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2018 OUTLOOK PART 5: Progress in addressing growth stage capital

2018 Outlook 3We continue our series where Angel and Venture Capitalists in East Tennessee share their thoughts about the past year and their thoughts on the year ahead.

Part #5: For several years, we have discussed the challenge of available growth stage capital for firms that got their start as a result of initiatives like TNInvestco. Are we making any progress or is the need becoming greater the longer the issue remains unaddressed?

  • John Morris, Fund Manager, The Lighthouse Fund: The need becomes greater.
  • Grady Vanderhoofven, President and Chief Executive Officer, Three Roots Capital, and Managing Partner, Meritus Capital Management: I do believe we have made some progress, but the need is becoming greater as time passes. Said differently, I don’t think progress is being made at the same rate at which the need is growing.
  • Ken Woody, President of Innova Memphis: I think we took a step back across Tennessee with TNInvestco investing coming to an end, but more individual groups are coalescing in cities across the state to take that mantle and invite others into the region. It appears to be working.
  • Jack Studer, General Partner, and Courtney Watson, Partner, Chattanooga Renaissance Fund: I think it is wrong to think that the issue is going unaddressed. If we build great companies that make money and change industries, the investors will find them. Maybe the valuations will be depressed on the first outside capital round due to geographic snobbery, but at the end of the day, the big investors at places like NEA, Sequoia, etc. care about returns to their LPs, just like every other fund. If Tennessee companies can provide an exciting and compelling story to the larger checkbooks in the broader venture capital (VC) ecosystem, the problem will take care of itself. That being said, those of us on the investor/booster/organizer side of the table owe it to everyone in the state to do our absolute best to put our companies in the position to “knock the socks off” of larger VCs. Launch Tennessee is doing a great job at trying to facilitate those meetings, but we all can do more on that front.
  • Eric Dobson, Chief Executive Officer, Angel Capital Group: Everyone feels the TNInvestco program as a huge success. It made Tennessee a great place to start a high growth company. I am sure one day that will be a common feeling across the populous. I know we saw fewer new early stage investments this year in favor of supporting second and third rounds of capital for our portfolio companies to sustain their growth. I hear that is happening around the nation. Once we invest, given there is not an abundance of next stage venture capital, we have to support these companies longer and longer with bigger rounds of capital. So, there is clearly a need for capital to fill the gap between traditional angel investing and current VC investing thresholds.
  • Tony Lettich, Managing Director, The Angel Roundtable: Progress is evidenced by the recent creation of FINTOP Capital of Nashville by Joe Maxwell and continued growth of firms such as the Nashville Capital Network led by Sid Chambless. Notwithstanding, growth stage capital remains an issue for entrepreneurs in Tennessee and the greater Southeastern region.
  • Kristina Montague, Managing Partner, The JumpFund: There will continue to be a need for growth stage capital, but companies also need to meet the minimum expectations to gain access to that capital, including revenue and other growth metrics that show true venture investment opportunity of 10 to 100x returns. LaunchTN’s networking with venture capital firms on both coasts, as well as the attention of Steve Case and others, has put a greater spotlight on the value and opportunity available to investors interested in looking at the Southeast. Chattanooga companies such as Skuid and Bellhops have benefited from these connections and gained access to VC funding from Silicon Valley. It does not seem like this issue is going unaddressed, though it will take more time and attention to grow relationships with next stage funders.

Tom Ballard

By Tom Ballard, Chief Alliance Officer,
Pershing Yoakley & Associates. P.C.

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