perspective on your industry that your management team probably lost the ability to see a long time ago.”

No doubt this will be part of his message when he appears as a panelist to discuss the future of funding at Innovate Raleigh this Friday.

Now in its seventh year, the all-day summit held will include a series of panel discussions, keynote lectures, presentations and workshops, all focusing on the local startup scene, at the Raleigh Convention Center.

Entrepreneurs at work in the Cofounders Lab. Cofounders Capital photo.

For the last year or so, Gardner has been appealing to local corporations to invest in early-stage ventures right here in the their own backyards, much to his dismay.

“Frankly, I haven’t received the level of interest I anticipated,” he said.

“There has been limited direct investing in early-stage companies; very little investing in local or regional venture funds; and not a lot of time or dollar commitments to incubators or accelerators. This leads me to conclude that this is just not a high priority for most local corporations.”

And it’s leaving a large gap in the market.

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“Sure, it’s a great ecosystem here with the universities and startup accelerators. What it lacks is capital,” said Gardner, who has been investing in the area since the early 80s.

“The fact is undeniable, we just don’t value early stage innovation here the way they do in places like Silicon Valley, Austin or Atlanta.”

  Changing funding landscape

In the last few years, large funds such as Intersouth and Aurora, once big movers and shakers on the scene, have shut down or stopped making deals.  In their place, angel groups like RTP Capital and TAP (Triangle Angel Partners) have stepped, along with university-associated groups like the Carolina Angel Network.

However, this doesn’t solve the problem.

“The issue with most of the angel groups is that they don’t tend to lead rounds. They would rather see a professional venture fund write the term sheet, and then they will come in,” he said.

According to Gardner, Cofounders Capital is one of the only local funds out there right now writing pre-revenue term sheets for early-stage startups.

Created in 2015, the group with its own free accelerator program at its offices in Cary has already deployed its first $12 million fund. It’s now investing out of its second — currently at $26 million, hoping to add another $10-15 million in the coming months.

Gardner estimates that his firm invests 75 percent of its funds in Triangle-based startup companies, and the remainder in startups scattered across the state.

Just last week, Gardner served as a judge on Startup Summit’s Shark Tank panel, offering $300,000 in back to local startup Zogo Finance, headed by Duke university students. Final terms are still being discussed.

His fund has also dropped around $350,000 in Raleigh-based startup CareNexis, an internet company that helps consumers make good personal care decisions; and another $1.3 million in Wilmington startup EasyVote Solutions, which offers software to improve management of local elections.

“I hope that we’re making a dent,” he said.

Disruption inevitable

In the end, no industry or company is immune to the inevitable disruption that technology and innovation will eventually rain down, said Gardner.

Just ask the executives for half of the S&P 500 companies that have disappeared in the last 15 years. Or the former CEO of Blockbuster who, in 2008, bragged to shareholders that Netflix wasn’t even on his radar screen.

“The lesson is simple – ignore early stage innovation at your peril,” Gardner said. “The disruptive wheels of innovation eventually come for all of us and a corporation is either riding those wheels or being run over by them.”