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2018 OUTLOOK PART 6: Impact of crowdfunding in Tennessee

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 #6: What’s the trend in crowdfunding across the state? Is it growing, declining or remaining about the same?

  • Jack Studer, General Partner, and Courtney Watson, Partner, Chattanooga Renaissance Fund: The two largest Kickstarters in the state have not yielded successful companies. My opinion is that crowdfunding works best when the crowd is largest and densest. And the crowd in Tennessee isn’t that big or that dense. Crowdfunding is in some sense a fancy way to do transparent market testing and price discovery. Very few crowdfunding efforts actually help the capital raising or balance sheet of companies. In fact, crowdfunding (which usually offers products for sale before true cost to manufacture is known) can often dramatically hurt early stage companies, effectively backing them into an over promise/under deliver situation.
  • Eric Dobson, Chief Executive Officer, Angel Capital Group: We have elected not to get involved in equity crowdfunding. So, we just don’t pay much attention. But, my impression is it is a marginal contribution to the overall market at best.
  • Tony Lettich, Managing Director, The Angel Roundtable (ART): The general trend of crowdfunding in Tennessee appears to be one of growth. At a minimum, we are seeing increased interest in crowdfunding from entrepreneurs. However, while we are seeing some activity and do see some funding which has been derived through the crowdfunding channel, we are not encountering previous crowdfunding investment at significantly increasing levels. ART has deployed a “wait and see” approach, monitoring the crowdfunding based disruption of the investment marketplace.
  • Kristina Montague, Managing Partner, The JumpFund: Mayor Megan Barry in Nashville launched the first beta of “iFundWomen,” a New York-based crowdfunding platform featuring women-led companies which has now taken off in several other cities across the U.S. Chattanooga is soon to become a KIVA city and will offer a revolving loan fund KIVA platform for very early stage businesses. On the national level, some of the initial interest in equity crowdfunding has seemed to wain as entrepreneurs seeking seed capital understand more what large numbers of small, unaccredited investors can do to your cap table and are instead looking for platforms that offer special purpose vehicles to corral investors.
  • John Morris, Fund Manager, The Lighthouse Fund: Companies we have invested in have not used crowdfunding as a source of capital.
  • Grady Vanderhoofven, President and Chief Executive Officer, Three Roots Capital, and Managing Partner, Meritus Capital Management: I am not personally aware of a specific company in Tennessee that has been crowdfunded. I probably could get on line and find one in a minute or two, but I don’t have specific awareness of such a company. I do believe there is some activity within the state with respect to establishing and operating crowdfunding platforms. If those efforts are successful, they should lead to more crowdfunding for more companies in the state.
  • Ken Woody, President of Innova Memphis: I don’t see any new initiatives in crowdfunding in the deals I review. It’s not making an impact right now.

Tom Ballard

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

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