INVESTMENT OUTLOOK #3: What do you see in 2014?

(EDITOR’S NOTE: This is the third 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 third of a six-part series, we posed the question: “What trends do you see for 2014? Will the market be stronger, about the same or weaker as far as early stage, venture, and later stages?”

  • David Belitz, Chief Executive Officer (CEO) of The Lupton Company, LLC, and Partner, The Chattanooga Renaissance Fund. I think the start-up market will continue to be strong until U.S. domestic growth returns to close to the 4 percent range.  I know that many will probably argue this fact, but graduates from college still face limited job prospects.  If the job market strengthens and high-paying jobs become more accessible, then many who would have become entrepreneurs may elect to take the perceived safety of the job over the risk of startup life.
  • Eric Dobson, CEO, Angel Capital Group. Crowdfunding is here to stay.  It is happening now and should begin to make a splash in January when the markets reopen.  I believe the rising tide will lift all ships.  Due to the Security and Exchange Commission’s screwy regulations, the lines between crowdfunding and traditional angel capital will not cross.  Companies that go crowdfunding will not likely have the opportunity to then go traditional angel and venture capital source.
  • Scott Ewing, CEO, Venture Incite, Inc. Two trends are presenting themselves:  Crowdfunding is an obvious alternative for certain types of start-ups, especially, we feel, for products or services that entertain or empower consumers.  Second is a blurring of the distinction between angel and venture capital opportunities.  We’re discussing syndicate deals that would involve angels pari passu with venture partners.  This may not be new, but I suspect that it is becoming more commonplace.
  • Tony Lettich, Chair and Managing Director, The Angel Roundtable. Big Data and Medical Devices are areas which are driving significant entrepreneurial opportunities.  We see that trend continuing and potentially increasing during 2014.  In general, we expect the upward trajectory of the market momentum to continue driven by the above as well as improving economic conditions overall.  We are also seeing improvements in M&A and IPOs.  These improvements will continue to stimulate entrepreneurial activity as they result in visible exits, which is encouraging to both the entrepreneurial and investor communities.
  • Ken Woody, President, Innova. I’m seeing more national investment firms looking to find “cheap deals,” companies who have a good concept but have fallen on hard times where they need investment money to continue. It is more critical than ever for companies to be well capitalized.
  • Grady Vanderhoofven, Co-Manager, Meritus Ventures and Southern Appalachian Fund. Within Tennessee, as the TNInvestcos and the INCITE Co-Investment Fund reach the point of full investment, we will observe a precipitous decline in the amount of capital available for young companies.  On a national scale, I think the market will trend generally sideways as far as access to capital is concerned.  A few high profile losses (Solyndra and others) have probably made the federal government less likely to support or subsidize “risk capital” for right now.  The necessity of CRA credit is probably less a driver of investment by banks today than it was a decade ago.  The SBIC program has moved almost entirely away from early-stage investing toward subordinated debt and mezzanine financing, which is later-stage capital.  The venture capital industry is still in need of a more robust exit (IPOs, mergers, acquisitions) environment to provide more liquidity and enable more capital to re-circulate within the company creation economy.  I see later-stage investing as relatively robust, and I have observed a migration toward later-stage investing.  So, with respect to access to capital, I would say weaker in Tennessee and overall about the same nationally.

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