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January 16, 2023 | Tom Ballard

Investor Outlook 1A | A look back at 2022

Teknovation.biz shares insights from seven area investors as they head into a new business year.

Today marks the beginning of our annual multi-part “Investor Outlook” series featuring the insights of seven area investors. Those participating, in alphabetical order, are: (1) David Adair, Co-Founder and Managing Partner, Solas BioVentures based in Chattanooga; (2) Derren Burrell, Founder, President and General Partner, Veteran Ventures Capital in Knoxville; (3) Eric Dobson, Chief Executive Officer, Sheltowee Angel Network, also in Knoxville; (4) Scott Ewing, Principal Business Analyst, Appalachian Investors Alliance, again from Knoxville; (5) Tony Lettich, Managing Director, The Angel Roundtable from Johnson City; (6) Grady Vanderhoofven, President and Chief Executive Officer, Three Roots Capital, based in Knoxville; and (7) Ken Woody, President and Partner in Innova who is a Knoxville resident of the Memphis headquartered fund.

We appreciate so much the time that they took to share their thoughts with teknovation.biz readers.

Today’s Question and Part 1 of the Responses: How would you characterize the last 12 months from three perspectives: (1) Your firm and where it is overall entering 2023; (2) the strength of the key companies in your portfolio relative to where they were at the beginning of 2022; and (3) the positioning of those firms as they enter 2023?

David Adair, Co-Founder and Managing Partner,  Solas BioVentures: As we enter 2023, we were able to complete in 2022 one crossover for a hyper-eosinophilic asthma program and had one public acquisition. These two transactions were from the legacy Knopp BioSciences of Pittsburgh, PA (see news releases here and here). We also had positive trial data from Arrivo BioVentures (see news release here) that is the other asset we discussed as a highlight for 2022.   We are also excited about one of our Tennessee based device companies that had top line data that exceeded expectations. This sets up nicely for 2023. The headlines for 2022 have us poised for a promising 2023. We have also commenced a new fund aimed squarely at taking advantage of the unique market force created opportunities that exist currently. As we enter 2023, Solas funds are poised for exciting M&A activity and investment.

Most of our companies are well-positioned for 2023 with cash on the balance sheet. We have a couple that are in the process of another series. Each of these has strong data and strategic interest in participation of the investment round. Supply chain issues seem to be abating and are largely isolated and manageable. The overall theme would find our portfolio companies positioned even stronger as we enter 2023 and exit 2022.

Several of our firm’s portfolio efforts are poised in 2023 for M&A activity across all the funds.    We will have at least one data read out on a pharma company and anticipate U.S. Food and Drug Administration (FDA) action and subsequent commercial launch of an innovative novel thrombectomy device. Solas BioVentures management remains bullish on the events  we can control, largely our companies and supporting them as they mature. On the macro front, we remain concerned about recession and strategic acquisition cooling. As well as viral emergence that could hamper active research efforts.

In summary, while questions remain about the overall economy and likely future recession, Solas BioVentures is poised for another strong year. The private markets remain attractive to investors, and our pipeline is bursting with quality companies. Valuations are now returning to pre-2020 levels. As companies look to extend their runway and focus on profitability, we foresee a continued migration of talent to the strongest start-ups.

Derren Burrell, Founder, President and General Partner,  Veteran Ventures Capital (VVC): VVC underwent a series of milestones in 2022 and is poised for a strong 2023 even in the face of economic uncertainty. We added several key individuals to the general partnership, made seven investments in veteran-led companies within the national security space, and just recently closed our inaugural fund – Veterans Fund I. Each investment was scrutinized in terms of ensuring they have the highest chance of success through the application of their dual-use technology and capitalizing on the inherent benefits of being both veteran-led and having the Department of Defense as a key contributor to their bottom line.

Eric Dobson, Chief Executive Officer,  Sheltowee Angel Network:

2022 was an outstanding year for us. We invested more money in more companies than any year in our 15-year history. This industry has an annual cycle to it. Late November and December are generally dead times where we audit our investing activities for the past year and plan for the upcoming year. We have never opened and closed deals in December ever before. In 2022, we closed two deals in December. We are very excited about 2023. Our deal flow is outstanding, and we are growing our membership. We just opened a new venture fund, Sheltowee Venture Fund II LP, and are making investment from the fund as we speak. We made eight investments in December from the Fund.

In terms of strength of key companies in our portfolio, we retained all companies in 2022 and most are stronger and materially so. We had several portfolio companies returned for additional financing at higher valuations lead by other investors, which we encourage. Overall, our portfolio is significantly more robust than 2021.

In terms of the positioning of those firms as they enter 2023, there is concern of economic recession in 2023. So, all companies should be looking hard at their spending. I don’t expect to see a hard landing, but I am not an economist. So, we advise all portfolio companies to spend every dollar with clear intent against measurable metrics with clear visibility to the next valuation changing milestone. Great companies will always find capital. Mediocre companies are the first to be dropped if the economy turns. Make sure you are being great stewards of capital and executing your business plan with focus and intent.