INVESTMENT OUTLOOK #4: How will fewer TNInvestco dollars impact 2014?

(EDITOR’S NOTE: This is the fourth article in our six-part investment outlook series.)

We asked the region’s leaders in angel and venture capital for their thoughts about the outlook for investment capital in 2014. In the fourth of a six-part series, we posed the question: “Some of you noted the positive impact that the TNInvestco program had on Tennessee and the reality those dollars would not be as plentiful in 2013 because many of the 10 funds had made most of their commitments. How does this impact your outlook for 2014?”

  • David Belitz, Chief Executive Officer (CEO) of The Lupton Company, LLC, and Partner, The Chattanooga Renaissance Fund. I think having strong syndication networks will matter more in 2014.  These networks will need to reach beyond state borders in order to fully fund Series A and B rounds for companies.
  • Eric Dobson, CEO, Angel Capital Group. The TNInvestco (TNI) program was an important shot in the arm for the venture capital industry in Tennessee.  I believe it accomplished its goal to jumpstart the entrepreneurial ecosystem in the state.  Those funds are largely spent now.  We are seeing new funds being raised by the TNI’s, which is very good and a sign that worthy companies were and are being created.  There will be some failures in the bunch and that will have a negative effect on an uneducated audience.  I think we all need to get out in front of that process and set expectations based on historic industry performance.
  • Scott Ewing, CEO, Venture Incite, Inc. Yes and yes.  TNInvestco has had a positive impact on Tennessee, both in terms of starting companies and drawing to the state outside technology and investment.  And, fund managers are reporting to us that they have deployed much of their first round funds and are limited in making new TNInvestco investments.  The timeless question when funding a new venture is how to apportion or put off risk.  The fact that there is no TNInvestco II program in the offing means that private investors are generally being asked to take on more  risk in seed- and early-stage prospects than they are comfortable with.
  • Ken Woody, President, Innova. Company expansion typically requires new capital. With the end of the TNInvestco program, even successful companies need to be developing strong VC or angel contacts outside of TNInvestco in case they need follow-on funding. Smart companies will establish Lines of Credit early and conserve funds.
  • Grady Vanderhoofven, Co-Manager, Meritus Ventures and Southern Appalachian Fund. The characterization of the market for 2014 will depend in large part on the perspective from where you are observing the economy in the state.  There will be relatively less capital in Tennessee for seed-stage and early-stage companies, so it will be harder for companies at that stage to raise capital than it has been for the past several years.  I believe we will see a supply-demand imbalance between companies seeking growth-stage financing and the availability of such financing.  For growth-stage and later-stage investors, there could be a lot of opportunity in Tennessee in 2014.

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