(EDITOR’S NOTE: This is the final article in a two-part series updating readers on the progress made in the inaugural year of Three Roots Capital, a local non-profit that provides loans, private equity, community development services, and business technical assistance.)
By Tom Ballard, Chief Alliance Officer, PYA
Grady Vanderhoofven cut his investment teeth in the venture capital world, something that he continues to emphasize even as he broadens the focus of Three Roots Capital to incorporate other financial tools like loans.
“We are not moving away from being an equity investor,” the organization’s President and Chief Executive Officer says. Instead, Vanderhoofven sees the multifaceted strategy as one that helps companies secure their most appropriate funding while also helping sustain the operations of his slightly more than one-year old organization.
“Doing these (loan) deals makes Three Roots self-sustaining,” he says. Having been housed in the Tech 2020 building in Oak Ridge, Vanderhoofven saw firsthand the challenge that non-profit organizations face in living “hand-to-mouth.” It is a pitfall that he wants to avoid.
“It does not require us to go after grants or the benevolence of others,” he says of the strategy. Instead, Vanderhoofven plans to fund the operations at Three Roots Capital through investment income generated from equity and debt investments (loans) made by Three Roots. The organization is creating multiple “evergreen” pools of capital for future loans and investments that are regularly replenished by the returns from previous loans and investments.
“We’re creating self-sustaining, continuously investing pools of capital,” he explains.
Designation by the U.S. Department of Treasury as a certified Community Development Financial Institution (CDFI) has been a “significant factor in our ability to raise capital,” Vanderhoofven adds.
The Three Roots team is also involved in helping increase the success of technology-based start-ups, working with the University of Tennessee Research Foundation (UTRF) to launch something called the “Checkerboard Portfolio.”
Noting that it is neither an accelerator nor an incubator, Vanderhoofven describes the program as an effort to assist UTRF-affiliated start-ups with business development support and mentoring. The program primarily works with entrepreneurs who are looking to commercialize university technology and need guidance to take their business to the next level.
“We’re taking a venture investor’s portfolio approach to our work there,” Vanderhoofven says. “We treat them as if we have invested in them. You do anything you can to help them be successful . . . management and marketing advice, access to capital, or whatever.”
Three Roots Capital is also part of an effort with Meritus Capital and Innova Memphis to create a statewide proof of concept fund for technology companies. Dubbed the “TennesSeed Fund,” it would be structured as an evergreen fund, focused at the seed stage, and designed to provide much needed capital to determine if a young or small company can be viable.
Unlike a traditional venture fund, the “TennesSeed Fund” will be financed by donations from individuals, corporations, and institutions interested in helping support young and small businesses and advance ideas coming out of the state’s research institutions, garages, and basements, and would not provide a traditional “return” to investors.
There’s a good deal of work on the plate of the Three Roots Capital team, but Vanderhoofven takes it all in stride.
“We’re trying to do real, meaningful stuff,” he says.